Glossary
Market sentiment
The overall mood of investors toward a market or stock, from fear to greed, and the surveys, ratios and volatility gauges used to measure it.
On this page
Market sentiment is the prevailing attitude of investors toward a market, a sector or a single stock: whether, on balance, people expect prices to rise (bullish) or fall (bearish). It matters because prices are set by people acting on expectations, so mood can push a market far above or below what its fundamentals alone would justify for months at a time.
How it is measured
Sentiment cannot be observed directly, so traders use proxies. Each captures a different slice of behavior:
- Surveys. The American Association of Individual Investors has asked its members every week since 1987 whether they feel bullish, bearish or neutral about the next six months.
- Options activity. A rising put/call ratio shows more demand for downside protection.
- Implied volatility. The VIX tends to jump when investors pay up for S&P 500 puts.
- Positioning. Short interest, fund flows and margin debt show what investors are actually doing with money, not just saying.
Using it with care
Many traders read extremes in a contrarian way: when nearly everyone is already bullish, fewer buyers are left to push prices higher, and the reverse holds near panics. The catch is timing. Euphoria can last a long time, and fear can deepen after it first looks extreme. Sentiment works best as context next to trend, valuation and earnings, not as a standalone signal.