In One Chart: Permabears are turning into bulls, stock-market indicator shows

This post was originally published on this site

If you’ve spent time following the subject of finance and markets on Twitter, a group of commentators known as FinTwit, you’ll know that there is rarely agreement on the state of the U.S. economy and equity markets.

But that has begun to change in recent weeks as both market optimists and pessimists opinions on the U.S. economy have converged on belief that things are pretty good these days, according to an analysis of the most prominent FinTwit, or financial Twtitter, members by Ben Breitholtz, data scientist at Arbor Research.

Breitholtz studied a group of 60 of the most-followed names in financial Twitter, or FinTwit, grouping them into three categories: pragmatists, permabears and journalists. And though historical data on Twitter sentiment doesn’t go back that far, he has found that when pragmatists and permabears converge on a positive reading of the economy, it’s good news for the stock market in the months ahead.

Breitholz, who uses natural-language processing software to study hundreds of thousands of tweets, told MarketWatch that ‘pragmatists’ and ‘permabears’ hardly register similar sentiment toward equity markets, as one might predict, so when he found that the two groups were converging, “I found it really surprising.”

“Something similar happened at the beginning of last year,” he said when the S&P 500 index SPX, -0.40%  began an ascent that led to a more than 28% price increase during 2019. While one might assume that unanimous positive sentiment could be a contrary indicator for stocks, Breitholz said this hasn’t been the case during the past five years he has studied Twitter data.

Meanwhile, other data he tracks, including Google search terms, appear to justify FinTwit’s optimism. “Our favorite way to track consumer and business activity is through search terms,” he said. “Search-term activity is growing positively, showing interest in everything from consumer electronics to truck purchases and appliances.”

Add Comment