Investor sentiment is split as tech-driven rout puts the S&P 500 just 2% off record high

Investor sentiment is split amid a steep sell-off in tech stocks that has driven the market lower.Recent sentiment readings from CNN’s Fear & Greed Index and AAII’s Investor Sentiment show a 50/50 split between bulls and bears.While the S&P 500 is just 2% below its record highs, some high-flying tech stocks are down more than 50%.Sign up here for our daily newsletter, 10 Things Before the Opening Bell.

Investors are split on where the stock market goes from here after a steep sell-off in technology stocks led to a modest decline in broader indicators like the S&P 500.

CNN’s Fear and Greed Index stood in the Neutral zone at 50 on Thursday, even after minutes released by the Federal Reserve led to a more than 3% sell-off in the Nasdaq 100 and a meltdown in cryptocurrencies on Wednesday.

The muted sentiment seen in CNN’s Fear and Greed Index was backed up by AAII’s most recent investment survey, with bulls and bears both tied at 33% for the week ending January 5. That’s compared to a bull reading of 38% in the prior week’s survey.

Both sentiment indicators have seen its bullish readings fall over the past week, as concerns of rising interest rates and a hawkish Fed begin to dominate market headlines. Investors now expect at least three rate hikes in 2022, with the earliest coming in March. That’s a big difference from late last year when investors only expected two interest rate hikes this year. 

The lack of investor enthusiasm in either direction for the stock market is rare given the S&P 500 is just 2% below its record high reached earlier this week. Typically, traders might look at sentiment readings to generate contrarian trade signals as they seek to pull away from the crowd. But for now, there is no signal to be traded.

All of that could change as investors gain a better understanding of when and by how much the Fed plans to raise interest rates. That could continue to hurt tech stocks, which have been pummeled over the past year, best illustrated by the performance of Ark Invest’s flagship ETF.

But any indication that the Fed’s December minutes were more bark than bit could help drive a sizable recovery rally in tech stocks and help drive the stock market higher, leading to more bullish investor enthusiasm. 

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