Wall Street Bullish Run Fades—6 Charts Explain

Investor Sentiment Shifts from Euphoria to Uncertainty on Wall Street

Investor sentiment on Wall Street is shifting from optimism to uncertainty. Once buoyed by enthusiasm following President Donald Trump’s election victory, market confidence is now waning as concerns over the U.S. economic outlook mount.

Declining Market Sentiment

Since early 2025, signs of a more cautious market environment have emerged. On Tuesday, the S&P 500 (SPX) fell for the fourth consecutive day, potentially marking its longest losing streak since January, according to FactSet data.

High-growth momentum stocks, such as Palantir Technologies Inc. (PLTR), have suffered significant declines, raising concerns about stretched valuations and their impact on investor confidence. Lori Calvasina, head of U.S. equity strategy at RBC Capital Markets, recently observed a weakening market sentiment, a view supported by other analysts.

“I think the market’s mood is slipping, and there are many valid reasons why,” said Callie Cox, chief market strategist at Ritholtz Wealth Management, in an interview with MarketWatch.

Factors Contributing to Market Uncertainty

Several factors are fueling investor apprehension. Initial optimism over Trump’s deregulation and tax cuts has given way to concerns about tariffs and stricter immigration policies, which could slow economic growth while driving up inflation. Stagflation fears are re-emerging.

Even prominent investors, such as Steve Cohen, founder of Point72 Asset Management and owner of the New York Mets, have reportedly warned of a potential market correction. Meanwhile, the Conference Board’s consumer-confidence survey dropped to an eight-month low on Tuesday, exacerbating investor anxiety.

Key Indicators Reflect Growing Caution

1. Bull-Bear Sentiment Weakens

The American Association of Individual Investors’ weekly sentiment survey shows a sharp increase in bearish outlooks. Earlier this month, bearish responses outnumbered bullish ones by nearly 19 percentage points—the widest gap since November 2023.

Some analysts, including Fundstrat’s Tom Lee, argue that extreme bearish sentiment could paradoxically be a bullish signal. Historically, markets tend to rally after passing through periods of extreme pessimism. However, unlike in November 2023—when stocks were recovering from a 10% correction—the S&P 500 remains near record highs, suggesting a different market dynamic this time.

2. Defensive Stocks Take the Lead

Investors are shifting toward defensive stocks. Healthcare and consumer staples have been the top-performing sectors in 2025, according to FactSet data. Meanwhile, the Roundhill Magnificent Seven ETF (MAGS), which tracks major megacap tech stocks, is on track to enter correction territory.

“I think it’s important to point out that defensive stocks are leading the S&P 500 higher this year, which probably tells you something about how positioning is changing,” Cox noted.

3. Rising Demand for Hedging

The options market indicates traders are increasingly hedging against downside risks. The Cboe Skew Index, which measures demand for out-of-the-money put options, surged above 183 last week—its highest level since at least 2005, according to Cboe data.

4. Bond Market Signals Economic Concerns

Bonds are rallying, but for troubling reasons. Instead of signaling confidence that inflation will ease, the decline in the 10-year Treasury yield to its lowest level of 2025 suggests growing fears of economic stagnation. The Trump administration’s layoffs of thousands of government employees have intensified these concerns.

“Yields in the bond market are tumbling as they smell recession in the air,” said Chris Rupkey, chief economist at FwdBonds.

5. Economic Reports Disappoint

The Citi U.S. Economic Surprise Index has been consistently negative for the first time since September. A weaker-than-expected services-sector report and declining consumer confidence have deepened investor unease.

Charlie McElligott, a cross-asset strategist at Nomura, warned that markets remain highly sensitive to economic surprises. If current trends persist, stocks could face another sharp downturn similar to the August 5 selloff, when a U.S. growth scare triggered a global market rout.

6. Bitcoin and Gold Show Diverging Trends

Bitcoin’s role as “digital gold” is under scrutiny as it moves in the opposite direction of the physical commodity. While gold futures recently approached record highs near $3,000 per ounce, Bitcoin has fallen below $87,000, its lowest level since November.

Wall Street analysts, including Stifel’s Barry Bannister, have observed that Bitcoin behaves more like a speculative growth asset than a defensive safe haven, further highlighting the shift in risk appetite.

Market Protection Strategies on the Rise

Despite the growing caution, some indicators remain relatively stable. The Conference Board’s CEO Confidence Survey showed improvement, suggesting corporate executives remain optimistic. Additionally, futures traders appear to be reducing their bets against the S&P 500, according to Commodity Futures Trading Commission data.

However, the Cboe Volatility Index (VIX), often referred to as Wall Street “fear gauge,” briefly topped 20 on Tuesday. Although still below its January peak, the increase signals rising market anxiety.

“People are adding protection, and I think it makes sense,” said Danny Kirsch, head of options trading at Piper Sandler.

Conclusion

As uncertainty grows, investors are adjusting their strategies, shifting away from riskier assets and increasing exposure to defensive stocks and hedging instruments. While some believe this cautious sentiment could set the stage for a future rally, others warn that the market may be entering a more prolonged period of volatility. The coming weeks will be crucial in determining whether this shift represents a temporary pullback or the start of a deeper market correction.