What is Market Sentiment?
Market sentiment is the general feeling about the climate of the market as expressed by the direction of market prices.
How Does Market Sentiment Work?
Market sentiment, as the name suggests, describes the outlook of investors in a market. Market sentiment is most evident in overall price trends. For example, rising prices suggests an optimistic (bullish) market sentiment, and falling prices suggests a poor (bearish) market sentiment.
Why Does Market Sentiment Matter?
The nature of market psychology suggests that any given trend may be more indicative of market sentiment than of fundamental gains or losses in the value of stocks.
As a result, market prices are not necessarily indicative of a stock's fundamental value.