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Chart of the week

Public market sentiment cools as challenges mount

Individual and professional investors have grown notably more bearish in February. The U.S. middle market may represent a reason to be bullish.

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February 13, 2025 | 2 minute read

Bearish sentiment, 10-year Treasury yield

Line chart showing the increasingly bearish sentiment among retail investors (orange line) as a range of market challenges mount. The 10-year Treasury yield 10-year Treasury yield (black line) has risen meaningfully as investors expect rates to remain higher-for-longer. Investors cite elevated valuations and the political environment as other notable challenges.

Source: Bloomberg Intelligence, L.P. as of February 13, 2025. AAII Bearish Index refers to the percentage of investors surveyed by the American Association of Individual Investors (AAII) who believe stocks will decline over the next six months.

  • Bearish market sentiment among individuals (orange line) reached its highest level since November 2023 this week. Risk appetite among investment professionals has followed a similar trajectory, according to the S&P Investment Manager Index (IMI).1
  • Sentiment declines stem from a range of investor concerns that have moved to the foreground. For example, the 10-year Treasury yield (black line) has risen meaningfully as investors expect rates to remain higher-for-longer.1
  • IMI survey participants also cited elevated equity valuations and the political environment as top challenges, as trade conflicts move from potential to reality.
  • Against this backdrop, the case for looking outside the traditional 60/40 portfolio, and toward U.S. middle market companies where sentiment still shines bright, remains particularly compelling.
  • Investing in the U.S. middle market may provide a unique opportunity for growth, income and diversification potential at a time when challenges have mounted across public markets.

  • Bloomberg Intelligence, L.P. as of February 13, 2025. AAII Bearish Index refers to the percentage of investors surveyed by the American Association of Individual Investors (AAII) who believe stocks will decline over the next six months.

The chart of the week and any accompanying data is for informational purposes only and shall not be considered an investment recommendation or promotion of FS Investments or any FS Investments fund. The chart of the week is subject to change at any time based on market or other conditions, and FS Investments and FS Investment Solutions, LLC disclaim any responsibility to update such market commentary. The chart of the week should not be relied on as investment advice, and because investment decisions for the FS Investments funds are based on numerous factors, may not be relied on as an indication of the investment intent of any FS Investments fund. None of FS Investments, its funds, FS Investment Solutions, LLC or their respective affiliates can be held responsible for any direct or incidental loss incurred as a result of any reliance on the chart of the week or other opinions expressed therein. Any discussion of past performance should not be used as an indicator of future results.

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