Key insights
- The article suggests a contrarian approach to investing, noting extreme sentiment in crowded trades like USD, gold, energy, and consumer discretionary stocks. Goldman Sachs points to decreased US equity allocation and increased hedging. SentimenTrader highlights oversold consumer discretionary stocks (XLY) as a potential buy signal. Monday's market action saw a reversal of recent trends, with oil falling, US stocks rising, and the USD weakening, supporting the contrarian view.
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Sometimes it pays to bet against the crowd.
As warring in the Middle East stoked investors' anxieties in recent weeks, many have piled into the same trades. The U.S. dollar is in, while gold is out. Energy is hot and consumer discretionary stocks are not. Yet President Donald Trump's latest update on talks with Iran appears to have rewarded those who took a different approach.
There might be a lesson in contrarian investing in Monday's price action as some choices that worked in the past few weeks stopped performing, while others that suffered recently, rallied. Oil prices fell, U.S. large-cap stocks rose, and the U.S. dollar gave back some gains. In that way, investors may want to take their chances against the crowd, buying when others are selling, and vice versa, according to some market experts.
As markets whip, investors might be better off taking a contrarian approach rather than following the crowd, according to some market experts.
Concerns about inflation, and a possible lack of growth, have weighed on risk appetite, according to Goldman Sachs. The evidence: Active portfolio managers' allocation to U.S. equities have "sharply decreased" over the past few weeks, while asset managers' have raised their hedging positions through VIX options. The S&P 500 rose about 1% Monday, and the VIX fell about 2%.
Gold exchange-traded funds have also seen "large outflows" and investors appear to be pricing in the possibility of upside in the U.S. dollar.
"Investors have rotated into the safe havens which 'worked' from those that did not," Goldman's portfolio strategists including Christian Mueller-Glissmann said in a report published Monday.
A report last week from SentimenTrader showed that more than 50% of S&P 500 consumer discretionary stocks were down 20% from recent peaks—an indicator to buy, according to the research firm.
"The last time this signal was triggered was on Nov. 20, 2025 and XLY rallied by more than 10% over the following month," the report said, referencing the State Street Consumer Discretionary Select Sector SPDR Fund (XLY) which tracks that group of S&P stocks.
"This sets up a textbook asymmetric risk/reward scenario for investors willing to step in while sentiment is washed out," the firm wrote.