Signs Point to Potential Reversal in Beaten-Down Assets as Sentiment Hits Extreme Lows

Market sentiment and positioning is very negative right now, indicating a reversal may be approaching.

Hedge funds are overcrowded short bonds, suggesting the bond selloff may be ending soon. This could boost beaten down areas like banks and emerging markets.

The 2001-2007 period saw a massive rally in emerging markets, small caps, and value stocks. Something similar may happen over the next 3 years.

Equity exposure by active investment managers has dropped significantly in recent weeks, leaving room for an end-of-year chase higher when sentiment shifts.

Retail investors are very fearful, with various sentiment surveys showing high bearishness. When the tide turns, there could be a powerful move higher.