The Sentiment Cycle: Studying the behaviour of market participants

Sentiment moves in long-term cycles; emotion, investor positioning and press coverage all change as an asset progresses through its life cycle. The graphic below takes you through the eight stages of the sentiment cycle.


Malcolm Melville

Malcolm Melville

Wealth Preservation Manager

Out of fashion

  • Asset movements: Asset prices have fallen rapidly but the pace of the decline starts to moderate.
  • Characteristics: News coverage is broadly negative, but at the end of this stage prices begin to rebound from very depressed levels.

Early adoption

  • Asset movement: Asset prices move higher.
  • Characteristics: There is very little media coverage. Some investors start buying, but the fundamental reason for the new trend is not recognised by most.


  • Asset movement: Asset prices start to trend strongly.
  • Characteristics: Significantly more investors buy the asset, in particular retail investors, and the fundamental reasons for buying appear obvious.

New paradigm

  • Asset movements: Asset price appreciation continues and can accelerate.
  • Characteristics: The bull market is well established, investment returns are good, and investors begin selling other assets to fund the purchase of this new asset. This stage can last a considerable period.

Blind faith

  • Asset movements: Asset prices grind to new highs but with limited momentum and then start to decline.
  • Characteristics: Asset prices start to fall moderately but investors don’t acknowledge the decline. They have total faith in the asset class. Press coverage is minimal because the price movements can’t be explained.


  • Asset movements: Falling asset prices force investors to take note
  • Characteristics: The change in the asset is noted but the “good reasons” to hold the asset are still in place. New investment stops and some selling may occur.


  • Asset movements: Asset prices continue to fall.
  • Characteristics: The rational behind the fall becomes evident and accepted. Withdrawals begin and long term viability of the asset class is questioned.


  • Asset movements: Asset prices fall further and rapidly.
  • Characteristics: Substantial losses occur, everyone ‘understands’ what is happening, and the long term outlook for the asset are perceived to have changed for good.

After capitulation the sentiment cycle is complete and an asset enters "out of fashion".

Important information

This communication is marketing material. The views and opinions contained herein are those of the named author(s) on this page, and may not necessarily represent views expressed or reflected in other Schroders communications, strategies or funds.

This document is intended to be for information purposes only and it is not intended as promotional material in any respect. The material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The material is not intended to provide, and should not be relied on for, accounting, legal or tax advice, or investment recommendations. Information herein is believed to be reliable but Schroder Investment Management Ltd (Schroders) does not warrant its completeness or accuracy.

The data has been sourced by Schroders and should be independently verified before further publication or use. No responsibility can be accepted for error of fact or opinion. This does not exclude or restrict any duty or liability that Schroders has to its customers under the Financial Services and Markets Act 2000 (as amended from time to time) or any other regulatory system. Reliance should not be placed on the views and information in the document when taking individual investment and/or strategic decisions.

Past Performance is not a guide to future performance. The value of investments and the income from them may go down as well as up and investors may not get back the amounts originally invested.  Exchange rate changes may cause the value of any overseas investments to rise or fall.

Any sectors, securities, regions or countries shown above are for illustrative purposes only and are not to be considered a recommendation to buy or sell.

The forecasts included should not be relied upon, are not guaranteed and are provided only as at the date of issue. Our forecasts are based on our own assumptions which may change. Forecasts and assumptions may be affected by external economic or other factors.

Issued by Schroder Unit Trusts Limited, 31 Gresham Street, London, EC2V 7QA. Registered Number 4191730 England. Authorised and regulated by the Financial Conduct Authority.