Negative sentiment about certain types of companies has caught my attention. Some of it feels extreme. When people say things like all companies in a particular sector should be avoided, that doesn’t make sense to me. With interest rates rising and funding for companies harder to come by, it’s reasonable to assume that companies will struggle and may even fail. But expecting all companies (in a sector or segment) to fail or not grow isn’t reasonable.

When sentiment is negative, that’s a sign that the market has negative expectations of a company’s future results. Said differently, negative sentiment is a prediction that the probability of a negative outcome is high.

Sometimes negative expectations don’t align with what’s happening within a company. It may have hit a rough patch, but its leaders have done things to get back on the right path. For example, they were focused exclusively on growth, which resulted in extreme negative profitability and a high burn rate. But now they’ve taken correction actions, examples of which could be focusing on more profitable customer segments or reducing headcount.

If the company continues to focus and take the right actions, eventually this will be reflected in their results. Then, market sentiment and expectations will become less negative (or even positive).

I’m curious to see how many companies will make this transition and prove the current market sentiment wrong.