Market sentiment

Market sentiment is the overall mood investors are in toward a stock, a sector, or the market as a whole, separate from what the underlying numbers say. It can be optimistic, pessimistic, or somewhere in between, and it shifts faster than the underlying business changes.

A gap between a company's valuation and its peers is not always explained by tailwinds or headwinds specific to that business. Sometimes it simply reflects sentiment, the market being more excited about or more nervous around a stock than its fundamentals alone would justify. Sentiment can compress or expand a valuation gap quickly, and reverse just as quickly once it shifts, which is why a cheap or expensive looking multiple is a question to investigate, not an answer on its own.