Where Have the Bulls Gone?

Jan 18, 2024

The S&P 500 has continued its listless drift sideways this year, and sentiment has begun to take notice.  Bullish sentiment exited 2023 at elevated readings with close to half of all respondents to the weekly AAII survey reporting as bullish, but since then, that reading has dropped down to 40.4% this week. That marks the lowest reading on optimism since the first week of November when it was a much more muted reading below 25%.

In turn, bearish sentiment has begun to pick up. 26.8% of respondents reported as bearish this week. That is only the highest reading since the first week of December and would need to climb another 4.25 percentage points to reach its historical average.

With the inverse moves in bulls and bears, the bull-bear spread has fallen to 13.6.  While bulls have outnumbered bears for 11 weeks in a row now, this week’s reading marks the smallest margin during that span.

Not only is the AAII survey showing the least bullish sentiment in about two months, but so too are the Investors Intelligence survey and the NAAIM Exposure index.  Plugging each reading into our sentiment composite shows that aggregate sentiment has quickly gone from sitting over a full standard deviation more bullish than the historical norm down to barely bullish readings in less than a month.

Jobless Claims Seasonality Not What It Used to Be

Jan 18, 2024

Among a number of better than expected economic data points this morning was initial jobless claims.  Seasonally adjusted claims were expected to rise to 205K from an upwardly revised level of 203K last week.  Instead, claims were much healthier than expected, dropping all the way down to 187K. As shown below, that puts the indicator within 5K of the late September 2022 low of 182K.  Zooming further out, that is also one of the strongest readings on record, ranking in the first percentile of all weeks since the start of the data in 1967.

In reality, before seasonal adjustment, claims are much higher at 289.2K as the reading is currently working off a seasonal peak.  However, that is not to say claims are weak. As shown in the first chart below, versus comparable weeks of the year going back to 2004, this most recent reading was only slightly above where they stood this time last year. In fact, that reading last year currently stands as the record low for the second week of the year of all years going back to 1967. Looking ahead to next week, another week-over-week decline is more than likely given it is the week of the year with perhaps the strongest seasonal tendencies.  Going over the history of the data, there has not been a single time that NSA claims have risen week over week in the third week of the year.

As previously mentioned, claims tend to spike to seasonal highs around now, and there has been only one previous time that NSA claims have been lower in the second week of the year, and that was in 2023.  But looking back over the past several years shows that the strong reading on claims for this time of year even pre-dates COVID.  As shown below, in the 50 years from 1967 through 2016, the second week of the year averaged 656.5K for NSA claims. But since 2017 (excluding 2021 when claims were an outlier with far more elevated readings due to the pandemic) those same weeks have averaged a significantly lower reading of 340.3K.   Put differently, the seasonally elevated level that claims have begun the year at is not exactly what it used to be.

Looking at things from another angle, below we show the percent change in NSA claims during the period that the indicator has historically experienced its seasonal runup, lasting roughly from September through the first couple of weeks of the new year.  As shown, since the late 1990s, that seasonal climb has been trending smaller and smaller in size.  All together, that means there appears to have been some structural changes in seasonal patterns over the past couple decades (which could also have implications for the seasonally adjusted number understating). As a result of a smaller seasonal spike, claims have spent the first few weeks of the year at lower levels than may have been the case in the past.

Finally, we would note that in addition to strong initial claims, seasonally adjusted continuing claims have also continued to roll over, totaling 1.806 million last week.  That was a solid decline versus 1.834 million the previous week compared to an expected increase to 1.84 million.  That also sets a three month low in continuing claims.