Bears Shrug Off a Rally

Nov 2, 2023

Even though the S&P 500 has moved decisively higher over the past week, sentiment has entirely shrugged off price action.  The percentage of respondents reporting as bullish to the AAII’s weekly sentiment survey dropped back below 25% versus a reading of 29.3% last week.  Bullish sentiment has now dropped for three straight weeks, having fallen 15.7 percentage points in that span for the largest three-week decline since August 24th.  That has also resulted in the lowest bullish sentiment reading since May 18th.

That was matched with a rise in bearish sentiment back above 50%.  That was the first time a majority of respondents reported as bearish since last December. As shown in the second chart below, the 44 consecutive weeks weeks without such a reading is sizeable, but far from any sort of record.

With new near-term lows in bulls and highs in bears, the spread between the two widened to 26 points in favor of bears.  That is the most negative bull-bear spread reading since March

Other sentiment surveys echoed that negative tone among investors.  The NAAIM Exposure Index was actually slightly higher week over week, although it continues to show low levels of long equity exposure.  Meanwhile, like the AAII Bull-Bear spread, the Investors Intelligence survey also indicated the most bearish reading since March. Put together, our sentiment composite is now back below -1. That means the average sentiment reading is a full standard deviation more bearish than its historical average for the weakest reading since the first week of the year. Although current readings are rather pessimistic, due to the timing of data collection, the results would not have captured any response in sentiment following the FOMC on Wednesday. In other words, next week we will get a read if the latest updates on monetary policy had any effect on investor pessimism.

Continuing Claims Keep On Rising

Nov 2, 2023

Following up on yesterday’s slowing ADP and JOLTS numbers, today’s release of weekly jobless claims likewise showed a cooling labor market.  Initial claims were revised up by 2K last week to 212K, and this week’s number came in higher at 217K. That was 7K above expectations which would have assumed no change to claims. With the rise over the past two weeks, claims have now rounded out a bottom but still have significant headroom until reaching the highs from earlier this year.

Before seasonal adjustment, claims were slightly higher at 196.8K.  That increase is consistent with seasonal patterns as claims tend to rise throughout Q4.  For example, the current week of the year has historically seen claims rise week over week 83.9% of the time; one of the most consistent weeks of increases of the year.  Granted, claims are experiencing the usual seasonal increase and have bottomed after seasonal adjustment, but current levels remain historically strong. For instance, this week’s NSA number is right inline with those readings of the comparable week of the couple of years before the pandemic and 2022.

Continuing claims are a less rosy picture with a much greater and more consistent increase over the past several weeks. Since the recent low of 1.658 million put in place in early September, continuing claims have risen 9.65%. As shown below, that is certainly on the large side of historical increases in such a time span. In fact, most other times (though not always) claims have risen that rapidly, the economy has been in recession. Given that rise, seasonally adjusted continuing claims topped 1.8 million this week, which is the most elevated reading since April 15th and is only 43K below the recent high from the spring.  Zooming further out, though, claims remain at historically strong levels.