Sentiment Stays Down

Aug 31, 2023

Although the S&P 500 has risen 3.25% in the past week, sentiment has seen little in the way of recovery from the substantial increase in bearish sentiment earlier this month. The AAII’s weekly sentiment survey saw bullish sentiment rise just 0.8 percentage points week over week to 33.1%. While that is a few percentage points below the historical average of 37.5%, bullish sentiment is above the consistently weak range of readings observed from early 2022 through this past spring.

Bearish sentiment, on the other hand, was slightly lower falling to 34.5% this week.  Like bullish sentiment, that is a few percentage points off the historical average of 31%.

The inverse moves to bullish and bearish sentiment means the bull-bear spread was modestly higher this week. However, that increase was not enough to lift it back into positive territory meaning bears outnumbered bulls in back to back weeks for the first time since the end of May and first week of June.

Factoring other sentiment surveys echo the recent turn toward bearish sentiment. In the chart below, in addition to the AAII survey we have added the Investors Intelligence and NAAIM Exposure Index readings to create a sentiment composite.  This index plummeted in August as increasingly bearish readings were observed across all three surveys.  Last week, that bearishness hit a low point of -0.45. Although it has bounced back this week, it is still in negative territory (meaning sentiment is more bearish than what has been the historical average). Just like the bull-bear spread for the AAII survey, that is the first back to back negative readings since May/June.

Claims Improve Ahead of Nonfarm Payrolls

Aug 31, 2023

Ahead of tomorrow’s nonfarm payrolls report (which is expected to show a deceleration in jobs growth), initial jobless claims have been reversing lower in the past few weeks and are back down to the low end of the past several months’ range.  At 228K, the seasonally adjusted number came in well below expectations which were anticipated to rise to 235K.  Overall, claims continue to indicate a historically healthy labor market albeit with almost a year in the rearview since the absolute best levels.

On a non-seasonally adjusted basis, claims came in below 200K for a second week in a row. At 192.5K, claims are near similar levels to the comparable weeks of last year and 2017 through 2019.  From a seasonal perspective, this week or next is likely to mark the annual low for claims before drifting higher through year end.

Unlike initial claims, continuing claims were higher this week rising to 1.725 million which was a much larger increase than was forecasted.  Regardless, claims remain at healthy levels even after rounding out a bottom and beginning to trend higher more recently.