Initial and Continuing Claims in Opposite Directions

May 4, 2023

The latest reading on initial jobless claims disappointed coming in at 242K versus expectations of 240K.  That is up from last week’s downward revision to 229K.  As shown in the inlaid chart below, claims have moved up to some of the highest levels in a over a year with the past several weeks marking relatively range bound readings. This week’s increase to 240K marks a move to the high end of that recent range.

Before seasonal adjustment, claims came in at 219K.  That is roughly in line with the readings of the comparable week off the year for the past few years excluding 2020 and 2021 when claims were more elevated due to the pandemic. Claims are also generally following seasonal trends with the current week having consistently seen declines week over week historically.  With that said, claims have yet to make a new low on the year.

Whereas initial claims were a slight disappointment, continuing claims surprised with an improvement this week.  Rather than the increase to 1.865 million that was expected, they dropped all the way down to 1.805 million, the lowest reading in three weeks. Albeit improved in the near term, the uptrend in continuing claims remains in place as claims are around the highest levels since early 2022.

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Sentiment Slouches

May 4, 2023

The S&P 500 has firmly turned lower in the past few days and is nearing the lows from last Wednesday. In spite of that turn lower, bullish sentiment was unchanged at 24.1% per the latest AAII sentiment survey.  Although less than a quarter of respondents reported as bullish, that reading is only in the middle of the past year’s range of readings as bullish sentiment has consistently been hard to come by.

With no change to bullish sentiment, all of the moves occurred for neutral and bearish sentiment.  Neutral sentiment has declined for three weeks in a row, coming in at a six week low of 31% this week.

All of those declines to neutral sentiment were picked up by bears as that reading rose 6.4 percentage points to 44.9%.  That is the highest reading since the end of March and right in line with the average reading of bearish sentiment since the beginning of 2022.

With bearish sentiment moving higher, the bull-bear spread moved more firmly into negative territory. This week, bears outnumbered bulls by 20.8 percentage points; the widest spread in five weeks. That indicates the predominant share of respondents continue to expect the S&P 500 to head lower over the next six months.

That negative outlook by individual investors is nothing new.  Following the record streak of 44 straight weeks of a negative bull-bear spread that ended in February, the spread has resumed another lengthy streak of negative readings. This week marked the eleventh straight negative reading in the bull-bear spread. Even in the more recent context of the aforementioned record streak and another double-digit streak in the first quarter of last year, the AAII survey has seldom seen bears outnumber bulls on such a consistent basis.

Factoring in other sentiment surveys like those from Investors Intelligence and NAAIM reaffirms the bearish tones of sentiment.  With all three surveys combined, our sentiment composite remains firmly negative meaning sentiment is more bearish than average. We would also note that due to the timing of the collection of these surveys, they would have mostly missed any reaction to the FOMC’s rate decision and market response yesterday. As such, next week’s surveys will be the first to fully reflect the latest 25 bps hike and subsequent market declines.

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