The consistency of declines throughout February and to start the month of March has sent sentiment decisively lower.  The latest data from the American Association of Individual Investors (AAII) showed 23.4% of respondents reported as bullish, up modestly from 21.6% last week but still down significantly from 34.1% two weeks ago. With less than a quarter of respondents reporting as bullish, bullish sentiment continues to sit firmly below its historical average of 37.5% for a record 67 straight weeks.

Meanwhile, bearish sentiment has continued to grind higher reaching 44.8% after three straight weeks of increases and hitting the highest level of the short year so far.

At the start of February, the bull-bear spread ended its record streak of negative readings as bulls finally outnumbered bears. The surge in pessimism in the past couple of weeks, though, has resulted in more negative bull-bear readings.

In addition to sentiment taking a more bearish tone, far fewer respondents are reporting neutral sentiment. After the highest reading in nearly a year last week, only 31.8% couldn’t make up their mind this week. That eight percentage point drop from last week was the largest weekly decline since November.

In addition to the AAII survey, other weekly sentiment readings have likewise made a quick reversal back towards negative sentiment.  Combining the readings of the AAII survey with the Investors Intelligence survey and the NAAIM Exposure Index, sentiment has gone from the most cheery outlook in over a year down to pessimism right in line with the rest of the past year. In fact, the 1.36 point decline since the high three weeks ago ranks as the seventh largest decline in such a span since the composite begins in 2006.

Since sentiment is a contrarian indicator, the sharp bearish turn across these sentiment indicators ‘should’ be a signal for positive forward performance. However, that has not exactly been the case historically. In the table below, we show each prior week that the index has fallen at least 1.25 points without having done so in the prior three months. Of the dozen prior instances, performance has been mixed going forward.    Click here to learn more about Bespoke’s premium stock market research service.

Updated data on home prices across the country came out earlier this week when the newest monthly S&P CoreLogic Case Shiller indices were published.  This data is lagged by two months, but it gives us a look at where home prices ended the year in 2022.

Below is a table highlighting the month-over-month (m/m) and year-over-year (y/y) percentage change in home prices across the 20 cities tracked by Case Shiller.  It also includes the national and composite 10-city and 20-city readings.

Home prices fell sharply from November 2022 to December 2022, with the national index down 0.81% and 11 of 20 cities down more than 1% sequentially.  New York and Miami saw the smallest m/m declines with drops of less than 0.3%.

Looking at y/y price changes, while the national index still showed an increase of 5.76% from December 2021 to December 2022, two cities have now seen prices dip into the red on a y/y basis.  Seattle home prices fell 1.78% for the full year 2022, while San Francisco prices fell even more at -4.19%.  Given the unrelenting pullback in prices over the last six months, we’ll see more and more cities dip into the red on a y/y basis over the next few months.

Where home price trends get interesting is looking at the post-COVID action.  In the aftermath of lockdowns, government stimulus, and the shift to “work from home” in many parts of the labor force, home prices across the country absolutely soared.  By mid-2022, the national home price index was up 45% from the level it was at in February 2020 just before COVID hit.  Areas on the West Coast and in the Southeast saw prices rise even more, with many cities seeing gains of more than 60% at their peaks.

Prices finally peaked last summer, however, as rate hikes by the inflation-fighting Fed quickly pushed mortgage rates to levels not seen in decades.  Below is a chart showing how much home prices have fallen from their post-COVID peaks seen in mid-2022.  The composite indices are only down 4-6% from their highs, but we’ve seen prices really take a hit out west with cities like San Diego, Seattle, and San Francisco already down double-digit percentage points.

Given the pullbacks in home prices over the past six+ months, below is a look at where prices currently stand relative to their pre-COVID levels at the end of February 2020.  Notably, San Francisco — which has seen prices fall the most from their highs — is currently up the least since COVID hit with a gain of 23%.  Other cities where home prices are up less post-COVID than the national indices include Minneapolis, DC, Chicago, and Portland.  Where home prices are still up the most is in Florida as prices in Tampa and Miami are still up 60% or more.  Click here to learn more about Bespoke’s daily premium service.

Initial jobless claims continue to impress with this week’s reading being the seventh week in a row of sub-200K prints. Falling another 2K week over week to 190K, adjusted claims are now at the lowest level since the last week of January.

While the seasonally adjusted number is low, before taking that into account claims have actually yet to drop below 200K.  Claims are falling as is normal for this point of the year with the past couple of weeks historically being some of the most consistent to experience week-over-week declines on a historical basis. At current levels, claims are comparable to the equivalent week of the year from the past several years excluding 2021.

As for continuing claims, the past couple of weeks have seen the readings begin to pivot lower after rising to the highest level of the year at the start of February.  Continuing claims totaled 1.655 million which is the lowest level since the week of 1/21.  Albeit claims remain off their best levels of the pandemic (for both initial and continuing claims), they remain healthy headed into next week’s nonfarm payrolls release. Click here to learn more about Bespoke’s premium stock market research service.

Bespoke Investment Group’s daily research for investors is quick-hitting, actionable, and easily digestible.  Bespoke’s unique data points and analysis help investors better visualize underlying market trends to ultimately make more informed investment decisions.

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Please click the image below to view our March 2023 market calendar.  This calendar includes the S&P 500’s historical average percentage change and average intraday chart pattern for each trading day during the upcoming month.  It also includes market holidays and options expiration dates plus the dates of key economic indicator releases.  Click here to view Bespoke’s premium membership options.

Looking across the major US index ETFs in our Trend Analyzer, one stands out (in a negative way) from all the others. At the moment, the Dow is the only major US index in the red on a year-to-date basis as we close the books on February.  Even more notable, is the fact that it’s also the only one below its 50-DMA.  Not only is it below its 50-day, but it is trading firmly in oversold territory sitting over 1.5 standard deviations below its 50-day.  Today that dynamic of Dow underperformance continues as the index is falling another 0.3% as of this writing while the S&P 500, Nasdaq, and Russell 2,000 are all higher.

In the chart below, we show how far the S&P 500 and Dow are trading (in standard deviations) from their respective 50-DMAs over the past five years.  For the most part, the two large-cap indices have tracked one another relatively well in spite of their differences in composition and price calculations.  That makes the current situation in which the Dow is oversold without the same applying to the S&P 500 somewhat unusual, albeit not without precedence.  While uncommon, there have been periods in which the indices have similarly distanced themselves from one another like most recently in the spring and fall of 2021.

Although there have been other times in which the Dow and S&P’s overbought/oversold readings have deviated from one another, the current example is abnormally large.  With a gap of 1.66 standard deviations between the two indices’ overbought/oversold readings versus their 50-DMA spreads, today’s spread ranks in the bottom 1% of all readings since 1952 when the five-day trading week began.  Additionally, such low readings have been exceptionally rare in the past 20 years. Outside of June and September of 2021, August 2015 was the last instance of the spread falling this wide with the Dow underperforming. Looking back even further, 2004 was the only other instance of the past 20 years. Click here to learn more about Bespoke’s premium stock market research service.

Each day in our Sector Snapshot, we provide updated charts of the relative strength lines of each sector versus the S&P 500.  Outside of a brief period last summer, Technology, the largest sector in terms of market cap, has seen its relative strength line sit in negative territory for nearly the whole of the past year.  In other words, the broader market has outperformed the Tech sector almost every day for a year straight. In the chart below, we show the one-year relative strength line of Tech versus the S&P going back to 1991. After some of the most dramatic underperformance of the past couple of decades, Tech rebounded, and the sector has now only underperformed the broader market by a little less than 3% in the past year. While Tech’s relative strength is not as weak as it once was and is closing in on the first positive readings since the mid-summer, today marks the 131st trading day of consecutive negative readings.  That is handily the longest streak in nearly a decade and one of only six other times a streak has eclipsed 100 trading days.

The current streak has yet to come to a close, but in the chart below, we show the performance of Tech and the S&P 500 following the conclusion of each of those prior streaks of 100 or more days. Overall, performance does hold a positive bias with positive returns a vast majority of the time. That being said, the average size of those gains is not exactly impressive.  In the case of Tech, the average and median gains are smaller than the norm across these time periods. One year out is the starkest difference with an average gain of less than 5% compared to what has typically been a gain that sits in the mid-teens.  Likewise, the S&P 500 tends to underperform the norm one year later, but short to medium-term performance is stronger than the norm. Six-month returns, in particular, have been impressive with a move higher every time and an average gain that is more than double that of the typical six-month performance since 1991. Click here to learn more about Bespoke’s premium stock market research service.