Earlier this week, a hotter-than-expected CPI print countered the belief that inflation has peaked.  Even with that CPI report, though, there have been a number of other indicators pointing to the opposite.  For example, readings on prices from various PMIs have rolled over and PPI decelerated dramatically.  Some other evidence can be found in Google searches.  Google Trends provides tracking of search interest for a provided search term. Lower readings indicate fewer Google searches for a provided term whereas higher readings indicate elevated search interest with these series indexed to their peak reading. In the charts below, we have adjusted these series for seasonality and re-indexed them so that like the raw data, peak readings are indexed to 100.

Searches for “inflation” surged during the pandemic and reached a record high in August.  So far in September, that reading remains extremely elevated but it has pulled back significantly.  The month isn’t over yet, so time will tell if searches for inflation have in actuality reversed to that degree, but the peaks for related terms have moved even further in the rearview.  For example, searches for “costs”, “high costs”, and “expensive” all surged in the first half of the year reaching a high in the spring.  Since then, these readings have been on the decline, although, searches for “expensive” and “high costs” remain well above levels observed in years prior.

Taking a more granular look at specific consumer expenses shows a bit more nuanced picture.  Rent has been one of, if not the, biggest single driver for CPI recently as we noted in our recap of the latest CPI release. Search interest appears to back that up as searches for the term “rent cost” have exploded higher. Even though it remains well above readings from any other period since the data begins in 2004, that reading has rolled over in the past few months. As for other housing costs, searches for “Utilities Bill” and “Electric Bill” are at and nearing record highs, respectively, after rising sharply in the past year.  Those higher readings are understandable as energy prices have skyrocketed, but gasoline prices are much lower than they were at the start of the summer and search interest has reflected that.  Regardless, higher gas prices makes driving less attractive. In turn, searches for “car pool” are much higher than they were at other times in the pandemic years.

Grocery and food-related searches have also spiked in recent months indicating people are looking into why they are paying more when they head to the store. Again though, similar to rent, these readings have in fact started to roll over in the past few months.

There is only so much the average consumer can do to fight inflation, and the Google Trends data provides some insight into what people are doing to cope with higher costs.  For starters, searches for Electronic Benefits Transfer, or EBT, exploded at the start of the pandemic and have remained extremely elevated relative to pre-pandemic levels.  Current search interest levels are below the highs from the early days of the pandemic, but they have also begun to rise toward the upper end of the range over the past several months.  Meanwhile, searches for “loan” have seen a structural move higher since the pandemic began as well with a particularly sharp increase in recent months.

Searches for “budgeting” used to be much higher in the first decade of the 2000s but as technology increasingly engrained itself into society, those searches appeared to have been replaced by searches for “budgeting apps”. One more specific example is the popular Paypal (PYPL) owned Google Chrome extension Honey which automatically applies coupon/discount codes to online purchases. Over the past year, interest in each of these terms have risen as inflation remains elevated and consumers look for ways to tighten their belts. Click here to learn more about Bespoke’s premium stock market research service.

The S&P 500 may have fallen around 1.5% over the past week, but individual investors have reportedly become increasingly bullish.  26.1% of responses to the weekly AAII sentiment survey reported as bullish this week, up from a recent low of 18.1% last week. With the S&P 500’s worst day in since June 2020 and a hotter-than-expected CPI print occurring late in the response collection period (12:01 AM on Thursday through 11:59 PM Wednesday night), the timing of responses is a potential cause for the increase in optimism that was contrary to equities’ price action. In other words, responses that came in prior to Tuesday were likely far more bullish than those that came in afterward and therefore elevating the level of bullish sentiment.  As such, next week will be a more telling read on individual investor sentiment as it will more fully capture recent price action and inflation data.

While bulls rose back above a quarter of responses, bears fell back below 50%.  Bearish sentiment dropped to 46% which was only the lowest level since the week of August 24th.

Those moves meant the bull-bear spread rose 15.3 points week over week going from -35.2 up to -19.9.  That was the largest one-week jump in the reading since the end of June. However, that indicates sentiment remains heavily in favor of pessimism as the streak of negative readings grows to 24 weeks long; the second longest streak of negative readings on record.

The AAII survey was not alone in showing a rebound in sentiment. Both the Investors Intelligence survey and the NAAIM Exposure Index highlighted increased bullishness in the latest week’s data. As with the AAII survey, though, the collection periods likely did not fully capture the effects of Tuesday’s inflation data and historic one-day decline. Overall, the story remains that investors are remarkably bearish. Click here to learn more about Bespoke’s premium stock market research service.

The move lower in jobless claims pressed on this week as the seasonally adjusted reading dropped another 5K down to 213K in addition to last week’s reading being revised 4k lower to 218K.  That exceeded expectations which were calling for claims to rise up to 225K.  This week was the fifth consecutive decline in adjusted claims with a total drop of 39K in that span. That is the longest streak of declines since December of last year when claims had fallen for 11 weeks in a row as the end of pandemic era programs was approaching.

Although the continued decline in seasonally adjusted claims have not resulted in any sort of a new low, unadjusted claims are far more impressive. Taking a historical average of claims throughout the year, most of the time claims would have bottomed by now, but that is not the case this year.  Unadjusted claims have continued to fall over the past couple of weeks and are all the way down to 156K; the lowest level since October 1969.  That is not to say claims are completely bucking seasonal trends as the current week of the year has marked seasonal lows in years like 2009, 2010, 2015, and 2016. In other words, it is hard to distinguish how much of the continued decline is seasonal versus material improvement in claims, and regardless, claims remain at historically strong levels.

As for continuing claims, the latest reading for the week of September 2nd edged up modestly to 1.403 million. As with initial claims, continuing claims saw the previous week’s reading revised lower from 1.473 million to 1.401 million resulting in the latest print coming in well below estimates of 1.478 million.

Recently we have been highlighting the ratio between initial and continuing claims to highlight how the latter has generally been stronger than the former.  However, with initial claims falling for a fifth week in a row without a similar decline in continuing claims, the ratio of the two has been reversing lower and is approaching more normal levels.  In fact, the one-month change in the reading has been on the large size ranking in the bottom 3% of all moves on record. Click here to learn more about Bespoke’s premium stock market research service.

Headed into Tuesday, the S&P 500 had been on a solid post-Labor Day rally, however, the hotter-than-expected CPI reading sent stocks reeling.  After gapping down below its 50-day moving average, the S&P 500 (SPY) finished the day with a decline of over 4%.  Additionally, another technical development of note as a result of yesterday’s move was that the breakout above the past few weeks’ downtrend line appears to have only been a pump fake.

While moves above or below the 50-DMA are a fairly common technical development, those similar to Tuesday are a bit rarer than might be expected at first glance.  Prior to yesterday, the S&P 500 ETF (SPY) had only opened below its 50-DMA thanks to a gap down of at least 2% four other times since the ETF began trading in 1993: April 8, 1996, April 27, 2000, June 24, 2016, and February 24th, 2020. Looking across each of these instances, the 2020 occurrence was the only one that was followed by a prolonged period with the SPY staying below its 50-day. By comparison, the 1996 and 2000 instances saw the S&P continue to fluctuate around its 50-day in the months ahead. In fact, the April 2000 occurrence actually saw the S&P 500 rise back above its 50-day by the end of that same day. Meanwhile, the 2016 instance saw SPY quickly regain its losses as it traded above its 50-DMA for much of the next few months. Click here to learn more about Bespoke’s premium stock market research service.

With investors expecting consumer prices to fall month-over-month heading into the day, this morning’s higher-than-expected headline and core CPI reports caused an instantaneous reversal in market sentiment heading into the opening bell.  While equity index futures were indicating a gain of around 75 basis points heading into the print, after the release, indications were for a decline of 2%.  When the opening bell finally rang, the S&P 500 gapped down 2.27% as indicated by the tracking ETF – SPY.

Going back to 1998, today marked just the sixth time that SPY gapped down in excess of 2% on the day of a CPI release. As shown in the top of the table below, on four of the five prior 2%+ gaps down on CPI days, SPY not only gapped down by over 2%, but it continued lower throughout the trading day.  While that doesn’t necessarily bode well for today, we would note that on many of those prior occurrences, there were other overriding factors impacting the market.  From the Russian debt default and collapse of Long-Term Capital Management (LTCM) in 1998 to the Financial Crisis in 2008, the US debt downgrade in 2011, and then COVID in 2020, on most of these other days, investors had other issues besides inflation to worry about.  The only time that there wasn’t another major issue impacting the market was on 5/14/99 when headline CPI exceeded forecasts by 0.3 ppts and core CPI exceeded consensus estimates by 0.2 ppts.

At the bottom of the table, we have listed every other time since 1998 that core CPI exceeded consensus forecasts by 0.3 ppts or more.  Today’s report is just the fourth time that core CPI has topped estimates by such a wide margin, but what stands out most is that every other prior occurrence since 1998 came after COVID.  We noted numerous times in the past how COVID has created so many distortions in the economy that the job of forecasting it has become exceedingly difficult, and the fact that every ‘beat’ of this magnitude in core CPI has occurred since COVID only reinforces this point.  Click here to learn more about Bespoke’s premium stock market research service.