Major US indices have continued to press to new all-time highs, and this time around, that includes small caps.  As such, sentiment has moved higher in tow with this week’s reading from the American Association of Individual Investors weekly sentiment survey showing the percentage of respondents reporting as bullish rising from 39.8% to 41.5%.  While higher versus last week, that is only a modest recovery from last week’s 7.1 percentage point decline from the recent high of 46.9%. Overall, that reading points to a strong but far from historically extended reading on market optimism.

Bearish sentiment, on the other hand, has experienced more persistent declines.  The percentage reporting as bearish fell to 26% this week which marks the lowest reading since the end of July when less than a quarter of respondents reported as such.  As with bullish sentiment, that reading is by no means extreme only a few percentage points below the historical average.

Given the moves in bullish and bearish sentiment, the bull-bear spread ticked higher to 15.5 which again is stronger but not back up to the high from two weeks ago.

Neutral sentiment saw a decent sized 5.3 percentage point uptick last week.  This week saw another, albeit smaller 1.8 percentage point uptick to 32.5% this week.  Even more so than bullish and bearish sentiment, that leaves the reading essentially right in line with the historical average of 31.43%.

Again, the AAII’s survey has shown that sentiment has grown increasingly positive though it is not flying.  Other sentiment readings are soaring though. For example, the National Association of Active Investment Managers’ Exposure Index has seen a sharp rise over the past few weeks with the past two seeing readings above +100.  With regards to this index, readings above +100 indicate responding managers are reporting that they are fully invested long, +200 would indicate they are leveraged long, zero would be market neutral, -100 would be fully short, -200 would be leveraged short.  This week marked the first back-to-back readings above +100 and the strongest levels since February of this year

In addition to those two indices, the Investors Intelligence survey also saw bullish sentiment rise to one of the strongest levels since the summer gaining double-digit percentage points in the past two weeks alone. In other words, across indicators on sentiment, there has been a notable uptick in bullishness over the past few weeks. To quantify this across indicators, below we created a composite index of the three surveys. This composite shows the average standard deviation of each one from its historical average.   As shown, this week’s uptick across indicators resulted in the composite moving into the upper decile of historical readings since 2006. Additionally, the increase in the past four weeks has been one of the largest in exactly two years with only a small handful of larger upticks going back to 2006 when the newest of these indicators—the NAAIM index—begins. Click here to view Bespoke’s premium membership options.

Another week, another pandemic low for jobless claims with the seasonally adjusted initial reading falling to 269K.  That compares to an upward revision to 283K last week and expectations of a decline to only 278K. At current levels, initial claims are now only y 13K above the levels the week of March 13, 2020; the last week before claims began to print in the millions.

On a non-seasonally adjusted basis, claims are also only slightly above those March 2020 levels falling another 7K to 240.2K this week.  With the expiration of the program now in the rearview, PUA claims are down to negligible levels and are continuing to come in lower with this week only showing 2.2K claims.

When it comes to the unadjusted number, last week marked a third consecutive week of lower claims, and that is in the context of a longer stretch of declines.  From the week of July 23rd to the end of October, there were only two weeks in which non-seasonally adjusted claims were higher week over week: September 17th and October 8th.  While claims typically decline in late Summer, the continued declines into the fall are certainly unusual from a seasonal perspective.  As shown below, from around the time of Labor Day through the end of the year, claims have historically seen a gradual move higher. But rapidly coming off of historic levels from the pandemic, that has not been the case in 2021 as this fall has seen a divergence from seasonal patterns.

Continuing claims have also continued to decline hitting pandemic lows.  At 2.105 million through the week of October 22nd, claims are a few hundred thousand above the March 13, 2020 level of 1.784 million.

On a nonseasonally adjusted basis, regular state claims came in below 2 million for a second week in a row which hasn’t happened since December 2019. Additionally, at 1.889 million, claims are at the lowest level since December 2019. Factoring all other programs creates an additional week of lag making the most recent data through October 15th. Total unadjusted claims as of that week set another low of 2.68 million, down 159K from the prior week. Regular state claims were the main driver of that decline as PUA and Extended Benefits programs actually saw modest upticks. For PUA claims, that was the first higher reading on a week over week basis since the official expiration of the program in the first week of September, and it was the first uptick in the Extended Benefits program in five weeks. While that indicates a modest reversal of recent trends, it will likely prove to only be temporary as those programs are not supported to the same extent as they used to be.   Click here to view Bespoke’s premium membership options.

In today’s Chart of the Day, we provided a rundown of the S&P 500’s historical intraday pattern on Fed days.  Now that the trading day has come and gone, we have added today’s price action into the mix as well.

Below is a look at the average path that the S&P 500 has taken on Fed days since 1994 when the Fed first began announcing its policy decisions on the same day as its meeting.

For the entire data set of Fed days since 1994 (dark blue line), the S&P has historically trended higher throughout the day with only a small dip in the immediate aftermath of the 2 PM ET announcement.

Since Powell became Fed chair in early 2018, the intraday action has been quite a bit different (red line).  Especially early on in Powell’s tenure, the S&P had a pattern of posting solid intraday gains prior to the 2 PM announcement but then trading sharply lower during the Fed press conference into the 4 PM ET close.

The opposite pattern emerged today.  Instead of trading higher heading into the 2 PM announcement, the S&P was in the red all day leading up to the Fed release.  At 2 PM when the Fed statement came out (including the official announcement of tapering asset purchases), the S&P got an initial jolt and traded into positive territory.  Then when Powell’s presser began, the S&P saw another intraday jump and then it continued to rally into the close.  Had Powell known that the taper would cause this type of reaction, maybe he would have done it sooner!  Click here to view Bespoke’s premium membership options.

In an earlier post, we highlighted the relative performance of one of the key industries used to gauge broader economy/market health: the semis.  As for another—perhaps more old school—cohort of stocks considered to be a leading group acting as a barometer for the broader economy, the Dow Transports have seen some interesting moves this week.  In the chart below, we show the relative strength line of the Dow Transports versus the S&P 500 over the past five years.  On a relative basis, the group has generally underperformed over the past few years, but more recently the relative strength line has been headed higher. Yesterday alone, though, it received a massive boost.

Heading into yesterday, the index was hovering right around resistance at the spring highs. It then surged 6.88% which not only smashed through that resistance but was the largest single-day gain since 5/18/20.  The Dow Transports have a very long history going back to the late 1800s. As for just how impressive yesterday’s move was, since 1900 there have been less than 50 other days with as large of a single day gain. And at the intraday high, the Transports were up an even more impressive 14.5%.

The index’s massive gains can be chalked up to a single name: Avis Budget (CAR).  The car rental stock more than doubled yesterday on better than expected earnings, and potentially there were some short squeeze factors at play as the stock had 29% of shares sold short as of mid-October.  As we noted last week when that data was released, that placed CAR as not only the most heavily shorted Transport stock but the most heavily shorted stock of the whole S&P 1500.

The Dow Transports is a price-weighted index, meaning that stocks with higher prices per share have larger impacts on the index.  After doubling in a single day yesterday and even after falling well over 18% today, CAR is now the second highest-priced stock in the Dow Transports behind Kansas City Southern (KSU). Prior to earnings, CAR ranked as the eighth highest priced stock in the group. The massive move in the past few days has resulted in CAR contributing far more to the moves in the Dow Transports than what is normal.  As for how large of an impact the past couple of sessions have had, below we show the daily point contribution of each member since October 2014 when CAR was added to the index—CAR is one of the most recent additions with the only newer members being United Airlines (UAL) in 2018 and American Airlines (AAL) in 2015. The extremely volatile moves of the stock paired with what is now a high price point relative to the rest of the index has resulted in the stock having major impacts on the day to day moves of the Dow Transportation index. Click here to view Bespoke’s premium membership options.

Given their ubiquity in just about every aspect of our lives, the performance of semiconductor stocks provides a great barometer for the health of the economy.  Therefore, yesterday’s new high in the VanEck Semiconductor ETF (SMH) was an encouraging sign for the broader economy.

While prices, on an absolute basis, are at new highs, semiconductors haven’t been nearly as strong relative to the performance of the broader market.  The chart below shows the relative strength of SMH versus the S&P 500 ETF (SPY) over the last 12 months where a rising line indicates outperformance on the part of the semis and a falling line indicates underperformance.  After closing out 2020 on a strong note and continuing that strength right up through the first two months of the year, semiconductors had a rough three months on a relative basis through May and have been moving pretty much in line with the S&P 500 ever since.  One notable aspect of the sector’s relative strength has been that despite the new high in the broader market, the relative strength of semis is not only well off its high from earlier in the year, but still hasn’t even surpassed the recent peak levels from early August and early September.  A move above those levels would be a positive development for the group.

The table below lists the holdings of SMH and shows each one’s performance YTD and over the last five trading days, as well as where they closed on Tuesday relative to their 50-day moving averages (DMA).  On the right side of the table, we also show where each stock is currently trading relative to its trading range. Whether you look at the performance of individual stocks on a YTD basis or where they are trading relative to their trading ranges, there hasn’t been a strong degree of uniformity in the group.  On a YTD basis, returns for stocks in the ETF range from a gain of 102% for NVIDIA (NVDA) to a decline of over 20% for Universal Display (OLED).  Furthermore, just 12 of the 25 companies listed below have outperformed the S&P 500 YTD.  On a more short-term basis, performance has been just as uneven with ten stocks up over 5%, 12 stocks up less than 5%, and three stocks that are down. Click here to view Bespoke’s premium membership options.

FBI background checks for the purchase of firearms continued their record streak of month/month (m/m) declines in October, falling from 2.626 million down to 2.593 million.  Over the course of just seven months now, background checks have dropped by just over 2 million, or 44.8%, but even after that historic decline, total background checks remain above the upward trend they maintained in the 10+ years preceding COVID.  While not typically viewed as a gauge of sentiment, one could make the argument that the steep declines in background searches required for gun purchases signals that levels of uncertainty on the part of Americans have been easing.  After all, you’re probably less likely to go out and buy a gun when you’re feeling safe and secure!

On a y/y basis, total background checks are down just over 20% and near their lowest levels since early 2014.  Similar to the period leading up to the current decline, total background checks during that period followed what had been a record y/y surge after President Obama was elected to a second term.

As mentioned above, claims have now declined on a m/m basis for seven straight months.  Over the last 20+ years, this is now the longest streak of monthly declines, surpassing the prior record of six months from June 2013.

With the pace of background checks crashing back down to earth in the last several months, you would expect to see the stocks of gun manufacturers struggling, and to a degree, you’d be right.  Both Sturm Ruger (RGR) and Smith and Wesson (SWCI) are well off their highs from the middle of the year, but they’re also not trading near 52-week lows either.  RGR continues to trade above support despite looking like it’s starting to roll over at a lower high.  SWBI briefly surged close to $40 in early July before quickly reversing, and while the stock hasn’t participated in the recent market rally, the pace of decline has certainly slowed.  Click here to view Bespoke’s premium membership options.