The S&P 500 has managed to put in a higher low in the past few days, and investor sentiment is reflecting the recovery in equity prices.  The AAII’s weekly sentiment survey saw the percentage of respondents reporting as bullish leap 12.4 percentage points to 37.9%.  That is only the highest level since September 9th, but it also marked the largest one-week increase in bullish sentiment since last November.  The last double-digit increase was just over six months ago during the week of April 8th when it rose 11.1 percentage points.

The recovery in bullish sentiment this week leaves the reading essentially right in line with its historical average, but again it has been a while since bullish sentiment has experienced such a large increase. Going back through the history of the survey, there have been 43 other times in which bullish sentiment has risen at least 10 percentage points in a week without another occurrence in the prior six months.  As shown below, those types of moves have typically been positive for short-term performance with the S&P 500 on average outperforming the norm one week, one month, and three months out. With that said, returns six and twelve months later have tended to see slightly weaker than normal returns.

With a big increase in bullish sentiment, bearish sentiment pulled back to 31.8%.  That is the lowest level since the first week of September, and similar to bullish sentiment, it is not far off from the historical average. In other words, the size of the move was large but the level of sentiment is pretty unremarkable.

The inverse moves in bullish and bearish sentiment resulted in the spread between the two to move back in favor of bulls for the first time in a month. The one-week increase in the spread also tied the week of February 11th for the largest jump since last November.

Bullish sentiment appears to have borrowed more heavily from those formerly reporting as neutral. Whereas bearish sentiment dropped 5 percentage points week over week, neutral sentiment shed 7.4 percentage points. Again, that decline does not mark any notable low and is not far away from the historical average. Click here to view Bespoke’s premium membership options.

Initial jobless claims have continued to decline with this week’s reading falling to 293K from an upwardly revised reading of 329K last week. The 36K week/week decline was not only more than double the expected decline, but it was also the largest since a 48K drop at the end of June.  Additionally, after this week’s decline, the seasonally adjusted number is now at the lowest level of the pandemic, only 37K above the levels from March 14, 2020. After revisions to prior weeks, this week also marks the first sub-300K reading since the pandemic began.

While seasonally adjusted claims were lower, unadjusted claims rose to 277K from 261K.  A rise in regular state claims is very much the norm for the current week of the year with said week having historically observed claims rise WoW over three-quarters of the time going back to 1967. Before seasonal adjustments, claims have likely put in their seasonal low and will continue to trend higher into the end of the year. Additionally, with the end of enhanced benefit programs in early September, PUA claims have continued to drop off coming in at 21.62K this week.  While at a nearly negligible level, that is still a few thousand off the low of 14.79K from the week of September 17th.

Continuing claims after seasonal adjustment likewise reached a new low of 2.593 million. This week’s 134K decline was the third week/week drop in a row and the largest of those weeks.  That leaves claims 809K above the levels from right before the pandemic.

Tacking on all programs for continuing claims gives a more complete picture with the most recent data through the week of September 24th. Total claims across all programs totaled 3.66 million that week. Since the end of the support of pandemic era programs, total claims have now fallen by 7.6 million. Essentially the entirety of that decline is thanks to the massive drops in PUA, PEUC, and Extended Benefits programs as support has come to an end. In fact, since the first week of September (the last week before the expiration of enhanced benefits) regular state claims are actually higher by 26.4K whereas PUA, PEUC, and Extended Benefits programs have together fallen 7.616 million. Outside of regular state programs, PUA claims still account for the largest share of total claims with 549.1K claims followed by PEUC (440.4K), and the Extended Benefits (222.6K). With regards to Extended Benefits, throughout the summer we noted the volatile swings in that program. The teeter-tottering has appeared to have stopped for the time being as the program has now seen back-to-back significant declines from the 9/10 high of 431.3K.  In other words, any oddities in that program’s data (potentially as a result of claimants switching from PUA or PEUC claims as their expiration ended) appear to be finally working themselves out. Click here to view Bespoke’s premium membership options.

After a surge in the first half of the year and into Summer which took the number of daily air passengers back to levels last seen before the pandemic, Americans started to pull back in their air travel from late July through early September.  Much of this decline was likely seasonal in nature, but the rise of the COVID Delta variant likely played a role too, at least at the margin.  After peaking out just shy of 2.1 million passengers per day, the average daily volume of travelers in the nation’s airports fell by nearly 25% through mid-September.  Since that low a month ago, though, volumes have been on the rise, and average daily air passenger traffic over the last seven days is now only down 10% from its July high.

As air passenger traffic has picked up, it’s not surprising that the airline stocks have bounced a bit off their lows in August.  The ETF which tracks the major airlines in the sector (JETs) has rallied more than 10% from its August low.  It was also up as much as 18% earlier this month before crude oil prices topping $80 started to weigh on sentiment in the sector.

In looking at air travel trends on a monthly basis, one thing that stands out is just how strange of a month August was.  The chart below shows the percentage of days by month that passenger traffic was up relative to its reading in the prior week.  Back in March 2020 when air passenger traffic ground to a halt, every day saw week/week declines in passenger traffic.  Coming off of a low base, these readings picked up in May and June as the panic started to subside, and throughout 2021, we continued to see steady levels of week/week increases in air passenger traffic.  In five of the first seven months of 2021, at least half of all days saw air passenger traffic levels above their week-ago levels, and the two that didn’t (January and April) still had more than a third of all days show increases.

But then came August.  Throughout the entire month of August, there was only one day (8/1) where passenger traffic was up week/week and from there the next 30 days were all lower.  Granted, traffic levels were coming off of post-pandemic highs, but the fact that traffic levels were so steady to the downside implies that Americans just didn’t want to fly.  While most people were sad to see the summer come to an end, thankfully for the country’s airlines, traffic picked up again in September, and October is now on pace to be the second straight month where passenger traffic levels have increased on a week/week basis on at least two-thirds of days.  Click here to view Bespoke’s premium membership options.

As earnings season kicks off in earnest this week, using data from our Earnings Explorer tool, we set out to find the stocks that are on the biggest earnings winning and losing streaks when it comes to share price performance.

There are 21 stocks reporting between now and the end of earnings season that have seen gains on their earnings reaction days for the last six consecutive quarters or more.  (For a stock that reports after the close, its earnings reaction day is the next trading day.  For a stock that reports before the open, its earnings reaction day is that trading day.)  Five of the 21 stocks have gained on each of their last nine earnings reports!  One of these is SiteOne Landscape (SITE).  Below is a snapshot of SITE’s earnings reports going back to early 2019 pulled from our Earnings Explorer.  Heading into its last report on August 4th, SITE had gained on each of its last 8 earnings reaction days, and it went on to gain another 7.65% that day as well!

Below is a table listing the 21 stocks that are currently on earnings winning streaks of six quarters or more.  Along with SITE, the other stocks that have seen gains on their last nine earnings reaction days include Lindsay Corp (LNN), ExlService (EXLS), LKQ, and Cheniere Energy (LNG).  For owners of these stocks, quarterly earnings have been a breeze over the last 2+ years.

On the downside, there are 16 stocks that have fallen on their earnings reaction days for seven or more straight quarters.  These are stocks that just can’t catch a break lately when it comes to earnings.  As shown, Hawaiian Holdings (HA), Verisk Analytics (VRSK), and BrightView Holdings (BV) have fallen on each of their last 11 quarterly earnings reaction days!

One of the absolute worst performing stocks in response to earnings has been The RealReal (REAL).  The luxury consignment website went public back in June 2019, and so far the stock has yet to see a price gain on any of its nine earnings reaction days!  Talk about a painful streak for shareholders.  Below is a snapshot of REAL’s historical earnings reports pulled from our Earnings Explorer.  As shown, not only has REAL fallen on each of its nine earnings reaction days since going public, but it has also fallen more than 10% on each of its last four earnings reports.  You can use our Earnings Explorer to monitor historical earnings trends for the names you care about most.  Start a two-week trial to Bespoke Institutional to access our Earnings Explorer now.

Since the S&P 500’s last high on September 2nd, despite an average opening gap of around 5 basis points (bps), the index has averaged a 17.7 bps decline from open to close.  Looking at the intraday pattern in that time, the morning through the early afternoon typically sees the index erase any gains from the open. After a small bounce in the mid-afternoon, the final hour has averaged a sharp reversal lower.

Taking another look at intraday patterns, below we show the cumulative performance in 2021 of $100 through a few hypothetical strategies. The first is buying at the close and selling one hour into the following session (dark blue line).  The next would be buying at the start of the final hour and selling at the close (red line). The third would be holding for the time between 10:00 AM to 3:00 PM (gray line).  The last would be a simple buy and hold from close to close (green line).  As shown, “smart money” is not looking particularly bullish this year.  Had you only owned the S&P in the last hour of the day, your $100 at the start of the year would be down to just over $88.  Meanwhile, owning the opening gap into the first hour only would leave an investor up almost $16.  While you would be holding on for a longer period of time, owning in the middle of the day would have resulted in decent gains, but the best strategy has been to buy and hold. which captures returns both throughout the trading day and outside of regular trading hours.

Not shown in the chart below is if the trading day ended at 3PM instead of 4.  If the equity market simply closed at 3 PM every day (or you sold at 3 PM and bought again at the close), that strategy would be up roughly 30% YTD!  A three o’clock closing bell on the east coast has a nice ring to it!  Click here to view Bespoke’s premium membership options.

Looking at sector performance over the past week, the weakest sector has been Communication Services (XLC) with a decline of over 2% in the five days ending yesterday. That brings the sector over two standard deviations below its 50-DMA. Health Care (XLV) is the only other sector at extreme oversold levels although its recent decline has been much more modest.

Whereas most of the past year has seen XLC consistently hold above support at its 50-DMA, since the start of September, the sector has trended lower, and over the past month, it has also been below its 50-DMA.  Now smack dab between its 50 and 200-DMAs, yesterday’s decline resulted in XLC falling below support around $79. That level formerly marked short-term highs in April and May of this year and a low/test of the 50-DMA in mid-July.

While that breach of support has not necessarily been dramatic, the same cannot be said for many of the sector’s stocks.  For example, telecoms have gotten crushed as AT&T (T), T-Mobile (TMUS), and Verizon (VZ) have all collapsed in recent days with each one extremely oversold.  Of these, only TMUS has appeared to have found any hint of support at recent lows. The other stock in this industry, Lumen Tech (LUMN), has also been moving lower but has not collapsed like the others.

As for other members of the sector outside of that industry, names like Charter (CHTR), Comcast (CMCSA), Facebook (FB), and Alphabet (GOOG) have also pulled back sharply recently breaking longer-term uptrends. Also, since many of these stocks have very large market caps, their impact on the sector’s performance is greater.  On the bright side, CHTR and FB have appeared to have found some support at their 200-DMAs while the opposite is the case for CMCSA. Similarly, GOOG just recently failed to move back above its 50-DMA.  As for the video game stocks, Take-Two Interactive (TTWO) also failed to move back above a moving average recently while Activision Blizzard (ATVI) has been in a steep downtrend over the past few months with a failed attempt to break out of that trend in the past several days.Click here to view Bespoke’s premium membership options.

The most important problems section of this month’s NFIB report on small businesses showed one clear problem: labor.  A combined 40% of businesses reported either cost or quality of labor as their single most pressing issue.  While the percentage of respondents stating the quality of labor as the biggest issue went unchanged at 28%, there was a record one-month increase in the percentage of firms stating costs were their biggest problem. The percent reporting cost of labor as their biggest issue rose 4 percentage points to a record high of 12%.

While a massive share of respondents reported either cost or quality of labor as their biggest issue, the next largest share sees government-related issues as the biggest concern.  A combined 28% reported either taxes or government requirements & red tape as their most important problems which is actually a muted share on a historical basis.  Even though it was up 1 percentage point to 17% in September, the percentage reporting taxes as their biggest problem sits in the bottom decile of the historical range and the reading on government requirements and red tape sits in the 15th percentile.

As for the other readings, Poor Sales, Competition from Big Business, and Financial & Interest Rate concerns are at record lows.  While not at a record low, the Cost/Availability of Insurance fell by a record amount. Inflation also experienced a historic drop of 3 percentage points in September. With that said, 10% of owners still reported that as their biggest problem which is still in the top 5% of all readings. The single biggest gainer in September was “Other”. This category is not as old as the other problems but the 7 percentage point surge was a record jump in a single month and leaves the reading at one of the highest levels to date.   Click here to view Bespoke’s premium membership options.

Small business optimism measured through the NFIB’s monthly survey dipped in September by a full point to a six-month low of 99.1.  That is in the middle of the pandemic range as small business sentiment never quite fully recovered to pre-pandemic levels let alone its August 2018 record high.

Breadth in this month’s report was mixed perhaps leaning slightly more negative with nine categories falling month over month while seven were higher. Another three went unchanged.  The largest declines were for plans to increase employment and expectations for the economy to improve.  While those were the two biggest decliners, they are coming from polar opposites of their respective ranges.  The index tracking plans to increase employment remains in the top 2% of readings even after the six-point decline that ranks in the bottom 2% of all monthly moves.  Meanwhile, the magnitude of the decline in the index for expectations for the economy to Improve ranks in the 20th percentile of all other monthly readings, but that leaves it just off of a record low. In other words, readings throughout the report are nuanced with some at or near record highs and others at or near record lows.

As previously mentioned, Outlook for General Business Conditions plummeted in September showing that a net -33% of reporting owners foresee better business conditions in six months.  The only two months with weaker readings on record were November and December of 2012 just after President Obama’s re-election. Given that weak reading, the number of firms that see now as a good time to expand remains muted with this month’s reading unchanged at 11 which is short of the bottom quartile of the historical range.  Actual sales changes improved back to a positive reading that sits in the middle of its range. Sales Expectations also improved to positive territory, but that reading is far lower with respect to its historic range. Earnings changes also improved as fewer businesses reported higher prices although that reading remains well above any other period in the history of the report.

In today’s Morning Lineup, we discussed some of the price and labor pressures evident in the report.  Revisiting these, firms continue to show strong albeit slowing labor demand as hiring plans remain elevated but dropping sharply month over month.  Meanwhile, Actual Employment Changes rose sharply, though, this reading remains negative. Additionally, firms have continued to raise compensation and plan to continue to do so as a record number reported that openings are hard to fill.

Not only did plans for employment fall but so too did capital expenditure plans as well as actual capital expenditures.  Inventory levels are also abating to a degree as fewer—but still a historically high share—report current inventory levels are too low. There was also a 2 point pullback to 9 in the net percent of businesses looking to increase inventory plans. Click here to view Bespoke’s premium membership options.