The S&P 500 has continued to press higher resulting in a coincident rise in sentiment.  The AAII‘s weekly reading on bullish sentiment rose back above 40% for the first time since the week of July 8th. While 43.4% is not a particularly elevated reading on sentiment (72nd percentile of all periods), the move higher is particularly notable in that it was the first time bullish sentiment has risen in back-to-back weeks since February. That is especially surprising given the fact that bullish sentiment was very elevated at points between now and then, such as back in the spring when it eclipsed 50%. That is also a historically long stretch of time without back-to-back increases in bullish sentiment.  As shown in the second chart below, at just over half of a year-long, the only two similar streaks on record were in 1995 and from 1997 to 1998.

Negative sentiment has broadly picked up over the past couple of months.  In the AAII survey, bearish sentiment was slightly higher at 33.3% versus 33% last week.  While below the peak from only a couple of weeks ago, that is still elevated versus readings from earlier this year.

Similarly, the Investors Intelligence survey of newsletter writers has also seen bearish sentiment on the rise throughout the summer.  This week, it topped 20% for the first time since March 10th.  At 21.3%, bearish sentiment in this survey is at the highest level since last October.  With that said, the current reading is also well below the 20 year average of 24.19%.

As a result of the larger gains to bullish versus bearish sentiment, optimism remains the favored response in the AAII survey. The bull-bear spread rose back into positive double digits this week for the first time since the last week of July.

Given both bullish and bearish sentiments were higher, neutral sentiment has continued to unwind.  That reading fell 4.3 percentage points this week to a new low of 23.2%.  That was the fourth decline in the past five weeks as neutral sentiment came in at the lowest level since mid-April. Click here to view Bespoke’s premium membership options.

Ahead of tomorrow’s nonfarm payrolls report, this week’s initial jobless claims release came in at 340K; 5K below expectations.  That was a 14K decrease from last week’s level which was revised higher by 1K.  Additionally, this week’s decline entirely erased the move higher last week.  With yet another drop in jobless claims, the indicator has made another pandemic low and is within 84K of the last sub-1 million print (256K on March 13, 2020) prior to the parabolic spike last spring.

As for on an unadjusted basis, claims fell further below 300K to 287.8K this week.  This time of year typically sees seasonal tailwinds for claims, but this week did mark the sixth consecutive decline. That made for another pandemic low as claims by this measure are just 35.9K away from the March 2020 levels. Granted, the seasonal strength from the past few weeks is likely to wane until the end of the year.  As shown in the second chart below, September (approximately week numbers 37 through 40) historically marks the time of year that week over week increases in the unadjusted number become more frequent, and as a result, claims begin to consistently tick higher. While seasonal headwinds are on the way for regular state claims, overall claim counts will begin to see drops due to the expiration of pandemic era programs. This includes the additional $300 per week payments and programs like PUA and PEUC. In the most recent week, PUA claims came in above 100K for a fourth week in a row.

As for continuing claims, the headline number for regular state programs remains strong with claims hitting another pandemic low of 2.748 million, down from 2.908 million last week.  That 160K decline was the largest since a 316K decline in the second to last week of July.

Factoring in all programs adds an additional lag to the data meaning the most recent reading is through the week of August 13th. In that week, total claims rose to 12.2 million from 12.02 million in the prior week. In spite of only having a couple of weeks until the end of the programs, that increase was driven by PUA claims which rose by over 400K and marked the largest one-week increase for the program since April 23rd (420.6K). That brings the total count of pandemic era programs (PUA and PEUC claims) a couple of weeks before their expiration to 9.2 million.

As for the other programs, regular state claims and PEUC claims were little changed at 1.6K higher and 6.04K higher, respectively. Meanwhile, the extended benefits programs saw a significant decline of 237.07K down to 114.4K, although, that program has been particularly volatile over the past several weeks, so we would caution again reading too deep into that move.  Click here to view Bespoke’s premium membership options.

Looking across the various ETFs tracking the stock markets of the 23 countries tracked in our Global Macro Dashboard, by far the best performer in the month of August was India (INDA) which rallied 8.75%.  A large portion of those gains occurred in the final days of the month as well.  As shown in the matrix below, over the past five days alone INDA has gained 4.74% which brings it almost 3 standard deviations above its 50-DMA. INDA is also currently at a 52-week high alongside the US (SPY) and Russia (RSX).

INDA is not alone in having become deeply overbought after big moves in recent days.  Japan (EWJ), Russia (RSX), Malaysia (EWM), and Mexico (EWW) are also trading over 2 standard deviations above their 50-DMAs. The latter two were also the runners-up in terms of strongest performers in August.  In the case of the former two, just last week they were actually in neutral territory as is the case with a number of other country ETFs. No country has seen as dramatic of a move within its trading range than South Africa (EZA), though.  One week ago, it was oversold. After rallying 5.79% in the past five days, it has not only taken out its 50-DMA but is now 1.6 standard deviations above it.  Looking across the aforementioned countries, and as we mentioned yesterday, one common theme in August was the outperformance of emerging market countries.  Tose countries gained an average of 2.21% last month versus a 0.85% gain for developed markets.

Looking at G7 countries, the US has stood out as a notably solid performer.  As shown below, the US (SPY) has been in a consistent uptrend over the past year whereas other G7 members have been sideways at best since the spring. With that said, there have been improvements more recently for some countries.  The most concrete example is Japan.  EWJ has been consolidating over the past few months, but it broke out of its 2021 downtrend this week.  Gaining 1.74% today alone, EWJ is at the highest level since early June.  France (EWQ) is also having a big day with a 2.2% gain, bringing it right up to the highs from mid-August and early June.

Like France, there are a handful of emerging market countries that have also broken out recently or are nearing a breakout. Mexico (EWW) and Russia (RSX) both took out their highs from the spring and earlier this summer in the past couple of sessions. While it has not put in a new 52-week high just yet, Taiwan (EWT) is likewise attempting to take out prior highs. Meanwhile, we also wanted to highlight the chart of INDA. As previously mentioned, INDA posted big gains over the past month, and as such, the chart is looking quite elevated. Click here to view Bespoke’s premium membership options.

Please click the image below to view our September 2021 market calendar.  This calendar includes the S&P 500’s 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.  Start a two-week free trial to one of Bespoke’s three research levels.

In last night’s Closer, we noted the record underperformance of Chinese equities relative to the US over the past six months.  As a result of the weakness in Chinese equities, the MSCI Emerging Market ETF (EEM)—which has roughly a 37% weight in Hong Kong and Chinese stocks—is well off of its highs and has been trending lower over the past several months.  Today, EEM is up a healthy 1.37%, but that brings it just short of its 50-DMA which recently fell below its 200-DMA.  That is also at similar levels to the lower high from the start of this month.

When factoring out China, emerging markets look much better. Again, the MSCI Emerging Market ETF that excludes China (EMXC) is currently 1.13% below its 52-week high, but the downtrend that has been in place since the early June highs has been on the ropes over the past couple of sessions. Yesterday saw the ETF trade and close right at that downtrend line, but the 1.15% gain today has smashed through it.  That leaves EMXC at the highest level since June 15th.  The ETF is also at some of the most overbought levels (1.8 standard deviations from its 50-DMA) since then.

Pivoting over to bonds, looking at the Fixed Income screen of our Trend Analyzer, the best performer over the past five days is also in the EM space. The USD Emerging Markets Bond ETF (EMB) had been mostly flat throughout the summer trending right alongside its sideways 50- and 200-DMAs. Significant gains last Friday and yesterday led EMB to break out of that range as it reaches some of the highest levels since February today.

As previously mentioned, EMB has not ventured far from its 50-DMA recently.  In fact, the rolling 50-day standard deviation has been right around some of the lowest levels on record since EMB began trading in 2008.  Given that lack of volatility, the rip higher this week has resulted in the ETF moving well beyond the upper end of its narrow trading range.  In fact, yesterday the ETF closed over 3 standard deviations above its 50-DMA.  That joins only 14 other days where the ETF closed at least 3 standard deviations above its 50-DMA with the most recent of those back in June 2019 when it reached as high as 4 standard deviations above its moving average. Click here to view Bespoke’s premium membership options.

To round out the month of August, the major indices are slightly lower on the day.  Overall, in the final week of the month, small caps like the Micro-Cap ETF (IWC) and Russell 2000 (IWM) have generally outperformed although they are coming from below their 50-DMAs, and yesterday they saw a reversal lower. Large caps have posted smaller gains but are reaching new record highs. The price action of mid-caps, on the other hand, has been a mix of small and large caps.  Mid-caps, like the S&P MidCap 400 ETF (MDY) and Core S&P MidCap ETF (IJH), are broadly overbought and have also posted solid gains in the past several days of around 2%.  Additionally, whereas this week they are on the cusp of extreme overbought territory, last week those same ETFs were still within one standard deviation of their 50-DMAs.

While mid-caps have made a solid move higher over the past five days, like small-caps, they have pivoted lower in the past couple of sessions.  From a charting perspective, those moves lower also come right as IJH and MDY made a run at their highs from the final days of April.  Having rejected that resistance, there is the potential for nearby support around the highs from earlier this month and early June and then the 50-DMA below that. Click here to view Bespoke’s premium membership options.

It’s hurricane season and leading the news to start the week has been the landfall of Hurricane Ida on the 16-year anniversary of Hurricane Katrina. In today’s Morning Lineup, we detailed the initial impact of the storm on what will likely be the most impacted sector: energy. As could be expected with a regionally focused event, equities are largely shrugging things off with the S&P 500 and Nasdaq both solidly higher and reaching new records today.  As for a more particular look, in the heatmap below, we show the average five-day performance of S&P 1500 stocks based on their state of domicile.

Obviously, this is not an exact read-through of a stock’s geographic exposure—for example, a company may be headquartered in one state, but the bulk of its business is based in others—but Louisiana based equities have, on average, actually seen worse performance than neighboring states or the country more broadly.  Of the average performance of stocks domiciled in the 48 applicable states plus DC (no S&P 1500 companies are domiciled in Alaska, Wyoming, or Vermont), Louisiana-based stocks rank as the eighth-worst performers over the past five days. The absolute worst state, though, has been Kansas, but that is primarily due to an over 36% decline in SelectQuote (SLQT).  Admittedly, this is an imperfect measure of a company’s geographic exposure, and individual stories related to each specific business are of greater importance than where each company is domiciled. it is interesting to note that S&P 1500 companies domiciled in Louisiana have underperformed the broader market in the past week.

When looking at average performance, we would also caution that various states have dramatic differences in the actual number of stocks domiciled within each state. For example, there are just seven S&P 1500 companies domiciled in Louisiana, and their combined market cap is only $79 billion.  That compares to neighboring Texas with 130 stocks that have a total market cap of $1.8 trillion. It also pales in comparison to California’s 223 stocks with a combined market cap above $15.5 trillion. So again, holding constant any more systemic or lasting effects of the storm, looking purely at where stocks are domiciled does not imply Hurricane Ida would necessarily have a massive impact on broad swathes of the market. Click here to view Bespoke’s premium membership options.

Leading into today, the four already released results from regional Fed banks’ monthly manufacturing reports broadly showed a material slowdown in activity in August which we showcased in the most recent update of our Five Fed Manufacturing Composite in last week’s Bespoke Report. The fifth and final report out of the Eleventh District added more confirmation to that slowdown with its release this morning.  The Dallas Fed’s headline index peaked back in April at 37.3 and has declined each consecutive month since then including in August. In fact, this month’s decline was by far the most severe as the indicator dropped 18.3 points versus only 3.8 point declines the prior two months and a 2.4 point decline in May. The 18.3 point decline month over month also ranks as the eighth largest MoM decline on record and the largest since last March when it fell by a record 70.4 points. Another decline had been penciled in this month with the index forecasted to fall from 27.3 to 23, but the drop to 9 made for the eleventh biggest miss versus expectations since at least 2009.

Looking across the various categories of the report, declines were broad across categories with only unfilled orders, inventories, hours worked, and prices paid higher relative to July.  Those declines are largely coming off of historically strong readings, though, with many in the top decile of their historical range last month.  Even after falling, every category is still above their historical median readings with many still in the upper deciles. In other words, manufacturing activity slowed but remains at solid levels.

Order growth and shipments are the areas to have seen the greatest moderation over the past few months.  In August, these indices all saw some of the largest declines in point terms and are now much less elevated than other readings.  For example, new orders are only in the 72nd percentile and Shipments are only in the 65th.  Those declines leave the indices at similar levels to the start of this year.  Again, the declines in these indices do not mean activity is contracting, but rather is decelerating meaning orders are still growing at a healthy level.  One example of this is unfilled orders.  With order growth at a solid clip, unfilled orders actually ticked higher, remaining at unprecedentedly high levels. We would also note, while businesses reported order backlogs are continuing to grow at historic rates, they do not foresee that to remain the case.  Expectations for the category dropped into negative territory this month (the only reading across current conditions and expectations to do so).

Prices and supply chains also appeared to have gotten some relief in August and could be playing a role as to why businesses appear optimistic to work off order backlogs.  While still right around record highs, prices received and delivery times were both lower. Unfortunately, while customers saw some price relief, prices paid were slightly higher. Meanwhile, Inventories are starting to grow again as the index rose 12.9 points to go back into positive territory for the first time since March 2019.

Employment-focused categories were a somewhat dour point of the survey.  Readings on Employment and Wages & Benefits were both lower in August which was met with a decline in capital expenditures.  On the bright side, current readings are still at healthy levels and the expectations index for wages and benefits actually hit a record.

One other point to watch is uncertainty.  The Dallas Fed’s reading on uncertainty does not have much in the way of an extensive history, only dating back to the start of 2018, but the index did rise to 21.1 as COVID cases rose through the summer.  Those levels are well below the highs reached earlier in the pandemic, but are once again at the upper end of the past few years’ range. Click here to view Bespoke’s premium membership options.

Welcome to Bespoke Brunch Reads — a linkfest of the favorite things we read over the past week. The links are mostly market related, but there are some other interesting subjects covered as well. We hope you enjoy the food for thought as a supplement to the research we provide you during the week.

While you’re here, join Bespoke Premium with a 30-day free trial!

Collectibles

Al Capone’s Last Haul: The Gangster’s Family Auctions His Mementos by Richard Morgan (WSJ)

A huge batch of pistols, pocket watches, and other curios like a silver-plated cocktail shaker owned by the gangster are set to hit the auction block. [Link; paywall]

Labor Markets

Driver recruitment wars: Cowan to pay $20,000 sign-on bonus by Todd Maiden (Freight Waves)

With huge demand for freight services, drivers are an extremely scare commodity and are driving a bidding war for CDL holders; sign-on bonuses are going as high as $20k. [Link]

Bad Reviews

Yelp Reviews Fuel Fights Over Covid-19 Vaccine Requirements by Charity L. Scott (WSJ)

Small businesses which opt to require vaccination for clients or customers are being mobbed by hordes of anti-vaccine trolls, which seek to drive down their ratings. [Link; paywall]

Supply Chains

Why Is the Supply Chain Still So Snarled? We Explain, With a Hot Tub by Austen Hufford, Kyle Kim and Andrew Levinson (WSJ)

A step-by-step walk-through of the thousands of parts and intricate assembly that goes into a hot tub, all of which has been snarled by delays and shortages across the entire global supply chain. [Link; paywall]

Exclusive-Ford doubles Lightning production target on strong pre-launch demand -sources by Ben Klayman and Joseph White (Street Insider)

Ford’s electric F-150 model is due for launch next year, and the company has seen reservations top more than 120,000. As a result, it’s targeting production of more than 80,000 by 2024 but only 15,000 next year. The contrast between total demand and what the company is planning to build is striking. [Link]

Investors

Yale Taps Matthew Mendelsohn to Succeed Endowment Chief David Swensen by Juliet Chung and Dawn Lim (WSJ)

Yale’s massive $31bn endowment will have new leadership to replace legendary investor David Swensen, who passed last May. [Link; paywall]

God, Money, YOLO: How Cathie Wood Found Her Flock by Matt Phillips (NYT)

A profile of the manager who has built a massive active ETF empire out of relentless optimism and business analysis that presses that optimism for all it’s worth. [Link; soft paywall]

COVID

Those Anti-Covid Plastic Barriers Probably Don’t Help and May Make Things Worse by Tara Parker-Pope (NYT)

Aerosolized COVID virus is best fought with air flow, not plastic barriers which prevent the turnover of air in a given space by blocking movement. [Link; soft paywall]

Weird News

Baby on cover of ‘Nevermind’ sues Nirvana alleging child pornography by Nadine El-Bawab (CNBC)

The infant baby who was used in the iconic cover of Nirvana’s album is suing on the grounds that the use of his image constitutes child pornography. [Link]

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Have a great weekend!