As equities have continued to trend higher in the past week, sentiment has modestly improved across various indicators. Overall, sentiment remains in favor of bulls but not to any sort of extreme. For starters, the most recent reading of the National Association of Active Investment Managers’ (NAAIM) Exposure Index rose to the highest level since mid-June. Meanwhile, the Investors Intelligence survey of equity newsletter writers saw bullish sentiment rise to 56.4%, the highest in a month, and bearish sentiment fall to 15.9%, the lowest in a month. The AAII’s weekly survey saw similar results. The reading on bullish sentiment rose 0.9 percentage points to 37% this week.  That is the highest level since the week of July 8th, but that is still a percentage point below the historical average and is also below most readings observed this year.

While bullish sentiment was higher, bearish sentiment was little changed falling just 0.2 percentage points to 31.5%.  Pulling back only slightly, bearish sentiment continues to be elevated relative to the past several months’ readings. It is currently ~1 percentage point above the historical average.

The moves in bullish and bearish sentiment mean the bull-bear spread rose slightly in favor of bulls.  The spread rose from 4.4 last week to 5.5 this week.

Neutral sentiment matched bearish sentiment at 31.5%.  That was down slightly from 32.2% last week and is right back in line with the historical average.  Click here to view Bespoke’s premium membership options.

Initial jobless claims matched expectations at 375K this week. That is a 12K decline from last week’s upwardly revised level of 387K (originally 385K) while also marking the third week in a row in which initial claims have fallen.  Additionally, that brings claims to the lowest level since the start of the pandemic.

Taking into account both unadjusted regular state and pandemic unemployment assistance (PUA) programs, claims were actually slightly higher this week.  Combined claims rose from 420.13K to 425.07K.  Albeit higher, that is still the second-lowest level of the pandemic period. The slight increase was entirely a result of PUA claims which rose by nearly 10K. Most of that increase was on account of a 6K increase in Michigan. Meanwhile, non-seasonally adjusted regular state claims continue to have seasonal tailwinds, falling by 5.2K.

Continuing claims showed further improvement falling to 2.866 million at the end of July versus 2.98 million the prior week.  With back-to-back declines, continuing claims are once again at pandemic lows.  Florida, Texas, and New Jersey were the states to report the largest declines.

Including all programs adds another week’s lag to continuing claims meaning the most recent print is through the week of July 23rd. Total combined claims fell to 12.07 million that week with sizable declines across programs.  Pandemic Emergency Unemployment Compensation (PEUC) saw the largest decline with claims falling 393.6K that week, and PUA and regular state claims were also not far behind with over 300K declines of their own. Those offset a 159.2K increase from the extended benefits program. Overall, while continuing claims broadly continue to trend lower, there are still 8.7 million claims between pandemic programs (PUA and PEUC) now with less than a month until the programs’ expiration.  Click here to view Bespoke’s premium membership options.

In today’s Morning Lineup, we noted the charts of the sector ETFs for Materials (XLB), Financials (XLF), and Industrials (XLI) and how each sector has begun to catch a bid this month. Of the eleven sectors, Financials are up the most in August with just under a 6% gain.  Utilities are actually the runner-up with a 3.09% gain in spite of the coincident uptick in rates this month.  Materials and Industrials are also up nicely with gains of 2.42% and 1.55%, respectively.  Shown another way, below are relative strength charts of each of these sectors from our Sector Snapshot. When these lines are rising, they indicate the sector is outperforming the broader market and vice versa when the line is trending lower.  Recently, each of these sectors have seen sharp turns higher after having been in downtrends for most of the spring and summer. In the case of Financials and Materials, those downtrends actually broke multi-month uptrends that had been in place since late 2020.  The bounce in the relative strength line of Industrials, on the other hand, comes as it tested the past year’s uptrend line.  Click here to view Bespoke’s premium membership options.

The NFIB released their July reading on small business sentiment this morning. In today’s Morning Lineup, we highlighted the strength in labor market indicators included in the report. Included in that was the percentage of survey respondents reporting either the cost or quality of labor as their most important problem.  As shown below, 9% and 26% reported as such respectively. On a combined basis, that is 35% of respondents reporting either of these issues as their biggest problem. That is the highest percentage since November 2019 when 36% reported as such. Government-related concerns came in as the biggest problem for the next largest share of businesses.  31% reported either taxes (19%) or government requirements and red tape (12%) as their biggest problems, up from 29% on a combined basis last month.  While higher month over month, that is still multiple percentage points below the recent high of 35% from May.  The other biggest issue that comes in behind labor and government is inflation.  11% of respondents reported that they worry about cost pressures which is actually down from 13% the prior month. While improved, that is still one of the highest readings to date outside of the string of record or near-record readings in 2008.  Click here to view Bespoke’s premium membership options.

Yesterday, the BLS released June data on job openings and labor turnover, also known as the JOLTS report. This alternative view of labor markets is released at a one month lag to the monthly employment situation report which includes the nonfarm payrolls number. In additional to openings, JOLTS also includes a look at quits and other separations from businesses which include retirements, firings, and other departures. Since the data begins in 2000, the average month has seen quits account for about 55% of total separations. Over the last three months, that number has surged to nearly 70% and is sitting at a record level. One thing we can say with great confidence about the current labor market: lots of workers are quitting for greener pastures.  Click here to view Bespoke’s premium membership options.

Chart sources: BLS, FRED, Bespoke Investment Group calculations

One of the widely talked about pandemic trends has been an increased interest in the stock market. Quantifying this, below we show data from Google Trends. These indices track search interest for various terms where readings of 100 are the peak in interest for a given time frame, a reading of 50 would be when interest was half of that peak, and so on and so forth. Google searches for “Stocks” surged to record highs during last year’s bear market and those highs were taken out earlier this year around the time of the meme stock mania in late January. The same could be said for searches for “Buy Stocks”.  Since then, that interest has unwound but current levels are still above most pre-pandemic levels.  (Red dots indicate search levels during the week of August 9th over the last five years.)

The same could be said for search interest for various brokerages.  Taking a look at the most popular, Robinhood, search interest spiked higher during the meme stock mania and GameStop (GME) short squeeze early this year before getting another boost in the spring around the time of the surge in AMC Entertainment (AMC). Interest has moderated since then, though, the past several weeks have seen a boost potentially as a result of the IPO of the company.

Inflation continues to be a macroeconomic subject that is closely watched, but for the time being, people are searching for it far less than earlier this spring.  In May, searches for “Inflation” reached the highest point on record, and while they are still elevated, the reading has come down a bit.  Searches for “Rising Prices” tell a similar story, though, it peaked earlier in the late winter.

With searches for inflation having surged in the past year, we thought it would be worth looking at search interest for some typical hedges like gold.  While these searches also surged to a record recently, it should be taken with a grain of salt, after all, it is an Olympics year. As shown in the second chart below, historically the month in which the Olympics fall usually sees searches for gold spike.

Turning to a more speculative area of the market, below we show searches for crypto-related products.  Bitcoin remains well above most other periods of the past five years but it has been declining and is back below the past year’s range. Additionally, the highs from earlier this year were far from ever hitting the same interest as the craze in late 2017/early 2018.  On the other hand, “Crypto”, “Coinbase”, and “NFT” search interest has come back down to earth after all reaching records earlier this year. These have also seen minor reversals recently with  “NFT” in particular seeing a decent-sized bounce.

While those digital collectibles have seen interest turn around slightly, searches for “Collectibles” more broadly or a more specific term like “Rookie Card” have been drifting lower.  Interestingly, searches for these collectibles certainly got a boost during the pandemic, but they actually began to trend higher just prior in late 2019. Click here to view Bespoke’s premium membership options.

With more and more members of the FOMC talking about the need to taper or when they expect rate hikes to occur, it’s worth looking at the baseline assumptions around the pace of hikes that markets currently price. The spreads between different Eurodollar future maturities allow us to show how much markets think rates will change over a given period.

As shown below, current pricing is for less than 1 hike in 2022. Pricing is more aggressive in 2023 with two hikes while years further out are around 1 hike each, with slightly more aggressive pricing in 2024 than 2025. Of course, market pricing is often wrong – in both directions. This is just what’s currently priced, and the numbers aren’t that dramatic: a total of just more than 5 hikes over 4 years.  Click here to view Bespoke’s premium membership options.

Chart sources: Bloomberg

Bitcoin made a low of $29,307 back on July 20th, which was down 54.8% from its record high made on April 14th.  In the 20 days since July 20th, Bitcoin has now rallied 58% to cross back above $46,000.  (Remember, a decline of 50% means you need a rally of 100% to get back to prior highs.)  As shown below, Bitcoin crossed above a key resistance level in the low $40,000s on its move higher over the last few days, which leaves quite a bit of space between its current level and the next areas of resistance above.

The chart below shows the rolling 3-month correlation between the daily price of Bitcoin and the S&P 500.  Just a few weeks ago, this correlation reading got as low as -0.67, although it has been bouncing higher over the last couple of weeks.  Click here to view Bespoke’s premium membership options.

This year has seen two bouts of interest in highly shorted names. The first in January when GameStop (GME) was the main stock in focus with a short interest as a percent of float above 100%, and again in late May/early June when AMC Entertainment (AMC) became the new poster child.  As shown below, while those two stocks and a handful of other individual names have seen the spotlight this year due to massive short squeezes, in aggregate short interest as a percentage of free float across the US equity market has pulled back over the past couple of years. Some of that decline was erased from February to April, but since the spring, short interest has flatlined.

Below is a Bloomberg index that tracks the 100 most highly shorted US stocks rebalanced monthly and dating back to February 2020. The index remains well off the highs from this February when it surged on the initial squeeze in GME and various other names.  The unwind since then has brought the index down to the longer-term uptrend line that has been in place in the index’s year and a half history.

As for the two stocks that were the main short squeeze names earlier this year, AMC and GME, both stocks are still up huge on the year (1,571.14% and 823.19%, respectively) but have fallen well off their highs and have been trending lower.

Taking a look at what are currently the most heavily shorted stocks in the Russell 3,000, retailers take the top spot with the average stock having a 9.7% short interest as a percent of float.  Pharmaceutical, Biotech, and Life Science stocks are the only other industry in which the average stock has a short interest above 9%.  Autos in addition to Food & Staples Retailing are the other two sectors with notably elevated short interest. Conversely, Banks, Utilities, Insurance, and Commercial and Professional Services have a relatively low short interest versus the Russell 3,000 average of 5.5%.

Taking a more granular look, in the table below we show the stocks in the Russell 3,000 that currently have the highest short interest as a percent of float as well as their year-to-date performance. Recent IPO Reneo Pharmaceuticals (RPHM) tops the list with just under half of its shares sold short.  That is as the stock has gotten crushed since its debut having fallen 40%.  GreenBox (GBOX), Skillz (SKLZ), Beam Global (BEEM), and Workhorse Group (WKHS) round out the top five, all with more than 37% of their float sold short.

Looking across many of the other highly shorted names, though, big losses are pretty common on a year-to-date basis with 60% of these names in the red. That was not always the case, though.  Performance was slightly better two months ago during the AMC saga and performance was even more positive at the GME high one month into the year. 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!

Crypto

What if bitcoin went to zero? (The Economist)

An exploration of a hypothetical decline in bitcoin to $0, with ripple effects not just inside the crypto universe but across the global economy. [Link; registration required]

Tech

Ford slated to spend more on EVs than on internal combustion engine vehicles in 2023 by Jordyn Grzelewski (The Detroit News)

R&D is shifting rapidly away from ICE engines and towards EVs, with the iconic American car and truck brand spending more on electrical vehicle development as soon as 2023. [Link]

Tech Startup Financing Hits Records as Giant Funds Dwarf Venture Capitalists by Heather Somerville (WSJ)

Early rounds of venture funding are no longer the lonely preserve of VCs and angel investors, with other much larger pools of capital that typically stick with more staid investments playing a much larger role in early financing. [Link; paywall]

Apple’s iPhones Will Include New Tools to Flag Child Sexual Abuse by Jack Nicas (NYT)

Changes to iCloud and iMessage will allow Apple to identify illegal child pornographic material (a laudable goal) while also opening up previously ironclad safety and privacy infrastructure to government surveillance. [Link; soft paywall]

A Conspiracy To Kill IE6 (Chris Zacharias)

The story of how a rogue engineering crew inside YouTube destroyed Internet Explorer 6 with a simple banner announcement. [Link]

Poppers

This Man Does Not Make Poppers by David Mack (BuzzFeed)

A series of legal loopholes and decisions to look the other way by regulators have left poppers, a staple of the gay party scene, one of the only party drugs that can be widely purchased. [Link]

COVID

How COVID-19 vaccine supply chains emerged in the midst of a pandemic by Chad P. Bown and Thomas J. Bollyky (PIIE)

A deep investigation into how vaccine production supply chains were developed and scaled, with detailed discussion of government and private sector entities and activity in the process. [Link; 60 page PDF]

Main Street Health July 2021 (Homebase)

With the Delta variant ramping up, employment and open locations have slowed, and there wasn’t any evidence that early halts to unemployment benefits in a range of states had a positive impact on employment at small businesses. [Link; 17 page PDF]

Olympics

When All Else Fails, It’s Time to See the Olympic Body Mechanic by Scott Cacciola (NYT)

US track and field athletes have been turning to one of the best-kept secrets in performance sports, a chiropractor with a very unusual and effective approach to dealing with nagging injuries of all kinds. [Link; soft paywall]

Pricey Travel

Disney Releases Sample 3-Day Itinerary of Star Wars: Galactic Starcruiser Hotel Experience by Shannen Michaelsen (WDWNT)

Two days at the newest and most detailed attraction at Disneyworld are going to run into the thousands of dollars for a family of four, but the action-packed schedule may be well worth it. [Link]

The ‘$27.85 Beer’: High-Flying Prices at Airports Spur Port Authority Concessions Audit Order by Jose Martinez and Aria Velasquez (The City)

Airport vendor prices are famously high, but the gouging underway at LaGuardia and other New York airports is on a truly different level. [Link]

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Have a great weekend!