After a sharp 7.7 percentage point rise last week, bullish sentiment as measured by the American Association of Individual Investors (AAII) weekly survey pulled back this week falling to 40.2%.  While lower, that is still a few percentage points above the levels observed throughout most of May and is roughly 2 percentage points above the historical average of 38.03%. From a contrarian perspective, the more modest readings on sentiment recently are a welcome change from the elevated readings seen earlier this spring and in the winter.

Bearish sentiment tipped back above 20% this week, though, that is still a muted reading in the bottom 5% of the past decade’s range. In fact, the current level of bearish sentiment is around 10 percentage points lower than the historical average of 30.5%.  Looking at another sentiment reading, the Investor’s Intelligence survey of newsletter writers saw bearish sentiment fall to 16.2% which is the lowest level since September.

That means sentiment continues to largely favor the bulls, but the drop in bullish sentiment was not matched by an equivalent rise in bearish sentiment. Instead, the bulk of those losses went into the neutral camp.  The percentage of investors reporting as neutral has continued to climb reaching 39.1% this week. As has been the case consistently over the past month, that is the highest level in neutral sentiment since the first few weeks of January 2020 when over 40% of respondents reported as such. Click here to view all of Bespoke’s premium membership options.

Initial jobless claims were expected to fall another 15K this week as forecasts were calling for a reading of 370K.  While claims did not live up to those expectations, they did make another move lower falling 9K to 376K.  That is now just 120K above the levels from last March, right before claims began to print in the millions.

WIth another sequential decline, seasonally adjusted claims have now fallen for six weeks in a row. That is about half of the record streak of 13 weeks long that ended in early July of last year. Outside of that streak, there have only been six other streaks as long as the current one and only two of those, one in 1980 and the other in 2013, went on for seven weeks.

Those improvements in initial claims were shared on a non-seasonally adjusted basis.  Claims from regular state programs fell below 400K for the first time since last year reaching 367.1K. Pandemic Unemployment Assistance (PUA) also set a new low with claims totaling just 71.29K; down only about 2K from the prior week. Although that was a minuscule improvement, the PUA program has massively been unwound over the past few months as we close in on the end dates for the program in half of US states. In fact, this week will mark the exit of the program for Alaska, Iowa, Mississippi, and Missouri.  In the most recent week’s data, these four states accounted for 1.7K initial PUA claims and 72.3K continuing PUA claims, or 2.5% and 1.14%, respectively, of PUA claims nationally.

Since the start of the year, the improvements in continuing claims had been decelerating, coming to a head over the past couple of months with multiple upticks.  This week offered a sigh of relief as claims fell 258K to 3.499 million.  That was not only the biggest one-week drop since March 12th’s 282K decline, but it also brings claims to the lowest level since the week of March 20th last year.

On a non-seasonally adjusted basis and factoring in all other programs (which creates another week’s lag), the picture has been generally more positive.  The most recent week’s data through May 21st showed total claims across all programs fell from 15.473 million to 15.376 million, the lowest level of the pandemic. A small uptick in claims from regular state programs was offset by sizable drops in PUA, PEUC, and Extended Benefit claims.  Click here to view all of Bespoke’s premium membership options.

The S&P 500 Energy sector is by far the best performing sector year-to-date with a gain of 45.2% through yesterday.  As shown below, Energy is outperforming the S&P 500 by roughly 33 percentage points so far in 2021.

Given its huge outperformance so far this year, it’s pretty remarkable that Energy is still lagging the S&P 500 over the last 12 months.  As shown below, Energy is only up 22.8% year-over-year versus the S&P 500’s gain of 31.6%.

And longer-term, Energy’s performance on an absolute basis and relative to the S&P 500 remains horrible.  Over the last 5 years, the Energy sector is down 18.7% versus the S&P 500’s gain of 99.5%.

Over the last 10 years, Energy is down 24.9% versus the S&P 500’s gain of 227.4%!

It’s not until we go back 20 years that Energy gets back into the green.  Since June 2001, Energy is up 69.4% while the S&P 500 is up 233.6%.

Energy has finally experienced some outperformance versus the broad market in 2021, but its 45% gain year-to-date hardly makes up any ground when looking at the sector’s performance in the 2010s.  The sector still has a LOT of catching up to do.  Click here to view Bespoke’s premium membership options and sign up for a trial.

It’s been quite a rangebound period for the S&P 500 over the last few days.  Over the last 12 trading days, the spread between the S&P 500’s intraday high and low has been just 1.65% which ranks as narrower than any other period since July 2019.  More recently, the upside has been especially capped.  Ever since the start of June, the S&P 500 has made multiple attempts to take out its 5/7 record high, but each time it has failed.  In just the last four trading days, if the S&P 500 doesn’t take out its record high today, the S&P 500 will have traded within 0.15% (0.11%, 0.14%, 0.03%, and 0.02%) of its all-time high from early May, but each time failed to take it out.

Coming up so close so often but falling short each time has to be disheartening for bulls, and it doesn’t happen particularly often either.  The chart below shows streaks where the S&P 500’s intraday high came within 0.25% of an all-time but didn’t quite make it.  Since intraday data for the S&P 500 begins in 1983, there have only been four other streaks of similar or longer duration.  The first two were in the early 1990s, and then it wasn’t until 2016 that we saw a streak of six days.  After that 2016 occurrence, there were two occurrences in the first half of 2017.  Click here to view Bespoke’s premium membership options and sign up for a trial.

Glancing through the US Groups ETF screen of our Trend Analyzer, by far the best performer over the past week has been the Dynamic Leisure and Entertainment ETF (PEJ).  The portfolio is largely comprised of reopening stocks like restaurants, travel companies, and various forms of entertainment both live and otherwise. PEJ has rallied 11.77% in the five trading days ending yesterday in a move that has moved it deeply into overbought levels as it sits 16.71% above its 50-DMA.  As the next best-performing ETFs in this screen, oil-related names like the S&P Oil and Gas Equipment and Services ETF (XES) and Oil Services ETF (OIH) have both risen well over 7% and are even more extended above their moving averages in percentage terms. As for the other ETFs, the S&P Biotech ETF (XBI) is another top performer and is the only one that is not overbought at the moment. Granted, it has retaken its 50-DMA in the past week, and its longer-term trend is worse than the rest of the screen.

Pivoting back to the Dynamic Leisure & Entertainment Portfolio ETF (PEJ), the double-digit move in the past week is actually part of a longer near-vertical move that began in mid-May.  Since the May 12th low, PEJ has rallied 28.72% through today moving it to within 2% of its 52-week high from back on March 15th.  Additionally, looking just at the nearly 12% rally of the past week, a massive portion of the move came last Wednesday when it rose over 10% in a single session. In fact, last Wednesday was so volatile that even after a few days of higher closes, it is still below last Wednesday’s intraday high.

It is hard to mention parabolic moves these days without some mention of a meme stock, and of course, the massive move for PEJ is meme-related.  Below we show the ten best-performing holdings of PEJ over the past week. Topping the list is AMC Networks (AMCX) with a 31.67% gain in the past week alone.  After that move, AMCX is just shy of doubling year to date.  While sharing a similar name, AMCX is not to be confused (although the meme traders seem to be doing just that) for AMC Entertainment (AMC) which has taken center stage with regards to meme stocks lately. In other words, the AMCX has gotten caught up in the meme stock mania alongside AMC. While AMCX is up big, the chart is extremely extended above its 50-DMA, and at the moment is setting up in what appears to be a head and shoulders pattern. From a technical perspective, that is viewed as a bearish pattern, and for that pattern to be confirmed, it would have to fall below the past several months’ support at around $44 after failing to move above the January and more importantly mid-March highs.

While it has no doubt had an impact, the move in PEJ has not solely been due to the strength of AMCX. The stock only ranks as the tenth-largest holding accounting for 3.26% of the portfolio. There have also been a handful of other strong performers pulling weight like Lions Gate Entertainment (LFG/A) and Cheesecake Factory (CAKE) which both have risen over 9%. Everi (EVRI) has also risen considerably, notching an 8.29% five-day gain.  Click here to view Bespoke’s premium membership options for our best research available.

In addition to getting a gauge on small business optimism, the NFIB’s monthly survey of small businesses also asks respondents about the biggest issue they face operating their businesses. On a combined basis, the biggest concern among small businesses is taxes or government red tape. Combined, these two issues were reported as the biggest problem for 35% of surveyed firms with taxes being the main culprit after rising 3 percentage points month over month.  Right on the heels of government-related concerns, labor concerns loom large.  34% of respondents said that cost or quality of labor pose the biggest issue their business face with costs accounting for 8%, unchanged from last month, while the quality of labor jumped from 24% to 26%. For the latter, that is in the top 1% of all readings hitting the highest level since November 2019. If there is any positive to pull out of what Main Street views as the biggest problems, it is the lack of companies citing poor sales.  Just 5% of respondents saw this as the biggest issue; down 13 percentage points versus last year, and it is now at the lowest level since September 2018.  On the downside, the number of firms reporting problematic inflation has risen rapidly going from 2% at the end of 2020 to 8% today. Such an elevated reading has not been observed since April 2012. Click here to view Bespoke’s premium membership options for our best research available.

The NFIB released its monthly reading on the sentiment of small businesses this morning. In the past, we have noted how the results of this survey are often correlated with political happenings. As such, the index dropped in the wake of the election but found a bottom in January.  Since then, it has remained weaker than during the Trump years, albeit it has also improved almost every month this year. That is except for the most recent month. May snapped a three-month winning streak with a slight decline from 99.8 to 99.6.

With the headline number slightly lower, breadth in the May report was fairly mixed.  Of the ten inputs to the optimism index, half were higher, two went unchanged, and three were lower versus April’s readings.  Three of those indices that moved higher—Plans to Increase Employment, Current Inventory, and Job Openings Hard to Fill—set new records. While it is not an input to the headline reading, the index for Higher Prices also rose to a new record high. Overall, the survey implied generally strong conditions with a few areas of concern: labor market tightness and inflation.

The report showed solid realized sales as the index of Actual Sales Changes rose 4 points to 7.  That marks a return to pre-pandemic levels. On net, a higher share of businesses also expects sales to continue to improve, although only at 3, the index is still at the low end of its historical range. In spite of the higher actual sales, a higher share of businesses are reporting worse bottom-line results versus the prior three months as the index for Actual Earnings Changes fell to -11.

In an attempt to make up for those weaker margins, a record share of businesses also are reporting that prices are higher than three months ago. A net of 40% of respondents reported that they are raising average selling prices; a record high in the data dating back to 1986. The NFIB noted that price hikes were most common for wholesalers (65% reported higher prices vs. 2% lower) and manufacturers (47% reported higher prices and 1% reported lower).  That is consistent with other data of the past few months showing prices are flying higher. Likely as a result of all of this in addition to other labor concerns (more on that below), the Outlook for General Business Conditions fell to -26, the lowest level since 2012 and in the bottom 1% of all months. Additionally, the share of businesses reporting now as a good time to expand ticked lower.

One major area of strength, at least in terms of demand, is employment. A net 27% of respondents reported that they plan to create new jobs within the next three months; surpassing the prior record high from August 2018 by a full point.  But even though businesses are putting the offers out there, on net fewer businesses reported an actual employment change. In fact, that index fell sharply by 6 points; a move that ranks in the bottom 2% of all monthly changes. Additionally, a record share of businesses reporting job openings as hard to fill as 34% of businesses report their biggest problem to be either the cost or quality of labor. That is indicating significant labor market tightness.  As a result, more businesses are or are planning to raise compensation with those indices at the highest levels of the past year and consistent with readings from 2017 up through the onset of the pandemic. Those higher costs are likely one reason for the weaker reading in actual earnings changes and higher selling prices previously mentioned.

As for the other side of the production function, capital expenditures are not being raised in any sort of significant way nor are plans to increase expenditures. Potentially to get ahead of the strong demand and labor supply mismatch, businesses are raising inventory levels with a record share of businesses reporting that current inventory levels are “too low”.  Rising to 8, that index took out the joint high of 7 from last month and December.  Click here to view Bespoke’s premium membership options for our best research available.