The typical seasonal September slump for stocks has left the S&P 500 down 1.5% month-to-date. Regardless of the rebound in the past few sessions, the weak start to the month has put a dampener on investor sentiment. In the final two weeks of August, the percentage of respondents reporting as bullish to the AAII Investor Sentiment Survey came in above 50%. Since peaking the week of August 22nd at 51.6%, bullish sentiment has now slid for 3 straight weeks and is down to 39.8%.  That is the lowest level of bullish sentiment and the first sub-40% reading since the first week of June.

With the drop in bulls, bearish sentiment has been on the rise.  Bears came in at 31% today which is the highest level in five weeks and right in line with the historical average for that reading since the start of the survey in 1987.

Bulls falling and bears rising would mean that the survey’s bull-bear spread has pivoted lower.  The spread fell from a reading above 20 last week down to 8.8.  While that is a significant drop, bulls still outnumber bears as has been the case for the past 20 weeks. Through the history of the survey, there have only been 13 other streaks of 20+ weeks of positive bull-bear readings, the most recent of which ended this past April at 24 weeks.

September has historically been a rough month for equities from a seasonal perspective.  As such, sentiment has also tended to be weak. The charts below show the average bull-bear spread reading by month for all years since 1987 and so far in 2024.  Sentiment is usually strongest at the bookends of the year (January and February) and tends to fall in the late-Summer with September marking the annual low.

This year has to some degree followed that pattern. Sentiment was strong in the first two months of the year and unusually carried through into March.  Sentiment slumped in April but began to pick up through July before reversing lower in the past two months.

The AAII survey hasn’t been the only measure of sentiment to moderate lately.   This week’s bull-bear spread in the Investors Intelligence survey similarly dropped with the weakest reading since last November.  The NAAIM Exposure index was modestly higher but continues to show equity exposure was significantly higher a couple of weeks ago. All combined into our sentiment composite, sentiment favors bullishness, but to the weakest level in a month.

Like the AAII survey, although investor outlooks are not as rosy as they were previously, it has been an impressive streak of net bullish readings.  Our sentiment composite has now come in with a positive reading for 20 straight weeks. That immediately follows a 24-week long streak that ended in April with only one week of bearish sentiment in between the two.  Before that, there were only seven other streaks that lasted at least 20 weeks. In other words, it has been an impressively long stretch of bullish investor sentiment.

It’s anyone’s guess where the S&P 500 finishes the day. What we do know is that the S&P 500 once again found itself trading down more than 1% on the day this morning. Today’s move continues an emerging trend from the last two months where the market increasingly finds itself in a 1% hole early in the trading session. To illustrate, the chart below shows the 50-day moving average of the number of trading days when the S&P 500 was down at least 1% relative to the prior day’s close at some point before noon ET. After dropping as low as zero in mid-July just as the S&P 500 was hitting record highs, the frequency of 1%+ declines in the morning has quickly shot up to eight. That’s the highest level since April 2023 coming out of the stress in the regional banks.

From a longer-term perspective, the current frequency of 1%+ declines in the morning is nowhere near extreme levels. During the 2022 bear market, the 50-day moving average spiked as high as 22, and during Covid, it exceeded 24.  During both the Financial Crisis and the bursting of the Dot-Com Bubble, there were periods where the S&P 500 was down at least 1% in the morning on over 60% of all trading days!  Despite these periods of extreme readings, the long-term average number of days that the S&P 500 was down 1%+ in the morning over 50 days is much lower at just 6.2.

What is notable about the current period, however, is that up until a few days ago, the recent period (338 trading days) was the seventh longest on record of below-average readings in the number of 1%+ morning declines. It was also the longest since the 471 trading day streak ending in March 2018. With the yield curve uninverting, the Fed set to cut rates, and an election on the horizon, the relative calm of the last 16 months has faded like a summer fling.

US equities have outperformed the rest of the world for a long time now.  Over the past decade, the US, proxied by the S&P 500 ETF (SPY), has returned 228% compared to a 48% total return for the rest of the world as measured by the MSCI All World Ex. US ETF (ACWX).  On a relative basis, US outperformance has been nearly uninterrupted over this period.

Below is a look at the performance of the US versus the rest of the world since the current bull market for global equities began on 10/12/22.  In this chart, we include the S&P 500 ETF (SPY), another All World Ex. US ETF (CWI), and the Invesco International Dividend Achievers ETF (PID) which holds international stocks with higher dividend yields.

While the US (SPY) is up 58% on a total return basis during the current bull market, the rest of the world (CWI) is up 13.5 percentage points less at +44.5%.  The international dividend stock ETF (PID) is up even less at just 38%.

Looking at the international dividend ETF (PID) over a longer time frame, over the last five years, it’s up 20.6% in price and more than double that on a total return basis.  So dividends re-invested have accounted for more than half of PID’s total return since late 2019.

So which country ETFs available to US investors offer the highest and lowest dividend yields?  Below is a list of as many country-specific stock market ETFs that we could find along with their yield over the past 12 months, their historical average yield, and their year-to-date total return.  The list is sorted from highest 12-month dividend yield to lowest.  (It’s important to understand how ETF dividends and dividends of international equities are taxed based on whether they are qualified or non-qualified.  In non-taxable accounts, investors do not have to worry about the tax rate on dividends received, but in taxable accounts, international dividends are usually considered non-qualified.  You can read more about dividend taxes on ETFs here.)

As shown at the bottom of the table, the average 12-month dividend yield of all country ETFs shown is 3.26%.  That compares to SPY’s 12-month dividend yield of just 1.24%.  Currently, the US ranks near the very bottom of the list when it comes to dividend yields.  There are a good chunk of country ETFs that currently yield more than the 2-year and 10-year Treasury notes.

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