It was a busy morning for economic data, and there wasn’t much to like at first glance. On top of a hotter-than-expected inflation print, weekly jobless claims came in above expectations on both an initial and continuing basis. The previous week’s seasonally adjusted initial claims reading was unrevised at 225K, and this week’s reading was expected to tick up to 230K. Instead, claims surged up to 258K matching the high from the week of 8/5/23 for the most elevated reading since 8/17/23.  Outside of the extremely elevated readings observed through the pandemic, current levels are some of the highest since the fall of 2017.

On a non-seasonally adjusted basis, claims were up to 234.8K.  As shown in the second chart below, claims have generally followed the usual seasonal track this year with declines throughout the first half followed by a brief bump in the summer that reversed until bottoming in the early fall. From September through year-end, claims have historically tended to rise, and that exact result appears to be playing out again.

While a week-over-week increase in the current week of the year is typical (such has been the case 86% of years historically), this week’s jump of 53.6K was more than twice as large as the historical average. Furthermore, the last time the comparable week of the year saw as large of an increase was in 2013.  In other words, the direction of claims could be expected, but the magnitude of the move was more of a surprise.

Fortunately, most of the big jump in claims this week can be explained.  For starters, Michigan alone accounted for 30% of initial jobless claims as it saw an outsized increase with claims more than doubling to 16.27K versus 6.8K the prior week.  The report indicated that these were due to layoffs in the manufacturing sector. The even larger contributors to claims were the states affected by Hurricane Helene.  In the heatmap below, we show each state’s week-over-week percentage change in non-seasonally adjusted initial jobless claims.  As shown, those states in the direct path of Hurricane Helene and where the most severe damages occurred like South Carolina, Tennessee, Kentucky, and Florida all saw a massive increase in claims and accounted for more than half of all national claims on a combined basis.

The state with the single largest percentage jump was North Carolina where claims surged 290% WoW. Going back to 1986 when state data starts, the only other times (outside some seasonal blips around year-end) when claims rose as much were the onset of the pandemic, Hurricane Florence in September 2018, and during the recession in September 1990.

To summarize, national jobless claims have deteriorated with the caveat that a significant portion of that damage is weather-related.  Below we show the national claims count (adjusted for seasonality) as well as claims excluding those storm-effected states (Florida, North Carolina, Tennessee, and Kentucky) with national seasonal factoring applied. As shown, with or without those storm-hit states, seasonally adjusted claims have risen in the past few weeks. Excluding those states, though, claims wouldn’t even be at summer highs let alone some of the highest levels in recent years.

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The latest sentiment data from the American Association of Individual Investors was published today. The release indicated the percentage of respondents with a bullish outlook for equities over the next six months ticked up to 49% versus 45.5% previously.  While sentiment was more elevated only two weeks ago and was above 50% three weeks ago, this week’s reading still indicates a high level of bullish investor sentiment.

While bullish sentiment didn’t reach any new highs, bearish sentiment earned more of a superlative.  As shown below, bears dropped to only 20.6% for the lowest reading since December 14, 2023.

This week we got an update from the Schwab Trading Activity Index, also called the STAX.  We initially covered this data in Tuesday’s Closer for subscribers, but we also wanted to highlight it here on Think BIG.

Whereas most investor sentiment readings like the AAII survey directly ask investors how they feel about the market, indicators like the STAX are derived by measuring what retail investors are actually doing in their accounts.  In September, Schwab’s Trading Activity Index fell to 47.1, which is the lowest reading since January.  That drop occurred even though the stock market continued to rally to new all-time highs.

The STAX data dates back to 2019, and as shown below, the index surged in late 2020 through late 2021 during the first post-COVID bull market when Americans were flush with stimulus cash and were actively bidding up pretty much everything that traded!  At the time, the STAX index saw record highs with readings above 75 in June and November 2021.  November 2021 was ultimately the peak for growth stocks before the bear market of 2022.

Notably, there’s a big difference between the STAX reading now versus 2021.  The stock market is currently up 60%+ off the late 2022 lows and has registered 44 all-time highs already this year. Similarly, the market was also making a new high after a new high back in 2021. During this year’s rally, though, the STAX has remained quite subdued compared to going gangbusters in 2021.  This tells us that there’s less complacency, enthusiasm, and overall interest in the market right now versus 2021 levels, which is good if you’re a long-term bull.

The Schwab STAX index was established in 2019, but before TD Ameritrade’s acquisition by Schwab, it had a counterpart index called the Investor Movement Index that featured data dating back over a decade. Standardizing the two indices shows they’ve had comparable readings with only minor discrepancies.  As mentioned earlier, current sentiment levels are much more depressed than at the time of past record S&P 500 highs like in 2020/2021 and 2017.  During those periods, these trader activity indices were well over 2 standard deviations above the historical average.  Right now, they’re basically neutral, meaning retail investors are neither overly bullish or bearish.

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