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“You only live once, and the way I live, once is enough.” – Frank Sinatra
Below is a snippet of commentary from today’s Morning Lineup. Start a two-week trial to Bespoke Premium to view the full report.
Heading into today’s PPI report, US equity futures took a breather after yesterday’s rally. While S&P 500 futures were just marginally lower, Nasdaq futures were down by a more sizable amount, indicating a decline of nearly 0.5%. Yields are up by a couple of basis points across the curve, crude oil is back above $70, and Bitcoin has held above $100K overnight for now at least.
The just-released November PPI came in hotter than expected at the headline level (0.4% vs 0.2%) and October’s reading was revised up from 0.2% to 0.3%. Ex food and energy, producer prices were inline with forecasts at 0.2%. While inflation data was on the hot side, jobless claims were weak. Initial claims spiked up to 242K versus forecasts for a reading of 220K while continuing claims also came in 9K higher than expected at 1.886 million. In response to the data, equity futures added modestly to their pre-market losses while yields erased most of their morning increases.
The Nasdaq broke out to a record high yesterday, and the S&P 500 finished within one-tenth of a percentage point shy of hitting its 58th record closing high this year, and the S&P 500 is up 27.5% for the year. With numbers like these, you can’t fault investors for being optimistic about the stock market. By just about every sentiment measure out there, investors have embraced the bull market, but many of the indicators we track seem somewhat restrained relative to the magnitude of the market’s gains.
Take the weekly sentiment survey from the American Association of Individual Investors (AAII). In the latest update this week, bullish sentiment declined from 48.3% to 43.3%. Bulls still outnumber bears by over ten percentage points, but current levels are hardly extreme, and the weekly reading has been higher on just over 20% of all other weekly readings since the start of 2009.
Taking a closer look at bullish sentiment during the current bull market, the peak sentiment reading was just under a year ago on 12/21/23 when bullish sentiment reached 52.9%. Back in July shortly before the August pullback, bullish sentiment got close to that December reading reaching a level of 52.7%. Since then, bullish sentiment has been gradually trending lower with multiple lower highs and lower lows.
One reason sentiment has remained contained lies in the fact that breadth has been incredibly weak in recent days. As noted yesterday, the S&P 500’s daily breadth reading has been negative for eight straight trading days. Just over the last five trading days, the S&P 500 is essentially unchanged (-0.03%), but nine out of eleven sectors are lower with five down over 2%! Not exactly what you would associate with a year-end rally.
