Bears Head to Hibernation Early
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.
Traders Much Less Enthusiastic Now Versus 2021
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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Chart of the Day – Cruising To New Highs
Bespoke’s Morning Lineup – 10/10/24 – “Routine” Gains
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“At first, dreams seem impossible, then improbable, and eventually inevitable.”– Christopher Reeve
Below is a snippet of commentary from today’s Morning Lineup. Start a two-week trial to Bespoke Premium to view the full report.
As Florida recovers from Hurricane Milton and investors prepare for the latest round of economic data, equity futures are just modestly lower, treasury yields are higher, and crude oil is modestly higher. In Asia, equity markets in the region were higher across the board. Australia and Japan were modestly higher while Hong Kong rallied 3% and China was up just over 1%. In Europe, the tone has been less positive as the STOXX 600 trades down 0.2%, and most individual country benchmarks are also lower. Retail Sales in Germany increased 1.6% y/y versus 1.5% in July. Industrial Production in Italy rose just 0.1% m/m versus expectations for an increase of 0.3% but was still up from a decline of 1% in July.
Economic data just hit the tape, and each report went in the wrong direction in terms of the economic impact. CPI data came in higher than expected on both a headline and core basis. Headline CPI increased 0.2% m/m versus expectations for an increase of 0.1% while core CPI rose 0.3% which was also a tenth higher than expected. Jobless claims, on the other hand, both surpassed expectations. Initial claims came in at 258K versus forecasts for a reading of 230K. That’s a pretty significant miss, but looking at the state-by-state numbers, the ones impacted by Hurricane Helene all saw large increases. North Carolina, for example, saw claims surge by over 8K alone.
Besides today’s CPI report and jobless claims, one big area of focus today will be Tesla Robotaxi Day after the close, and investors are expecting the company to shed light on its plans for a ride-hailing fleet of self-driving Teslas. Expectations are high regarding Musk’s vision, but investors probably aren’t expecting much in the way of an actual ready-for-the-wild vehicle. Tesla still has a way to go before getting approval for full-self driving, and Waymo, which currently holds the lead in this space, only operates a limited fleet in a limited number of areas.
Keep in mind, though, that however pie in the sky the concept of getting in a car without a driver feels today, it’s only a matter of time. iPhones, cloud computing, Uber, and even for most people, remote work, didn’t exist 15 or 20 years ago, and now they’re routine parts of our days. Only a little more than a few years ago, if you left for work and forgot your phone you probably decided to go the day without it. Today, you can’t get very far out the door without it. ChatGPT isn’t even two years old, and already has over 180 million users! As Christopher Reeve said above, the impossible becomes inevitable and the inevitable becomes routine.
The S&P 500 closed at another all-time yesterday for the first time this month after five record closes in September. Record closing highs are starting to feel somewhat routine for the market these days, and this year’s total of 44 already ranks as the 11th most since 1954.
Looking at the chart, nothing is guaranteed, but it will only take a couple more closing all-time highs to crack the top ten. With 56 trading days left in the year, there’s even a decent chance that this year could crack the top five (56) if the market averages one new closing high per week. It’s also technically possible but also unlikely that the record of 77 could be reached, but that would require a record high at a pace of about two every three days. Even reaching the 70 in 2021 would require a pace of about one every other day. New closing highs may feel routine, but they’re unlikely to become that routine.
The Closer – Bullwhip, Financial Conditions, EIA – 10/9/24
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Chart of the Day – Here Comes the Hurricane
Bespoke’s Morning Lineup – 10/9/24 – Semi Positive
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“I believe in everything until it’s disproved.” – John Lennon
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There’s not much economic data on the calendar this morning but a ton of Fedpseak scheduled, so there is the potential for some volatility around these speeches throughout the day. Futures indicate a modest decline at the open but they are off their overnight lows after major overnight volatility in China. The Shanghai CSI 300 fell over 7% as the Chinese government looks like it has under-delivered on stimulus expectations. Last night’s decline was the largest since early on in the Covid crash, and the ASHR ETF that trades in the US is on pace to crash 20% in two trading days! The only other time it fell over 20% in two sessions was in the summer of 2015 when the Chinese government devalued the yuan. If you thought crypto was volatile, it looks like a ‘widows and orphans’ asset class compared to the moves in China over the last few weeks.
In today’s Morning Lineup, we covered the latest sales results for Taiwan Semi (TSM) and much of those sales come from Nvidia (NVDA). NVDA has rallied over 14% in the last week taking its market cap back above $3 trillion and ahead of Microsoft (MSFT). With a market cap of $3.26 trillion, the only company with a larger market cap than NVDA is Apple (AAPL) at $3.43 trillion. The gap between the two companies is now roughly $170 billion, or one Disney (DIS).
NVDA’s stock had a pretty rough summer. After peaking in June, the stock made a series of lower highs with each successive rally attempt. After its late August lower high, though, the ensuing pullback bottomed out at a higher low, and the pullbacks became milder as the stock rallied back above its 50-day moving average. After successfully testing its 50-day moving average last week, the stock has rallied, and yesterday’s 4% rally enabled the stock to make its first ‘higher high’ since June.
NVDA’s technical picture may be improving, but the picture for the semiconductor sector isn’t as strong. While the Philadelphia Semiconductor Index (SOX) has rallied above its 50 and 200-day moving averages (DMA), it has been hung up at resistance all summer. One bright spot for the sector is that the early September sell-off wasn’t as deep as in August. So, while the SOX may not yet be at the point of making higher highs, there has been a higher low. It’s a start!
Unfortunately, the relative strength of the SOX versus the S&P 500 doesn’t look as promising. September’s sell-off was deeper than August’s relative to the S&P 500, and the subsequent bounce back has also been weaker. In last week’s quarterly Pros and Cons report, the recent performance of semis showed up on the negative side of the ledger, and this chart is a big reason why.
The Closer – Treadmill, Sentiment, GDP – 10/8/244
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Looking for deeper insight into markets? In tonight’s Closer sent to Bespoke Institutional clients, we start tonight with a look into US automaker performance and the S&P 500’s rally sans drawdown (page 1). We then review the latest investor sentiment data (page ) in addition to economic sentiment data from our Consumer Pulse report (page 3). We then check in on GDPNow (page 4) before finishing with rundowns of the latest delinquency data (page 5) and the 3-year note auction (page 6).
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Chart of the Day – Negative Analyst Sentiment Across Sectors
Insurance Cost Concerns Surging
Within the NFIB’s Small Business Optimism report, the survey also provides a look into what firms are seeing as their biggest challenges each month. In September, inflation once again came in at top of mind with 23% of businesses reporting this as their biggest issue. Quality of labor and taxes were the two next most common concerns and the only others that single-handily accounted for double-digit shares. Of those, quality of labor saw a particularly large 4 percentage point drop last month.
As mentioned above, taxes were the third most common response in September at 14%. That was up slightly from 13% the month prior. Government requirements and red tape also rose a percentage point and combined the two problems made for 23% of responses. As the election closes in, that is actually a relatively small increase in these concerns as other indicators like the Economic Policy Uncertainty Index have surged.
At a combined 23%, government-related concerns on a combined basis equal the share of businesses reporting inflation as the biggest problem. As mentioned previously, inflation responses were lower month over month. Additionally, current levels are much lower than they were at the peak a couple of years ago. That said, current levels also remain very elevated historically, remaining in the upper decile of readings.
Factoring other categories that can be inflationary-adjacent, the picture changes slightly. One interesting area that has seen a surge recently is the cost or availability of insurance. That index is up to 8% of responses versus only 3% three months ago. That is the most elevated reading since the August 2021 spike to low double digits. Although that is the highest reading in a few years, this problem is not yet elevated from a longer-term historical perspective with September’s reading actually matching the historical median. Furthermore, combining a range of expense-related categories (inflation, cost of labor, and cost/availability of insurance) shows that there has been an uptick in cost concerns over the past few months, but things aren’t quite as bad as they were a couple of years ago.
Speaking of cost of labor, the combined share of businesses reporting cost or quality of labor as their biggest problem has continued to trend lower, consistent with a cooling labor market. With September’s reading coming in at 26%, it was the lowest reading since the spring of 2020.
