The first employment report of 2023 certainly surprised everybody.  While economists were expecting an increase of 188K non-farm payrolls, the actual reading came in at 517K, exceeding expectations by 329K.  Going back to 1998, that was the fifth-largest beat relative to expectations and the strongest since last January’s Non-Farm Payrolls report (hence the commentary that seasonal adjustments are a factor in the large beat).  While January’s report was ‘only’ the fifth strongest relative to expectations going back to 1998, all of the larger beats have come in the post-pandemic period, so COVID has obviously skewed things and in many cases to a large degree.  What we can tell you is that Friday morning’s report was the tenth straight better-than-expected report which is a record and easily surpasses the prior peaks in September 2020 and March 2015.

Looking at the pace of job creation over the last year, the US economy has added 4.967 million jobs in the last twelve months, and while that’s well off the peak from prior readings in the last two years, it still remains extremely elevated relative to history.  Prior to COVID, for example, the peak total of job creation over a rolling 12-month period was 3.37 million, or just under 1.6 million below current levels. Click here to learn more about Bespoke’s premium stock market research service.

Given the collection periods ending last night at midnight at the absolute latest, the latest sentiment surveys would have hardly captured shifts in outlook following the latest FOMC decision or the strong market reaction to the FOMC.  That is to say, the latest AAII sentiment survey can be considered a bit stale. Regardless, the latest week’s survey from AAII showed a modest increase in the percentage of respondents reporting as bullish.  While still below the high of 31% from two weeks ago, 29.9% of investors reported as bullish this week.

It is a similar picture for bearish sentiment.  34.6% reported as bearish in the latest week which remains at the low end of the past year’s range of readings but slightly above the more recent low from two weeks ago.

Without any major shifts in bullish or bearish sentiment, bears continue to outnumber bulls as has been the case for a record 44 weeks in a row.  That being said, the bull-bear spread has been showing single-digit readings for three weeks in a row.  The only other time during the streak of negative readings that the same could be said was last August.

While the record streak of overall bearish sentiment readings lives on for the AAII survey, combining the AAII survey with other sentiment readings like the NAAIM Exposure Index and the Investors Intelligence survey shows sentiment is finally back to bullish, if even just barely. As shown in the first chart below, the average sentiment survey is now very slightly above historical average readings.  That is the first time this has occurred in over a year, bringing to an end a record streak of negative readings. Click here to learn more about Bespoke’s premium stock market research service.

Jobless claims continue to impress with the latest reading on seasonally adjusted initial claims dropping to 183K which is the lowest level since April 2022.  Claims have now declined in four of the last five weeks and have shown sub-200K prints in each of the past three weeks.

On a non-seasonally adjusted (NSA) basis, claims are falling sharply as would be seasonally normal at this point of the year.  In fact, this week and last are two of the weeks of the year that have most consistently seen a lower sequential reading in claims on a historical basis.  As shown in the second chart below, last week has never seen claims move higher week over week while the current week of the year has only seen an increase 9% of the time.  While NSA claims were lower this week, it was not by much with the reading falling from 225.23K to just 224.36K.  The only other time claims have fallen by less than 1K during the comparable week of the year was in 2006. Although the most recent week’s data was not as strong as might be expected given seasonality and that very well could be a result of recent layoffs, claims remain at historically strong levels.

As for continuing claims, which are lagged an additional week to the initial claims number, the latest reading came in at 1.655 million versus expectations for an increase to 1.684 million.  Unlike initial claims, continuing claims are much further above last year’s lows, however, the past several weeks have marked a pause in what had been a steep uptrend that had developed in the back half of last year. Additionally, as for the actual level of claims, the most recent readings remain impressively strong and consistent with pre-pandemic levels that had not been seen in around 50 years. Click here to learn more about Bespoke’s premium stock market research service.

Please click the image below to view our February 2023 market calendar.  This calendar includes the S&P 500’s historical average percentage change and average intraday chart pattern for each trading day during the upcoming month.  It also includes market holidays and options expiration dates plus the dates of key economic indicator releases.  Click here to view Bespoke’s premium membership options.

Taking tabs on the strong first month of the year, at multiple points in the past day we highlighted (see here, here, and here) which areas were the best performing parts of the market.  In January, sectors like Tech, Communication Services, and Consumer Discretionary saw massive outperformance following the opposite playing out throughout 2022.  Another significant point to these sectors is that they are home to some of the largest stocks in the S&P 500 by market cap; meaning those largest stocks have outsized impacts on the moves in the market cap-weighted S&P 500.  As such, a massive portion of the S&P 500’s gains in January came from only a handful of names.

In the table below, we show the ten stocks which had the largest impacts on the S&P 500 index level moves. With double-digit percentage rallies during the month, the largest stocks in the index with market caps of more than $1 trillion like Apple (AAPL) and Amazon (AMZN) top the list.   Those two alone accounted for over a fifth of the S&P’s gains in January.  Impressively, adding in the rest of the top ten largest contributors (which account for roughly a third of the S&P 500’s total market cap) shows that those ten names combined had nearly the same impact as the hundreds of other stocks that make up the index.

Although mega caps, and thus a handful of sectors, have provided an outsized boost to the S&P 500 to start out the year, the market’s rally has still been broad-based as breadth has been quite positive. As shown below, the S&P 500’s cumulative advance-decline (A/D) line has been grinding higher and making new highs even as price has not been as strong. In other words, a large number of stocks are moving higher even if a small number of stocks are pulling more than their fair share of the load. Click here to learn more about Bespoke’s premium stock market research service.