The S&P 500’s swings higher and then lower over the past week have left sentiment little changed.  For the American Association of Individual Investors’  (AAII) weekly survey, 24.8% of respondents reporting as bullish compared to  23.4% the previous week.  That is the second higher reading in a row but still well below the recent high of 37.5% from one month ago.

Along with a modest bounce in bullishness, bearish sentiment has taken a modest decline falling from a recent high of 44.8% last week down to 41.7% today. That is the first decline in a month, leaving it in the middle of its range since the start of last year.

Given the moves in bullish and bearish sentiment, the bull-bear spread remains skewed in favor of bears for the third week in a row.

Following a sharp eight percentage point decline last week, neutral sentiment has bounced rising to 33.4%.  Albeit higher, outside of last week, that reading would be the lowest since the end of 2022.

Although recent weeks have seen the AAII survey return to deeply bearish sentiment, other surveys are not nearly as pessimistic.  While the AAII survey’s bull-bear spread sits well over a standard deviation below its historical average, the NAAIM Exposure index continues to show only modestly long positioning among active managers. Currently, that reading is 0.2 standard deviations below the historical norm. Meanwhile, the weekly Investors Intelligence survey is actually showing respondents are reporting as more bullish than has been historically normal.  Click here to learn more about Bespoke’s premium stock market research service.

The S&P 500 is rallying this morning in the wake of today’s weekly jobless claims print which gave investors at least some hope that data is flying in the face of the Fed’s recent hawkishness.  Whereas expectations called for initial claims to remain below 200K for the eighth week in a row, claims jumped by 21K to 211K. That is the highest reading since the week of December 24th.

As we have noted in recent weeks, although the seasonally adjusted number has gone on an impressive streak of sub-200K prints, the unadjusted number never fell below that threshold. This week saw the reading rise to 237.5K, the highest since only the second week of the year.  As shown in the second chart below, the first few months of the year have historically seen claims fall with the current week standing out as one with consistently higher claims week over week. Although the direction of non-seasonally adjusted claims this week is not particularly unusual, the 35.4K increase was much larger than the historical median increase of 14k usually seen for the comparable week of the year.

All of that means that claims in general are following seasonal patterns as could be expected. In the charts below, we show the seasonal factors for initial and continuing claims. Essentially, those factors represent how elevated claims are above what has been normal historically (a reading of 100 would indicate a normal reading).  Looking ahead over the next several weeks, seasonal headwinds will persist but not to the same degree as the first couple months of this year.  As for continuing claims, the next several weeks will see seasonal factoring more consistently roll over even more sharply as we enter a period of the year with much less of a seasonal headwind.

Like initial claims, seasonally adjusted continuing claims came in above expectations this week rising back above 1.7 million. At current levels, claims matched the recent high from the week of December 17th which is back in the middle of the pre-pandemic range. Click here to learn more about Bespoke’s premium stock market research service.

Over the past couple of sessions as the market has awaited Fed Chair Powell’s testimony, the S&P 500 (SPY) has not seen particularly large gaps at the open. In fact, both on Tuesday and Wednesday, the opening gap was less than 5 bps in absolute terms. That is the first time with such tiny opening gaps in back to back days since December 28th.  That being said, following the small opening gap yesterday, SPY would go on to have a much more volatile session intraday as it fell over 1.5% from open to close.

In the table below, we show each other time in SPY’s history that there has been an opening gap down of less than 5 bps followed by a decline of more than 150 bps from open to close as was the case yesterday. These types of moves have been rare with only 11 prior instances, the most recent of which was in August of last year. While today saw another small opening gap and has struggled to find a direction so far, following prior instances the S&P 500 has tended to fall further the following session with average declines one week out as well.  While things generally appear more positive one month to three months out, returns are mixed relative to the norm. Meanwhile, 6 month returns tend to be much weaker than the norm with a median decline of 1.6% versus the median for all of SPY’s history of a 5.32% gain.

The past couple of days’ price action in which most of the move happens intraday is a bit unusual in another way as well.  As we have noted in the past and show in the first chart below, going back to the start of SPY’s trading in 1993, nearly all of the its gains have come outside of regular trading hours.  In other words, the moves in the past couple of sessions have essentially been the opposite of what is historically normal.  However, that oddity is not exactly new. As we first noted roughly a month ago, for most of 2023 the after hours strategy of buying the close then selling the open has dramatically underperformed the opposite strategy of only owning when the market is open. Although that relative performance has waned a little given the past couple of days’ moves, the point stands that most of the S&P 500’s move is happening during regular trading hours in 2023.  As is always the case, past performance is no guarantee of future results.  Click here to learn more about Bespoke’s premium stock market research service.

Fed Chair Powell’s testimony on Capitol Hill over the next couple of days will be the main focus of the market, and with perceived hawkish commentary today, things don’t appear to be off to a good start. As Chair Powell highlighted, stronger-than-expected economic and inflation data has lifted expectations for interest rates which has resulted in the S&P 500 erasing earlier gains and trading down 1% on the session as of late morning.

Using data from our Fedspeak Monitor, in the chart below we show the historical average performance of the S&P 500 on days in which there is Fedspeak going back to 2018 when Powell took over as Chair (that only looks at actual Fed speakers and excludes any reports like the Beige Book, FOMC Meetings, and Meeting Minute releases which we also cover in our Fedspeak Monitor). As might be expected, hawkish commentary generally tends to be received poorly by the market with the S&P falling an average of 7.5 bps on those days compared to a 9.2 bps gain on days with dovish commentary.  As for times when the speaker is Chair Powell, a hawkish tone tends to see the S&P 500 react with a decline, however, the 5.8 bps drop is smaller than the norm. That contrasts with Powell’s dovish commentary having been far more well-received by the market. More broadly, and perhaps more surprisingly, any time an active voting member of the FOMC is the speaker the average move in the S&P 500 tends to be smaller in magnitude than when it is a non-voter speaker regardless of whether the tones are hawkish or dovish.  ratesd Click here to learn more about Bespoke’s premium stock market research service.