With the S&P 500 pulling back in the past week, sentiment has likewise taken a less optimistic tone.  This week’s AAII sentiment survey showed 42.2% of respondents report as bullish compared to 49% one week ago.  Although that is lower, the bullish reading is still well above the historical average of 37.6% and is only at its lowest level since the end of January.

While sentiment currently holds a bullish bias, things are not exactly extreme. For example, back in December more than half of respondents reported as bullish and the current level of bulls only ranks in the 69th percentile of all weeks on record. What is perhaps more impressive is how consistently sentiment has stood at bullish levels.  As shown below, over the past four months 87.5% of weeks have seen bullish sentiment come in above 40%.  Such consistency of this level of bullishness has not been observed since April and May of 2021.  Prior to that, you’d have to go back to January 2015 to find as elevated of a reading.

Meanwhile, bearish sentiment ticked up from 22.6% last week to 26.8% this week. That is the highest reading in a month, but inverse to bullish sentiment, it remains well below the historical average of 31%.

Given there has been consistent readings of bulls above 40%, there is also an impressive streak for bearish sentiment. This week marked the fifteenth consecutive time that bearish sentiment has come in below 30%.  That is currently the longest streak since July 2021, and prior to that, there have only been a handful of other streaks that have lasted as long.  There was another 15 week long streak that ended in January 2014 but you’d have to travel back another decade to find the next streak of similar length.

The price of bitcoin took out its early January high and topped $52,000 for the first time since December 2021 today.  Bitcoin’s price traded at a short-term peak in early January just as the ETPs tracking the largest cryptocurrency started trading. From that high on January 11th, prices pulled back over 21% in less than two weeks which, even for bitcoin, is a steep decline in such a short period.

As bitcoin pulled back from that early January high, it looked as though its price would follow a similar path to the one it tracked following other approval milestones.  In December 2017, after bitcoin futures launched, prices almost immediately peaked and plunged more than 80%.  Then again in October 2021, when the bitcoin futures ETF first launched, prices peaked shortly after once again, resulting in what was ultimately another decline of close to 80%.

As we noted a couple of weeks back, the one difference between the launch of the bitcoin ETPs in January and the other two periods was that while bitcoin’s price was at or right near record highs at each of those prior two points, it was still down over 30% from its all-time high this time around.  While “investors” may have been enthusiastic ahead of the launch, the level of excitement was not nearly as strong as it was in late 2017 and late 2021. Even after today’s run to multi-year highs, bitcoin is still more than 25% below its all-time high.

In an earlier post, we discussed the latest findings per the NFIB’s Small Business Economic Trends report.  The report also surveys firms on what they consider to be their most pressing issues. In January, there were some minor shifts in these readings. Overall, cost or quality of labor (combined) accounts for the largest share of small business problems at 31% of firms.  That is followed by government-related concerns like taxes or red tape. Again combined, those issues account for just under a quarter of responses.

Inflation also ranks highly among small businesses, but this reading has improved markedly since peaking at 37% in July 2022.  Counter to the hot CPI print today, there was a 3 percentage point drop in January in the share of businesses saying inflation is their biggest problem.  Of course, that remains at a historically elevated level, matching the 2008 peak.

Stealing from the share of businesses reporting inflation as the biggest problem, poor sales ticked up a percentage point.  While not a particularly large or concerning increase (current levels still only rank in the bottom 6% of all months on record), it does bring the reading to the most elevated reading since the summer of 2021.

As we noted in the earlier post, of those businesses saying now is not a good time to expand, the share pointing the finger at interest rates as the main reason has fallen dramatically in the past couple of months. That being said, those saying interest rates are their most important problem hasn’t budged.  5% of businesses reported this issue to be their biggest, unchanged versus December at the highest level in over a decade.

The NFIB published its latest Small Business Economic Trends report covering sentiment among small businesses this morning. As discussed in the Morning Lineup, at the headline level the report came in weaker than expected with optimism dropping to 89.9 versus expectations of an increase to 92.3.  That leaves sentiment at the lowest level since last May.

Under the hood, that weaker sentiment number was a result of overall bad breadth including a couple of sizeable moves.  The single largest move in January was the drop in expected real sales. That index went from a reading of -4 down 12 points to -16.  That month-over-month decline is the largest since June 2022 and ranks as the ninth largest in the history of the survey.  Actual earnings changes also marked a significant decline falling 5 points month over month. Conversely, two indices rose month over month: inventories and plans to increase inventories.

As previously mentioned, sales metrics were notably weak with sales expectations dropping significantly.  Actual sales changes (which is not a component of the optimism index whereas sales expectations are) are still in contraction and in the bottom decile of all periods on record, but the January reading was unchanged month over month.   That clashes with actual earnings changes which fell to -30 which is down at the low end of the past several years’ range. Ironically, that worsening of earnings comes despite firms reporting an easing in inflation.  The higher prices index fell 3 points to 22. That is now out of the top decile of readings and at the lowest level in three years.

Prices are not the only area hitting a new local low.  Hiring plans have continued to collapse with back-to-back declines over the past two months.  That index is now at the lowest level since May 2020. While that reading marks a deterioration in labor conditions versus earlier in the post-pandemic period, we would note that current levels are still above the historical median. Additionally, actual employment changes came in at zero meaning firms on a net basis neither hired nor fired.  Meanwhile, compensation has appeared to have bottomed for the time being. Compensation plans, on the other hand, have peaked, but are still elevated indicating.  Finally, we would note that the percentage of respondents reporting openings as hard to fill is down to a three-year low.

Overall, the report was a bit of a mixed bag if not leaning slightly negative.  The share of respondents reporting now as a good time to expand reflects this with a reading that is still historically low albeit unchanged at multi-month highs in January.  Digging deeper, economic conditions are overwhelmingly the main culprit for this expansion outlook.  The political climate is the next largest factor, although we would note that the NFIB survey has historically tended to be sensitive to politics and leans Republicans (historically during Republican administrations the expansion outlook is better than when Democrats are in power). Financials and interest rates also rank highly for those reporting a negative outlook. Granted, at 7% of responses, that is down significantly from 12% only two months ago.

We get it. Today’s CPI was exactly what the market wasn’t looking for. On all accounts, inflation came in higher than expected. That put the nail in the coffin on a March cut and even took the chances of a May cut down to nothing much better than a coinflip. While disappointing, the trend for both headline and core CPI continues to move in the right direction. Headline CPI came in at 3.1% year/year which is only just slightly above its post-COVID low of 3.0% from last June.  Core CPI, meanwhile, fell to a new post-COVID low – technically speaking.  The reason we say technically is that while the reported reading of Core CPI was 3.9% y/y and unchanged from December, if stretched out to two decimal places, it fell from 3.91% down to 3.87%.

It may not have been much, but January’s decline in Core CPI extended the streak of monthly declines in the core y/y reading to ten months. Going back to 1960, there has only been one other period where core CPI experienced as long of a streak of monthly declines in its y/y reading. Back in 1975, the y/y reading fell from 11.86% down to 6.73% from February through December. That was a much larger magnitude of decline, but the current period started from a much lower base (5.56%). In the entire history of the series, there have only been five other periods when y/y core CPI declined for eight months in a row. As shown in the chart, most of them occurred very early on in an expansion. That makes sense when you think about it as prices shouldn’t be going down as the economy is strengthening.  It’s also why the Fed finds itself in such a difficult position caught between trying to keep a lid on inflation while at the same time avoiding an economic slowdown.

Although it has pulled back as of this writing, at its highs today, Bitcoin reclaimed the $50,000 level.  That was the first time the world’s largest crypto currency has traded above that threshold (on an intraday or closing basis) since December 28, 2021.  As shown below, following the record high set in November 2021, Bitcoin cratered 76.5% over the next year.  Since its bottom in November 2022, the crypto has managed to rally 214%.  A significant portion of those gains have come since last summer with steep increases in the price of Bitcoin from October through December and another sharp push higher in the past few weeks.  In fact, as recently as January 25th, it was trading below $40,000.  But nearly three weeks and $10,000 later, Bitcoin is looking to join the 5.5% of days in which it has formerly traded above $50,000.