Sentiment has continued to head back towards more normal levels as equities press higher.  The latest reading from the AAII on the percentage of investors that are bullish on the S&P 500 over the next six months reached the highest level since March.  At 32.2%, bullish sentiment is now only 5.5% below the historical average.

The reading on bearish sentiment meanwhile has dropped to 36.7% which is also the lowest reading since the end of March; the last time this reading was below 30%.

Although both bullish and bearish sentiment are closing in on one another, bears continue to outnumber bulls.  The bull-bear spread rose to -4.5 this week extending the streak of negative readings to 19 weeks long. At the moment, that is the third longest streak on record and would need to continue for at least three weeks more to tie the second-longest streak on record of 22 weeks ending in December 1990.

While the bull-bear spread remains negative for the AAII survey, other sentiment surveys have been showing more bullish sentiment. The Investors Intelligence survey has had a positive bull-bear spread for three weeks in a row now, and the NAAIM exposure index has shown investment managers have been quick to add exposure to equities in recent weeks.  Standardizing these three survey results (measuring each one in how many standard deviations from the long-term average they are), the NAAIM and Investors Intelligence surveys are now back into positive territory.  In other words, these two surveys are actually showing sentiment as having moved slightly above what has been the historical norm.  Meanwhile, the AAII reading is far more negative even if it is trending higher.

Additionally, those are the first positive readings in some time.  For the NAAIM index, the z-score has not seen a positive reading in 15 weeks.  That is the longest stretch without a positive reading since the first quarter of 2016 and prior to that, there have only been a handful of other streaks that have gone on as long.  For the Investors Intelligence survey, it was an even rarer streak ending at 29 weeks long.  That was the longest since one that went on for roughly a year and ended in May 2009. Prior to that, you would have to go all the way back to 1995 to find a longer streak.

Then there are the AAII results. Still going at 32 weeks long, the z-score has only been negative for as many consecutive weeks once in the survey’s history, and that was during 2020.  All of this is to say that the AAII survey has been leaning more pessimistically than other surveys even as overall sentiment has largely made its way back to historically normal levels.  Click here to learn more about Bespoke’s premium stock market research service.

Prior to revisions, last week’s reading on jobless claims rose back up to 260K which was only 1K below the post-pandemic high from two weeks prior.  Although that number was revised lower by 12K this week, the latest week’s reading rose up to 262K. That marks the highest level for initial claims since mid-November and a level that would have been the highest since September 2017 excluding pandemic readings.

This time of the year is usually when initial claims tend to head lower from a seasonal perspective, however, in the current week that has less often been the case. That was also true this year as unadjusted claims rose back above 200K.  At 203.6K, claims are above the comparable weeks of 2017 through 2019. Looking forward to next week, it has historically been one of the best weeks of the year for claims.  The only year on record in which NSA claims have risen week over week for this specific week of the year was in 2020.

In last Thursday’s Closer, we highlighted just how large of a disconnect there has been between initial and continuing claims as the ratio of the two has surged to levels rarely seen in the history of the data.  Continuing claims continue to run at far healthier levels than initial claims with this week’s reading well below the lows of the several decades before the pandemic.  That being said, this week did see a modest increase to a new high of 1.428 million; the most elevated reading since the first week of April.  Click here to learn more about Bespoke’s premium stock market research service.

As we detailed in last night’s Closer, whatever name that it might be given—meme stocks, yolo trades, or “stonks”—there has been a trend recently in which there has been strong performance of highly volatile names loved by the most risk tolerant retail investor.  That is roughly a year and a half to the day of the meme stock mania where highly shorted names saw massive short squeezes driven by the retail community.

Since the mid-June lows, highly shorted names have again been outperforming.  Below we show the chart of an index covering the 100 most highly shorted stocks going back to early 2020.  The vast majority of 2020 gains have been erased, however, this index has also risen 46% since its June 16th low (the same date as the broader market’s low). On a relative basis, the most heavily shorted stocks have been outperforming the Russell 3,000 in that time resulting in the relative strength line to break out of the downtrend that has been in place since the peak of the meme stock mania in late January of last year. That being said, the index itself has much further to go in order to break out of its downtrend off of that high in price.

Below we show the stocks within the Russell 3,000 that currently have the highest levels of short interest as of the end of July.  The only stock with more than 50% of its float sold short is Torrid Holdings (CURV).  The next highest is a company that frequently finds itself high up on the list of highly shorted stocks: Dillard’s (DDS).  While those readings are elevated, they are well below what had been the most heavily shorted stock a month and a half ago.  As of the mid-June update, Redbox (RDBX) had an extremely elevated reading on short interest that was closing in on 100%. Today that reading has collapsed back down to a still elevated but less extreme 41.5%.  We would also note, however, that RDBX is a messy story at the moment in the midst of an acquisition (confirmed to go through in the past 24 hours) with the potential to save the company from bankruptcy.

Other notables on the list of most heavily shorted stocks include grill-maker Weber (WEBR), Bed Bath & Beyond (BBBY), Upstart (UPST), Big 5 Sporting Goods (BGFV), Beyond Meat (BYND), Groupon (GRPN), and Nikola (NKLA). Click here to learn more about Bespoke’s premium stock market research service.

Below is a look at price charts for most of the heavily shorted stocks listed in the table above.  While many of these names are up huge since mid-June, the gains hardly register on six-month charts because they got hit so hard in the first half of the year. Bespoke subscribers can create Custom Portfolios on our website like the one below to easily monitor baskets of stocks and ETFs.  Start a two-week trial to test out the service today!

While fewer respondents to this month’s NFIB small business survey reported that they observed higher prices, inflation continues to be a front and center concern.  The percentage of respondents reporting inflation as their biggest problem has risen further to another record high of 37%.  That completely erased June’s drop down to 34%.

While broad inflation is currently the most pressing problem, other inflation-related measures also rose in July.  The percentage of firms reporting cost of labor as their single most important problem rose to 9%, although that is still below the record high reading of 13% at the end of last year.

While we often combine that reading with the percentage of responses reporting quality of labor as the biggest issue as a gauge of labor market health, the latter problem dropped 2 percentage points to net out the rise in cost of labor.  On a combined basis, these two concerns are now tied with March at 30% for the lowest level since January 2021 (28%).

One other combined reading that we often check in on is the percentage of respondents reporting government requirements or taxes as their biggest issues.  Over the past few decades, Republican administrations have usually coincided with lower readings whereas Democrat administrations would see a higher reading.  With inflation concerns surging this year, a historically low share of businesses are concerned about government action.  The combined reading fell to another record low of 16% in July with the entirety of that drop on account of a 3 percentage point decline in government requirements and red tape. Click here to learn more about Bespoke’s premium stock market research service.