Below are relative strength charts (vs. the S&P 500) for the Technology and Utilities sectors.  In the chart, when the line is rising, the sector is outperforming the S&P 500, and vice versa for a falling line.  In each chart we provide dots for days that the FOMC made a rate decision.  Blue dots are days when the Fed left rates unchanged, while red dots are days when the Fed hiked rates.

While the Fed kept rates unchanged at its most recent meeting, it marked a key turning point for the cyclical Tech sector and the defensive Utilities sector.  Since the last FOMC meeting, Tech has seen its relative strength plummet as investors have shifted quite dramatically into defensives like Utilities.

The rally for Utilities and decline for Technology have done a number on valuations for the two sectors, to the point where their trailing 12-month P/E ratios are nearly the same.  Tech’s P/E currently stands at 20.52, well below the reading near 24 it had in late 2018.  Utilities has seen its P/E balloon above 20 up to 20.10 as of this morning, which is nearly 5 points higher than it was at the end of 2018.  When a no-growth sector like Utilities has a P/E that’s similar to a growth-oriented sector like Tech, it doesn’t say much about the confidence of investors.

Weekly jobless claims released this morning came in at 211K, which was below expectations of 215K and the 212K reading last week.  The seasonally adjusted number has now spent 71 straight weeks below 250K and 220 consecutive weeks below 300K.   Start a two-week free trial to Bespoke Institutional to access our interactive economic indicators monitor and much more.

After rising to 225K last week, the four-week moving average also saw a modest decline.  The moving average fell to exactly where it was at the start of the month (220.3K).  This comes as one of the recent highs of 230K has rolled off of the average. Turning to next week, assuming we see a similar print to this week, another data point of 230K will fall out of the average, so we may see another drop in the four-week average as well.

As per usual, non-seasonally adjusted (NSA) jobless claims came in well below the average for the current week since 2000.  At 191.3K, NSA claims are over 100K below this average. This week’s print is also the lowest for the current week of the year of the current cycle and going back to at least 2000.  With this new low for the current week of the year, the past couple of weeks’ releases have been a welcome change from the YoY increases in the NSA data that has been frequently observed this year.

Overall, the data has been somewhat mixed recently.  Though initial claims more or less held steady this week, continuing claims saw the opposite result as they rose from the previous week and missed forecasts with a print of 1,676K (1,666K expected). While initial claims appear to still be chugging along just fine (YoY increases aside), continuing claims still have not made a new low since last October. That is not necessarily a horrendous thing for either considering the data has also not rocketed higher by any stretch, but it does confirm that the pace in claims falling has somewhat slowed relative to previous years.

Trade headlines have continued to have a negative impact on stock prices, and in turn sentiment levels, over the past week.  The AAII investor sentiment survey saw bullish sentiment decline sharply once again this week falling to 24.71% compared to 29.82% last week.  To think that just two weeks ago bullish sentiment was at 43.12%, which was the highest reading of the year. Falling 18.41% from this recent high, the current decline is the largest two-week drop in bullish sentiment since 6/6/13 when it fell 19.5% over the two previous weeks.  Start a two-week free trial to Bespoke Institutional to access our interactive economic indicators monitor and much more.

But this is not necessarily all bad news from a contrarian perspective.  As shown in the chart below, this week’s reading of 24.71% is well below the historical average of 38.21%. In fact, it is over 1 standard deviation below it, something that can be considered a bit extreme and raising expectations for some type of mean reversion.  When bullish sentiment reaches an extreme low by historical standards, forward equity market performance has typically been stronger than average. The last time survey respondents showed this little optimism was in late December of last year; right around the time of the market bottom.

Surprisingly, while there was this development in bullish sentiment, bearish sentiment actually fell to 36.08% versus 39.3% last week. So while still elevated from where it has been for much of this year as the market has rallied, bearish sentiment is not reaching new highs. It is also still above its historical average but not to an extreme degree.

Neutral sentiment took from the losses in the bullish and bearish camps as it rose to 39.22%.  While this sounds high, there was actually a slightly higher reading at the beginning of the month and this brings the neutral reading off of its recent lows and more in line with what has been observed for most of this year.