The third quarter earnings period starts up in early October, and if September is any guide, it’s going to be a long earnings season for investors.  Over the last two weeks, 54 companies have reported earnings (the number of companies that report during the “off season” is much lower), and their stocks have averaged a one-day decline of 3.2% on their earnings reaction days.  That’s an absolutely brutal reading, and while it’s a small sample size, it suggests that investors are not liking what they’re seeing from corporate America.

Below is a snapshot from our Earnings Screener, which allows users to pull up earnings stats like the one mentioned above.  It’s available at the Bespoke Institutional level, which you can access with a two-week free trial.

Below is a snapshot pulled from our Earnings Screener showing the stocks that reported earnings just this week.  We’ve highlighted each stock’s one-day price change in reaction to the earnings news.  As you can see, there’s a lot of red!  In fact, the average one-day change for the stocks that reported this week was a decline of 3.6%, and only 4 of the 25 stocks that reported ended up gaining on their earnings reaction days.

 

We published our regularly updated Short Interest Report earlier today in order to show clients which areas of the market are seeing the biggest increases and decreases in short interest levels.  A supplement to the report is the table below highlighting the most heavily shorted stocks in the S&P 1500.

Notably, the most shorted stocks got crushed in September (through 9/27), falling 4.25% on average compared to a small gain for the S&P 1500.  While the stock market was up in September, it wasn’t a great month for stocks that the shorts are bettign heavily against.

Dillard’s (DDS) is the most heavily shorted stock in the entire S&P 1500 with 69% of its float sold short.  Two other stocks in the index have more than 50% of their shares sold short — MiMedx Group (MDXG) and Lannett (LCI).  Some of the other stocks on the list below that got hit the hardest in September include Applied Opto (AAOI), Ichor Holdings (ICHR), and Medicines (MDCO), which all fell more than 20%.

Equities may have traded higher in September, but it looks like the shorts were still able to make plenty of money.

With the Dow Jones – America’s “Main Street” equity index – joining the S&P at new highs to close out last week, we were not too surprised to see that individual investors turned more bullish in the latest week.  But even after the increase, positive sentiment remains at extremely depressed levels given what the market has done recently.  According to the weekly survey from AAII, bullish sentiment rose from 32.04% up to 36.22%.  That’s still below the average reading of 36.7% for the current bull market.

Even with the increase in bullish sentiment, bearish sentiment barely declined, falling less than one percentage point from 32.0% down to 31.1%.

The main source for the increase in bullish sentiment came from the ‘fence-sitters’ as neutral sentiment declined from 35.9% down to 32.7%.

Before we go any further this morning, we hope you’re sitting down for this one because it’s a shocker.  OK, are you ready for it?  Here it goes. This week’s report on initial jobless claims was actually a bit disappointing.  While economists were expecting claims to tick up to 210K, the actual reading came in at 214K.  This week’s increase represents the largest one week rise in claims since May and put the actual reading at the highest level in a month.  Even with the ‘disappointing’ report this morning, this week’s claims number represents the 186th straight week where claims were at or below 300K, the 51st straight week where claims were at or below 250K (longest streak since 1970), and the 12th week where claims were at or below 225K.  So even a disappointing report wasn’t all that bad in the grand scheme of things.

Although claims rose by 12K this week, the four-week moving average only rose by 250 to 206.25K, so that’s still right near the multi-decade low that was reached last week.

Finally, on a non-seasonally adjusted basis, jobless claims rose from 169.2K up to 176.7K.  Even with the increase, though, it’s the lowest reading for the current week of the year since 1969 and more than 100K below the average of 282.8K for the current week of the year dating back to 2000.

In reaction to the Fed hiking rates yesterday, equity markets fell with some areas seeing greater declines than others. Every major US Index ETF has moved below where it stood this time last week, with the exception being the Nasdaq 100 (QQQ). Up the most YTD of all these indices, it almost should not come as a surprise that it has withstood the hit of the Fed Day, still up 1.04% over the past 5 trading days. It was also the only ETF of this group to have seen any gains at all at the close.  Every other major US Index ETF was down on the day.  QQQ, along with the Dow (DIA), is the only remaining overbought ETF. All others have moved to neutral.