It’s easy to have positive sentiment towards the stock market when things are going well, but the real test is always when the going gets tough.  The last two weeks have provided that test for the bulls, and their response has been an all-out retreat.  Based on the weekly survey from AAII, bullish sentiment declined from 44.8% down to 37.0% for the fourth weekly decline in the last five.  At the start of the year, bullish sentiment spiked up to just under 60%, but in the span of just five weeks, close to 40% of those newly minted bulls have already abandoned ship and shifted over to the bearish or neutral camp.

As bullish sentiment drops back into the doldrums, bears have been on the prowl.  In this week’s survey, bearish sentiment swelled to 35% from last week’s level of just under 29%.  Since the first week of January, the size of the bearish camp has more than doubled from a low of 15.6%.

Jobless claims declined for the third time in four weeks, falling from 230K down to 221K compared to expectations for an increase to 232K.  This week’s print was the second lowest reading of the current economic expansion and the 153rd straight week below 300K.

Even more impressive is the fact that the four-week moving average for claims dropped to its lowest level in 45 years.  Not since 1973, when the size of the labor force was considerably smaller, were claims as low as they are now.

On a non-seasonally adjusted (NSA) basis, jobless claims fell to 240.6K, which is more than 40K below the average of 383K for the current week of the year dating back to 2000.  In fact, going back to the late 1960s, for the current week of the year there has never been a lower NSA print!  How’s that for impressive?

In looking at equity market returns in the US and Europe since the January highs, both the S&P 500 and Europe’s benchmark STOXX 600 have seen declines of similar magnitudes.  Depending on which side of the Atlantic you reside on, however, the level from which equities sold off is entirely different.  Let’s start with a look at recent performance from the eyes of a US investor.

As shown in the top chart below, the S&P 500 headed into Wednesday down 6.2% from its January high.  The index ended its 100+ trading day streak of consecutive closes above its 50-DMA on Monday, and even after an enormous intraday rebound on Tuesday, it remains below that level.

The chart of the STOXX 600 looks similar to the S&P 500.  Up until late January, US investors saw steady gains in the index on a dollar-adjusted basis.  Since the late January peak, though, the index has seen a decline of 7.5% and like the S&P 500 broke down below its 50-DMA earlier this week.  As shown in the chart, though, at current levels the index is sitting right at a pretty significant support level.

While the recent declines in the S&P 500 and STOXX 600 look like nothing more than a blip relative to a longer-term uptrend, from the perspective of a European investor, the charts look a lot less encouraging.  While the S&P 500 is off just 5.8% relative to its January highs in Euro terms, that January high was only modestly above where it was trading a year ago.  In other words, while US investors have seen the S&P 500 rally 17.5% in the last year, European investors who bought the S&P 500 are up less than 2% after accounting for the dollar’s weakness!

Similarly, the chart of the STOXX 600 looks much weaker in local currency terms than the dollar-adjusted version above.  January’s high represented just a modest breakout from prior resistance that quickly failed miserably as the index is now comfortably below both its 50 and 200-day moving averages.  Over in Europe, they’re saying, “Bull? What bull?”