With July 4th coming around next Tuesday, we wanted to provide an update on market returns during the July 4th holiday week.  Can we expect fireworks or a flop?  The table below lists the S&P 500’s returns during the week of July 4th going back to 1990.  For each year, we calculated the S&P 500’s return from the Friday before July 4th to the Friday after, and in those years where the 4th fell on a Friday, we calculated the return from the Friday before (6/27) through the Thursday before (7/3).  As shown in the results, July 4th week has been a positive one for equity markets with the S&P 500 averaging a gain of 0.59% (median: +0.79%) and positive returns two-thirds of the time. The best July 4th week actually came back in 2010 when the S&P 500 was up over 5%. What was interesting about that week is that the strong performance came even as economic data during the week was skewed towards the negative side.  Also, on the prior Friday, a well-known market strategist made a headline-grabbing call to sell stocks due to the worsening outlook for the US economy.

Given the S&P 500’s strong first half returns in 2017, we also looked at how the market performed in July 4th weeks that followed a strong first half.  In the twelve prior years where the S&P 500 was up more than 5% in the first half of the year, July 4th week saw an average gain of 0.97% (median: 1.07%) with positive returns in all but two instances.

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Jobless claims came in higher than expected this week, rising to 244K from 242K.  Make no mistake, though, with claims coming in below 250K for the fourth straight week and below 300K for the 121st straight week, claims are extraordinarily low by historical standards.  Also, as shown in the inset chart below, claims continue to trend lower.

The four-week moving average for claims fell by 2.75K this week to 242.25K, which is 6.75K above the post-recession low of 235.5K seen six weeks ago back in mid-May.

On a non-seasonally adjusted (NSA) basis, jobless claims rose by just over 10K to 239.2K.  While that’s up, at this time of year it is common for claims to increase, so for the current week of the year, the NSA reading was still more than 100K below its average since 2000 for the current week of the year, and the lowest weekly print for this specific week since 1973.

Remember all those stories earlier this year that the market was being powered by the performance of the large-cap technology sector and more specifically, the FAANG (originally FANG, but Apple was added after it started to rally) stocks?  The “theory” was that if these stocks ever ran into trouble, look out below.  Throughout this period, we took the opposite end of the argument and repeatedly highlighted that although the FAANG stocks were doing extremely well, overall breadth in the market was strong, indicating broad-based participation.

Well, this month we got the first test of the FAANG theory and how much or little it was holding up the market.  Since the close on June 8th, the S&P 500 Technology sector has dropped 2.6% and the five FAANG stocks have declined over 4%.

So how much did the overall market decline in reaction to the fall in the tech sector.  Heading into Thursday’s trading, the S&P 500 is down less than half a percent.

The key to the market’s resilience in the face of Tech’s weakness has been strength in sectors like Health Care (+4.2%), Financials (+3.2%), and Real Estate (+2.0%).  In fact, while the S&P 500 is down half a percent from its bull market high, it is actually up 0.3% since the Technology sector peaked.

The weekly sentiment survey results from AAII were just released, and while bullish sentiment is still nowhere near 50% and well below historical averages, there were some notable moves nonetheless.  In terms of bullish sentiment, optimism declined this week falling from 32.65% down to 29.71% (what else is new).  That now makes it a record 130 straight weeks where half of the investors surveyed were not bullish.

Even as bullish sentiment declined, bearish sentiment also shrank, falling from 28.91% down to 26.86%.  That represents the lowest reading in bearish sentiment since the first week of the year.  Looking at the chart, negative sentiment has really started to decline ever since that mini-uptrend was broken several weeks back.

With both the numbers of bulls and bears continuing to thin, there has been a bull market in neutral sentiment.  In this week’s survey, the percentage of investors who couldn’t make up their minds ballooned to 43.43% or the highest reading since last August.  Let’s just call them cautiously optimistic, or better yet, optimistically cautious.