As we noted last week, this week’s sentiment data is the first to encapsulate any reaction to last week’s CPI number as well as the subsequent market rally.  Although price action has been somewhat choppy and there have been plenty of other catalysts (FTX’s collapse, more yield curve inversions, the missile strike in Poland) to balance out the inflation data and put investors back onto their heels, the latest AAII survey has shown a surge in bullish sentiment. The percentage of respondents reporting as optimistic jumped from 25.1% last week up to 33.5% this week.  That is not only the largest one-week increase since the first week of June (when bulls rose by 12.2  percentage points) but is now the highest reading on bulls since the last week of 2021.

Bearish sentiment in turn dropped sharply falling to 40.2% for a decline of 6.8 percentage points.  While an improvement, at the start of the month bearish sentiment had fallen by much more (both the last week of October and the first week of November saw double-digit week-over-week declines) and was at a much lower level of 32.9%.

The bull-bear spread has narrowed but still remains negative for the 33rd week in a row.  If the spread remains negative into next week, it will tie the record streak from 2020.

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Neutral sentiment fell for a second week in a row with the total decline in that time eclipsing 10 percentage points. At 26.3%, it is down to the lowest level since the week of October 20th, implying that investors have become a bit more decisive in their respective market views.

The AAII survey’s more bullish turn this week was also seen in other readings on sentiment like the Investors Intelligence survey and the NAAIM Exposure Index.  As a result, our sentiment composite which aggregates the findings of the three surveys into a single sentiment reading is back up to its highest reading since mid-August.  Although the reading remains negative, it is no longer at the extreme levels that were common earlier this year. Click here to learn more about Bespoke’s premium stock market research service.

Initial jobless claims were stronger than expected this week as the seasonally adjusted number came in at 222K versus expectations of a 3K increase to 228K.  Last week’s reading was revised up slightly from 225K to 226K. At the current level, claims remain off their best levels from earlier this year but in the middle of the range since those lows. Although there has not been any clear further deterioration or improvement, the level of claims remains healthy in the range of readings that were typical of the pre-pandemic period.

On a non-seasonally adjusted basis, claims typically fall during the current week of the year. In fact, since the beginning of the data series, the comparable week of the year has only seen claims rise 16% of the time.  That seasonal drop was again observed this year bringing the total count right below 200K which is below the readings of the comparable week for each year all the way back to 1969.

While initial claims are showing the labor market remains steadfast at historically healthy levels, continuing claims have been on the rise.  For the first time since the end of March, seasonally adjusted continuing claims were above 1.5 million.  Although that does not diminish just how low claims are (the reading would still need to rise another 142K to move back into the range of readings from the few years before the pandemic), they are now definitively trending higher.

With another weekly increase, it has now been five straight weeks in which continuing claims have risen. That long of a streak has been particularly uncommon in the post-financial crisis years. The only other example since 2009 was in the spring of 2020 when claims rose for 10 weeks in a row.  Prior to that, these sorts of consistent increases in claims have more precedence with 28 other streaks reaching five weeks long or more.  Additionally, we would note that the amount claims have risen (+134k) over this span is not particularly notable and is only 1.5K below the median increase in the first five weeks of each other streak.  Click here to learn more about Bespoke’s premium stock market research service.

Ranging from today’s retail sales report to homebuilder sentiment to the earnings of some of the largest retailers like Target (TGT) and Lowe’s (LOW), the economic and earnings calendar this week has given Consumer Discretionary stocks plenty of news to digest. Outside of the spring to late summer, the sector has generally been on the decline relative to the S&P 500 in 2022. Last week, that relative strength line bounced right as it reached the late May low. However, over the past few days, it has been resuming its move lower, meaning it is back to underperforming.

While on a sector level the relative strength line has been falling, drilling down to the industry group level, there has been more variation. For example, even with some positive responses to earnings from the likes of Home Depot (HD) or Lowe’s (LOW), the retailing industry has seen a sharp grind lower in its relative strength line versus the S&P 500.  Similarly, autos have seen a turn lower although it has been underperforming the S&P for a longer period of time since the early fall. Meanwhile, Consumer Durables and Appliances (which includes stocks like the homebuilders and home appliance makers) has been moving higher. That move has paled in comparison to the relative strength of Consumer Services stocks (restaurants, cruise lines, hotels and resorts), though, as that group’s line has surged over the past couple of months.

As mentioned above, retailers in the Consumer Discretionary sector have been underperforming the S&P 500 lately but there is another group of retailers in which performance has been more solid.  The Food & Staples Retail industry is a component of the Consumer Staples sector, and its relative strength line has been trending higher since the spring lows.  In fact, after the past week’s move higher thanks in part to a strong response to Walmart (WMT) earnings, its relative strength line is approaching some of the highest levels of the past year, entirely recovering the massive drop from May in the wake of another, much more negatively received, WMT earnings report. Click here to learn more about Bespoke’s premium stock market research service.