FBI Background checks for the month of May were just recently disclosed, and just as many aspects of the economy and overall society are starting to return back to more normal levels following the disruptions caused by COVID, so too are gun sales based on the latest data.  For the month of May, background checks fell from 3.51 million down to 3.22 million which is the lowest monthly reading since last September.

While the m/m decline in background checks wasn’t particularly extreme, the two-month rate of decline was the largest ever, falling by nearly 1.5 million.

With the declines in background checks, the y/y increase has really started to collapse.  At 4.2%, the y/y change in background checks has dropped to its lowest level in more than two years (March 2019).

While the pace of gun background checks has been declining, the prices of gun stocks have actually been on the rise.  Below we show the one-year price charts of Sturm Ruger (RGR) and Smith and Wesson (SWBI) which are the two publicly traded pure-play gun manufacturers. Both stocks surged late last spring and into the early summer following the George Floyd killing and subsequent protests and riots across the country, but they quickly pulled back in the summer months and traded relatively rangebound over the following six months.  Since late April, though, both stocks have started to attract investor interest, and RGR is actually close to 52-week highs while SWBI is close to taking out its high from early this year.  Click here to view Bespoke’s premium membership options.

Bullish sentiment measured through the AAII weekly survey was at the lowest level since the fall last week, but after jumping 7.7 percentage points, it is now at the highest level since the end of April. Not only is it high relative to the past few weeks, but the increase also brings bullish sentiment 6 percentage points back above its historical average. Additionally, the week over week increase was the largest since the week of April 8th when the reading had risen 11.1 percentage points.

In recent weeks, neutral sentiment had been surging; topping 37% last week for the highest reading since the first week of 2020.  Although it reversed lower this week down to 36.2%, neutral sentiment remains around some of the strongest levels in over a year.

With the pickup in bullish sentiment, bearish sentiment plummeted to 19.8% on a 6.6 percentage point decile; the largest since February.  Falling below 20%, bearish sentiment took out its March and April lows and is now at the lowest level since January 2018.

Not only is that one of the lowest readings in bearish sentiment in recent history, but that drop below 20% brought to an end a 115-week long streak of readings in bearish sentiment above that level.  As shown below, that surpassed a three-week shorter streak ending in December 2017 to make for the second-longest such streak on record.  The longest streak which ended in December 2010 went on for more than twice as long as this most recent run.

Historically, lower readings in bearish sentiment have tended towards weaker performance for the S&P 500 going forward as shown below.  But when it comes to the past times that bearish sentiment has broken below 20% for the first time in at least 50 weeks, performance has actually tended to consistently be positive. In fact, across each of the past six instances, the S&P 500 has been higher six months out every time. Granted, for the most part the typical move higher is usually smaller than other periods.  Click here to view Bespoke’s premium membership options for our best research available.

It was just the start of last month that initial jobless claims fell below a half million for the first time since the start of the pandemic and a month before that marked the first reading below 600K.  Another month in the books and it was another 100K milestone reached this week. For the first time since the pandemic began, seasonally-adjusted claims fell below 400K to 385K this week.  That is now only 129K above the pre-pandemic level from last March; the last week before claims exploded above a million.

While the drop below 400K may sound like a positive, it was entirely due to the seasonal adjustment as the actual level of claims rose to 425.5K from 419.4K.  That is still at the bottom of the pandemic range albeit slightly off the lows. Additionally, while small,  that week over week uptick is a bit unusual from a historical perspective as the current week of the year (22nd) has only seen a sequential uptick 18.5% of the time since the start of the data in 1967.

In spite of the uptick in regular state programs, claims through the Pandemic Unemployment Assistance program continued to pick up the slack. The program saw another impressive drop with the program only totaling 76.1K claims.  That is down roughly 17.5K from last week and sets more pandemic lows. On a combined basis, initial claims between the two programs now sit just above 500K.

As we have frequently mentioned recently, while initial jobless claims keep coming in with impressive readings, continuing claims remain uninspiring. For the week ending May 21st, claims had risen by 169K to 3.77 million.  That brings continuing claims to the highest level since the week of March 12 and the 169K WoW increase was the largest since the last week of November when they rose 254K.  Overall, the picture at the headline level remains the same in which initial claims are strong and improving while continuing claims have hit a bump in the road.

Whereas the non-seasonally adjusted picture was less positive for initial claims, there is yet another divergence compared to continuing claims.  The NSA continuing claims reading that includes all programs is delayed two additional weeks to the most recent initial claims data. That means the most recent reading in the charts below is for the week of May 14th. That week saw another decline down to new lows of 15.46 million on a combined basis with the biggest contributors to that decline being regular state, PUA, and Extended Benefits programs.  On the other hand, Pandemic Emergency Unemployment Assistance (PEUC) claims held things back as the program saw a 102K increase; bringing it to the highest level since mid-April. That meant PEUC claims’ share of total continuing claims reached the highest level yet at 34.2%. That means although regular state continuing claims have been deteriorating, the broader picture continues to improve.    Click here to view Bespoke’s premium membership options for our best research available.