The S&P 500 has been hovering around 0.5% below its record highs this week, but without a true test of those highs, sentiment has not moved very far. The American Association of Individual Investors‘ weekly reading on bullish sentiment fell from 37% last week down to 36.4%. While that is the second week in a row with an absolute move less than a full percentage point in size, the marginally lower reading does leave bullish sentiment at the lowest level since the end of October.

Bearish sentiment moved by even less, only rising 0.1 percentage points.  At 26.4%, it still is below the reading of 27% from the first week of the month. Outside of that reading, that is the highest level since February.

This week’s moves left the bull-bear spread little changed at 10.  That’s down 0.7 points from last week but still above the 9.5 reading from two weeks ago.

Once again, the highest percentage of investors are in the neutral camp at 37.1%.  As was the case last week, that makes for the highest level in neutral sentiment since the first week of 2020 when it stood north of 40%.

Pivoting over to sentiment for equity newsletter writers measured in the Investors Intelligence survey, there were some more interesting moves.  Bullish and bearish sentiments were not necessarily anything to gawk at similar to the AAII survey. Bullish sentiment has been on the decline with this week’s survey showing a 3 percentage point drop to 51.5%, the lowest level since March 10th. Meanwhile, bearish sentiment moderated from 17.2 to 16.8%. That was the same level as the start of the month.

The percentage of respondents “looking for a correction” was more notable. Rather than simply asking whether or not respondents foresee a correction in the technical sense on the horizon (a 10% decline from a high), Investors Intelligence defines a newsletter writer as “looking for a correction” when they are bullish on a list of stocks but at a lower price point. Coming in at 31.7%, the reading is a few percentage points above the historical average of 27.6% and is in the top quartile of the historical range.  In other words, it is an elevated reading albeit far from without precedence.  What is more significant is that it has been over a year since this part of the survey has seen these levels.

In the history of the survey dating back to 1963, there have only been eight other times that the percentage of newsletter writers looking for a correction has crossed above 30% for the first time in at least a year.  The most recent of these was in April 2009. In the table below we show the S&P 500’s performance in the year following those occurrences.  As shown, performance has been generally positive across those past instances with average gains over the following weeks and months and moves higher at least 75% of the time one month, three months, and one year out.  Additionally, while there were two times, 1982 and 2009, in which the S&P 500 rallied over the following year without looking back, there were another two times, 2001 and 2007, that at the following years’ lows, the S&P 500 would end up lower by double-digit percentage points.  Click here to view Bespoke’s premium membership options for our best research available.

For the fourth week in a row, initial jobless claims have made a move lower coming in at 406K.  That is down 38K from last week’s unrevised level of 444K. That brings claims to the lowest level of the pandemic, and just 150K above the last sub-one million print in March of last year.

On a non-seasonally adjusted basis, the picture is equally as positive. Claims through the regular state program fell to 420.5K which is again the lowest level since the start of the pandemic.  Including other programs no longer significantly increases the total claims count either.  PUA claims came in below 100K for the second time in a row this week as they printed at 93.5K. As we noted last week, some states have announced plans to do away with programs like PUA, so this number will become more and more negligible.

Relative to initial claims, seasonally adjusted continuing claims (which are lagged an additional week) have not been trending as positively over the past few months as the series has been moving sideways to even slightly higher.  This week saw some respite in this trend as seasonally adjusted regular state continuing claims fell by 96K to 3.642 million.  That is still 2K above the low from 2 weeks ago, but the week over week improvement was the largest since the week of March 12th when continuing claims had fallen 282K.

Before seasonal adjustment, the picture is much better.  Regular state claims through May 14th have fallen for 12 weeks in a row with the 150K drop this week the largest week-over-week decline since March 12th.  Factoring in other programs for a more complete picture delays the data yet another week, but it does paint an even more optimistic picture.  After rising at the start of the year, total claims across all programs peaked during the week of February 19th at 20.7 million.  In the roughly three months since then, claims have generally ground lower having fallen by 4.9 million. While regular state claims have dropped by 1.18 million in that time, PUA claims have been a bigger contributor to the total decline having erased 1.87 million claims.  Pandemic Unemployment Assistance and Extended Benefits programs have also been significant contributors to the overall decline in claims. Combined, these two programs have seen a 1.8 million drop. In other words, while it may not be apparent from the headline seasonally adjusted number, continuing claims are improving alongside initial claims.  Click here to view Bespoke’s premium membership options for our best research available.