The past week has seen the S&P 500 pull back to retest its 50-DMA which has put a dampener on investor sentiment.  This week’s AAII survey showed that less than a quarter of respondents reported bullish sentiment. That is down from 32.8% last week and the lowest since 9/16.

Bearish sentiment picked up most of the difference rising five percentage points to 38.3%.  This brings bearish sentiment to a fairly elevated level relative to its historical average of 30.56%, though, it is still within a standard deviation of that reading.  While higher, this week’s increase was actually only the biggest uptick and highest level of bearish sentiment since the week of 12/16.

Given those moves in bullish and bearish sentiment, the bull-bear spread has fallen deeper into negative territory. At -13.4, the spread is now at the lowest level since mid-December.

Whereas bearish sentiment jumped 5 percentage points this week, neutral sentiment has gained 5 percentage points after the back-to-back increases over the past two weeks.  Neutral sentiment now stands at 36.8% which is the highest level since 12/9.

As for other sentiment readings, both the Investors Intelligence survey and NAAIM Exposure index took more bearish tones in the most recent week. As a result, our Sentiment Composite, which combines the bull-bear spreads of the AAII and Investors Intelligence surveys with the NAAIM exposure index’s reading, has fallen back below zero meaning overall sentiment is broadly bearish, but not to a degree in which it is outside the range of recent readings. Click here to view Bespoke’s premium membership options.

After hitting multi-decade lows at the beginning of December, initial jobless claims have been on the rise with the most significant increase in that time occurring in the latest week. The seasonally adjusted reading increased by 23K to 230K this week which is the highest level since the week of November 12th.  While there has not been much improvement in claims in the past month, current levels are still right around those from just before the pandemic. On a longer-term basis, these readings are also some of the strongest since the early 1970s.

On a non-seasonally adjusted (NSA) basis, the current week of the year typically marks a seasonal peak in claims.  In fact, the current week of the year has historically seen claims rise 85.2% of the time week over week. As such, NSA claims surged over 100K this week from 315.8K to 419.4K.  In spite of that seasonal headwind alongside the additional issue of rising COVID cases—which we cannot parse out how much each factor is contributing to the rise in claims—that was actually slightly below the average weekly change of 111.6K for the current week of the year.  Of course, the current level of claims is a major improvement from where things stood this time last year, but it is still decently above levels from comparable weeks of the few years prior to the pandemic. Assuming this week marks the seasonal high as it has in the past, claims will now have tailwinds combating any COVID headwinds in the coming months.

Although initial claims were somewhat disappointing this week, seasonally adjusted continuing claims were very strong coming in at the lowest level since the week of 6/1/73. Claims by this measure are delayed an extra week to initial claims, but the most recent reading for the last week of 2021 showed only 1.559 million claims. The 194K week over week decline was the largest since mid-October when the reading fell by 241K.  Click here to view Bespoke’s premium membership options.

Oil has had a strong start to the year thus far, and Energy has been the best performing equity-market sector on a year to date basis by a wide margin. This is due to the fact that the performance of the Energy sector (XLE) tends to be highly correlated to the price of oil, holding a correlation coefficient of 0.81. Currently, the ratio of the price of XLE versus oil is below historical averages. The current level is 0.77 and the average since XLE began trading is 0.99, suggesting there may be upside in the energy sector should oil hold its current levels. However, the ratio is still in a ‘normal’ range, as it is less than one standard deviation away from the historical average.

The Oil and Gas Exploration and Production industry (XOP) tends to be correlated with the price of oil as well (coefficient of 0.80). Historically, the ratio of XOP versus Oil has an average of 2.36, but the current level is far lower at 1.33. Additionally, the ratio is 1.7 standard deviations away from the average, which may imply that there is an opportunity to capitalize on a mispricing of XPO relative to the price of oil. However, since the start of 2020, the ratio has been suppressed and there is little evidence to suggest that this will change any time soon. Stay tuned as we will be releasing a deeper dive into oil tomorrow!  Stay on top of market trends by becoming a Bespoke subscriber today.  Click here to view Bespoke’s premium membership options.

As always, past performance is not a guarantee of future results.  This is for informational purposes only and is not a recommendation to buy or sell a specific security.

Below we show how far the average stock is trading versus its consensus analyst price target by S&P 500 industry group.  As shown, Media and Entertainment stocks are currently the most depressed versus price targets with the average stock in that industry over 20% below its target. That would indicate analysts either need to revise their targets far lower or those names need to rebound to catch up with expectations. On the other end of the spectrum, after a massive run for Consumer Staples stocks in the final months of 2021 and the first few days of this year, the average stock in that industry is actually above its price target. That is the only group in which that is the case, but Automobiles and Components, Food, Beverage, and Tobacco, and Bank stocks are all low single digit percentage points away from their price targets on average.

Given the sector’s massive weight, Tech is one area worth looking at, and under the surface, it is pretty split with regards to stocks’ current price and price targets. Technology Hardware and Equipment has rallied 23.64% since its recent October 4th low, retracing some of those gains this year. With such a rally over the past few months, the industry’s stocks have on average closed the gap on price targets.  At the end of December, a little under half of the industry traded above its price target, and the average stock was only 2.3% away from its price target.  Meanwhile, other areas of Tech like the Semiconductors and Software and Services have traded at more of a discount to where analysts believe they should be.  Software and Services, in particular, has seen some of the weaker readings of the COVID era.

Consumer Staples and Financials have been two of the strongest performing sectors over the past couple of months. As could be expected given this, their stocks are relatively close to analyst price targets.  For Consumer Staples, the Household & Personal Product industry is by far the strongest. While there are a small number of stocks in the industry (only six members), the average stock in this sector has actually traded above its target price the past two months and it ended December without a single stock below its target price.

Turning to the Financial sector, the Banks have put themselves ahead of the pack in a similar way. The average stock is only 3.25% below its price target compared to a 12.38% spread at the end of 2021.  Additionally, in November and December there were no members of the industry above price targets, but today that number is nearly a third of the industry.  Click here to view Bespoke’s premium membership options.

In the past year, one interesting internal disconnect for the S&P 500’s Communication Services sector has been between price and breadth.  By the time price peaked in the late summer, breadth, as measured by the cumulative advance-decline (A/D) line, had been trending lower for several months.  In other words, in the middle of last year, an increasingly smaller number of stocks were pulling the sector higher.  This past fall, bad breadth hit a climax as the cumulative (A/D) line started to collapse just after the sector’s price set a lower high. Since the recent low for both price and breadth in the first days of December, the two lines have been moving more in tandem with each other.

While the cumulative A/D line and price still have plenty of room for further improvement, there has been a significant pickup in the percentage of the sector’s stocks that are trading above their 50 and 200-DMAs. While the reading pulled back slightly to 59.26% yesterday, two-thirds of the sector finished last week above their 50-DMAs which was the strongest reading since April of last year.  That reading comes just a little over a month after there was not even a single stock in the sector above its 50-day. The percentage of stocks above their longer-term 200-DMAs has been less impressive with only a third of stocks in the sector currently above that level, but that too has improved in recent weeks. The start of December saw readings in the high teens which marked the worst readings since the COVID Crash. Click here to view Bespoke’s premium membership options.