Major US indices have continued to press to new all-time highs, and this time around, that includes small caps.  As such, sentiment has moved higher in tow with this week’s reading from the American Association of Individual Investors weekly sentiment survey showing the percentage of respondents reporting as bullish rising from 39.8% to 41.5%.  While higher versus last week, that is only a modest recovery from last week’s 7.1 percentage point decline from the recent high of 46.9%. Overall, that reading points to a strong but far from historically extended reading on market optimism.

Bearish sentiment, on the other hand, has experienced more persistent declines.  The percentage reporting as bearish fell to 26% this week which marks the lowest reading since the end of July when less than a quarter of respondents reported as such.  As with bullish sentiment, that reading is by no means extreme only a few percentage points below the historical average.

Given the moves in bullish and bearish sentiment, the bull-bear spread ticked higher to 15.5 which again is stronger but not back up to the high from two weeks ago.

Neutral sentiment saw a decent sized 5.3 percentage point uptick last week.  This week saw another, albeit smaller 1.8 percentage point uptick to 32.5% this week.  Even more so than bullish and bearish sentiment, that leaves the reading essentially right in line with the historical average of 31.43%.

Again, the AAII’s survey has shown that sentiment has grown increasingly positive though it is not flying.  Other sentiment readings are soaring though. For example, the National Association of Active Investment Managers’ Exposure Index has seen a sharp rise over the past few weeks with the past two seeing readings above +100.  With regards to this index, readings above +100 indicate responding managers are reporting that they are fully invested long, +200 would indicate they are leveraged long, zero would be market neutral, -100 would be fully short, -200 would be leveraged short.  This week marked the first back-to-back readings above +100 and the strongest levels since February of this year

In addition to those two indices, the Investors Intelligence survey also saw bullish sentiment rise to one of the strongest levels since the summer gaining double-digit percentage points in the past two weeks alone. In other words, across indicators on sentiment, there has been a notable uptick in bullishness over the past few weeks. To quantify this across indicators, below we created a composite index of the three surveys. This composite shows the average standard deviation of each one from its historical average.   As shown, this week’s uptick across indicators resulted in the composite moving into the upper decile of historical readings since 2006. Additionally, the increase in the past four weeks has been one of the largest in exactly two years with only a small handful of larger upticks going back to 2006 when the newest of these indicators—the NAAIM index—begins. Click here to view Bespoke’s premium membership options.

Another week, another pandemic low for jobless claims with the seasonally adjusted initial reading falling to 269K.  That compares to an upward revision to 283K last week and expectations of a decline to only 278K. At current levels, initial claims are now only y 13K above the levels the week of March 13, 2020; the last week before claims began to print in the millions.

On a non-seasonally adjusted basis, claims are also only slightly above those March 2020 levels falling another 7K to 240.2K this week.  With the expiration of the program now in the rearview, PUA claims are down to negligible levels and are continuing to come in lower with this week only showing 2.2K claims.

When it comes to the unadjusted number, last week marked a third consecutive week of lower claims, and that is in the context of a longer stretch of declines.  From the week of July 23rd to the end of October, there were only two weeks in which non-seasonally adjusted claims were higher week over week: September 17th and October 8th.  While claims typically decline in late Summer, the continued declines into the fall are certainly unusual from a seasonal perspective.  As shown below, from around the time of Labor Day through the end of the year, claims have historically seen a gradual move higher. But rapidly coming off of historic levels from the pandemic, that has not been the case in 2021 as this fall has seen a divergence from seasonal patterns.

Continuing claims have also continued to decline hitting pandemic lows.  At 2.105 million through the week of October 22nd, claims are a few hundred thousand above the March 13, 2020 level of 1.784 million.

On a nonseasonally adjusted basis, regular state claims came in below 2 million for a second week in a row which hasn’t happened since December 2019. Additionally, at 1.889 million, claims are at the lowest level since December 2019. Factoring all other programs creates an additional week of lag making the most recent data through October 15th. Total unadjusted claims as of that week set another low of 2.68 million, down 159K from the prior week. Regular state claims were the main driver of that decline as PUA and Extended Benefits programs actually saw modest upticks. For PUA claims, that was the first higher reading on a week over week basis since the official expiration of the program in the first week of September, and it was the first uptick in the Extended Benefits program in five weeks. While that indicates a modest reversal of recent trends, it will likely prove to only be temporary as those programs are not supported to the same extent as they used to be.   Click here to view Bespoke’s premium membership options.

In today’s Chart of the Day, we provided a rundown of the S&P 500’s historical intraday pattern on Fed days.  Now that the trading day has come and gone, we have added today’s price action into the mix as well.

Below is a look at the average path that the S&P 500 has taken on Fed days since 1994 when the Fed first began announcing its policy decisions on the same day as its meeting.

For the entire data set of Fed days since 1994 (dark blue line), the S&P has historically trended higher throughout the day with only a small dip in the immediate aftermath of the 2 PM ET announcement.

Since Powell became Fed chair in early 2018, the intraday action has been quite a bit different (red line).  Especially early on in Powell’s tenure, the S&P had a pattern of posting solid intraday gains prior to the 2 PM announcement but then trading sharply lower during the Fed press conference into the 4 PM ET close.

The opposite pattern emerged today.  Instead of trading higher heading into the 2 PM announcement, the S&P was in the red all day leading up to the Fed release.  At 2 PM when the Fed statement came out (including the official announcement of tapering asset purchases), the S&P got an initial jolt and traded into positive territory.  Then when Powell’s presser began, the S&P saw another intraday jump and then it continued to rally into the close.  Had Powell known that the taper would cause this type of reaction, maybe he would have done it sooner!  Click here to view Bespoke’s premium membership options.