Last night the Federal Reserve updated its quarterly Flow of Funds (Z.1) report for Q4. The quarterly report measures income, savings, assets, and liabilities of various macroeconomic sectors. Looking at households specifically, we can measure aggregate exposure to stocks by looking at their holdings of equity investments relative to other assets. We note that this does not include mutual fund shares but it does include ETFs, closed-end funds, and REITs.

As shown below, the value of equity market assets held by households is up to 16.8/% of total assets, the highest since Q3 of 1969 and surpassing the 16.7% peak from the tech bubble. Looking at financial assets only, equity exposure is the highest since the 24.2% peak from 2000, but is nonetheless extremely elevated. We should note that while this signal is certainly a contrarian indicator, it doesn’t necessarily mean that equity markets must decline in value; there’s no reason that markets can’t continue to climb and raise the share of equity ownership further.

Things look different when we include household holdings of mutual funds and other exposure to equities. In the chart below we account for indirect allocations to equities. By this measure, Q4 equity market exposure rose to 38.0% of financial assets (versus the Q1 2000 peak of 38.3%). Equity exposure as a percentage of all financial assets hit a record, surpassing the old peak of 26.4% with a 27.0% reading in Q4. In short, households are very aggressively exposed to equity markets.  This blog post is adapted from an analysis included in our nightly Closer report.  Click here to start a free trial of Bespoke Institutional to get immediate access.

As equities have rebounded in the past week with the S&P 500 and Dow returning to all-time highs today, sentiment has gotten a boost.  After falling in back-to-back weeks, bullish sentiment as measured by the AAII’s weekly survey snapped back rising 9.1 percentage points to 49.4%.  That was the biggest one-week increase since the week of November 12th when it rose 17.88 percentage points, and it is also the highest level of bullish sentiment since then.

The declines in bullish sentiment of the prior two weeks saw neutral rather than bearish sentiment pick up the difference. This week again bearish sentiment went less changed than bullish or neutral.  Bearish sentiment was only slightly lower falling 1.8 percentage points to 23.5%.  That is the lowest level of bearish sentiment since the second to last week of 2020 when it bottomed out at 21.99%.

That means the gains in bullish sentiment took from the big decline in the percentage of respondents reporting as neutral.  Only 27.1% of respondents reported as neutral this week, down 7.3 percentage points from the prior week.  That was the largest single-week decline since the end of 2020 as sentiment is back to the same level as the start of February.

These changes in sentiment have meant that the bull-bear spread took a sharp move higher rising to 25.9.  That is the highest level in the spread since the first week of December when it was slightly higher at 26.41. Prior to that, the only recent reading that was as high was November 12th which was the highest level in over two years.

While the AAII’s survey has reflected the bounce in equities over the past week, another sentiment survey is not yet reflecting this week’s price action.  The Investors Intelligence survey of equity newsletter writers showed bullish sentiment fell 2.9 percentage points to 51%.  That is the lowest level since the end of last May when it was 50.5%. Meanwhile, bearish sentiment rose 2 percentage points to 20.6%; the highest since early November.  This survey also queries respondents on whether or not they are looking for a correction.  With the Nasdaq having met the technical definition of a correction earlier this week (a 10% decline from a high), it’s not surprising that the highest share of respondents, 28.4%, reported that they are looking for a correction since late September.  Click here to view Bespoke’s premium membership options for our best research available.

After a small uptick last week, initial jobless claims have resumed their move lower coming in at 712K this week and 13K below expectations.  The 42K decline from last week’s upwardly revised reading (745K previously to 754K) entirely erased the prior week’s 18K increase as claims now stand just 1K above the pandemic low of 711K reached in the first week of November.  While that is still a historically elevated reading, it is only within 17K of the pre-pandemic record of 695K.

While the adjusted number is just off the pandemic low, on a non-seasonally adjusted basis claims did reach a new low.  At 709.5K, claims have taken out the previous 716.6K low from two weeks ago.  From a seasonal perspective, declines during the current week of the year are the norm. Historically, the current week of the year (10th) has seen claims fall two-thirds of the time.

Adding in Pandemic Unemployment Assistance (PUA), the improvement in claims data was less impressive.  PUA claims were actually higher by 41.86K on a week over week basis bringing total claims between that program and regular state claims to 1.188 million from 1.193 million last week.  That is still roughly 181K above the pandemic low from early November and little changed from the past few weeks’ readings.

On a state-level basis, while a majority of states continue to report lower initial claims for both programs, the single biggest contributor to national claims continues to be Ohio. Ohio reported 126.9K regular state claims which is 20K more than the next biggest contributor, California (105.9K).  For PUA claims, Ohio’s 261.7K claims in the most recent week are over 45K more than the combined total PUA claims for all other states and territories. For continuing claims, things are a bit less extreme with Ohio only accounting for 4.13% of all regular state continuing claims and 8.67% of total PUA continuing claims.

Like initial claims, continuing claims have also continued to improve, coming in below expectations (4.144 million vs. 4.2 million expected) which was also a new low for the pandemic.  The 193K decline was the eighth weekly decline in a row as claims have fallen every week except for three in the past half-year.

Including all programs adds an extra week’s delay to the data.  For the data as of the week of February 19th, total claims were an entirely different story as they rose by over 2 million rising back above 20 million for the first time since early December. That week saw an uptick across programs, but the biggest factors were PUA claims and Pandemic Emergency Unemployment Compensation (PEUC) which rose by 1.058 million and 986.35K, respectively. For PUA claims, that was the largest increase since January 8th when there was some catch-up following the signing of the spending bill. Click here to view Bespoke’s premium membership options for our best research available.