Even though the S&P 500 has drifted lower over the past week having trouble holding onto its intraday highs, sentiment has continued to improve.  AAII’s reading on bullish sentiment has moved above 35% for the first time since April 9th this week, rising to 35.75% and up just under one percentage point from last week.

As bullish sentiment has risen, bearish sentiment has declined precipitously.  Just 33.03% of investors reported as bearish this week compared to 35.75% last week.  That is the lowest level since February 20th right as the bear market began earlier this year. This week also marked a fourth consecutive week that bearish sentiment has fallen while bullish sentiment has risen.  That is only the ninth such streak in the history of the data with only one streak going to five weeks (in February of 1991) and the most recent streak ending at four weeks in January of 2018.

The continued inverse moves in bullish and bearish sentiment have finally resulted in the bull-bear spread to tip positive. For the first time in 34 weeks (since February 20th), there were more investors reporting as bullish than bearish.  As shown in the second chart below, that brings to an end what was by far the longest streak of negative readings in the bull-bear spread on record.

Given that streak of negative readings in the bull-bear spread went on for such a long time, it is hard to compare to previous lengthy streaks.  In the past, there have only been six other streaks in which the bull-bear spread was negative for more than 10 weeks.  As shown in the table below, performance for the S&P 500 has typically been positive following these past occurrences with slight outperformance relative to all periods.   The only time that returns were well below average and negative three months to one year later was in 2008. Click here to view Bespoke’s premium membership options for our best research available.

Like some other indicators earlier this year, the index of Leading Economic Indicators released each month by the Conference Board experienced both its largest-ever m/m decline and increase in the span of under six months.  In March, when the US economy was essentially shut down, the index of Leading Indicators dropped a record 7.4% in just a single month.  By June, as the economy started re-opening, the index saw a record m/m gain of over 3%.  While it hasn’t been enough to erase all of the declines, it has come a long way.  Since that June surge, though, we’ve seen a deceleration of the growth in Leading Indicators for three months in a row to September’s level of 0.66%.  While 0.66% is down a lot from the June high, before the last three months, 0.66% would have been the strongest level of growth in this index since February 2018.

As mentioned above, the index of Leading Indicators is still well off of its highs, but it has still erased more than half of the declines we saw prior to the COVID crash.  The chart below shows the Leading Indicators index going back to 1959, and looking at the index’s behavior during prior recessions would once again suggest that the recession is over.  In every recession of the last 60 years, never before has there been a time where the index saw this large of an increase from its lows with the economy still in recession.

The ratio of Leading Indicators to Coincident Indicators also shows an interesting trend with regards to the current period relative to others.  First off, as we have noted in the past, throughout history the ratio has typically started to roll over well before the onset of a recession.  Even in the current period, the ratio peaked more than a year before the recession started.  Compared to prior periods, the rollover wasn’t nearly as large in magnitude as prior periods, and there’s obviously no way this ratio could have predicted a global pandemic, but technically speaking its record of accurately predicting recessions remains intact.

The lower chart shows a larger version of the ratio since the start of 2009, and in it, we show each of the prior periods during this span where the ratio saw an extended period without making a new high.  For the current period, it has now been 24 months since the ratio’s last peak.  While that’s a long time, from the middle of 2011 through mid to late 2013, the index went even longer without making a new high. Click here to view Bespoke’s premium membership options for our best research available.

Another week, another pandemic low for jobless claims.  Initial jobless claims came in at a seasonally adjusted 787K this week. That is down 55K from last week’s revised number which was taken down by a similarly large 56K from the original print of 898K.  Since the report released on October 1st, reporting of claims out of the most populous state in the US, California, has been on pause in order to reduce backlogs and implement fraud protection. As a result, California claims have been held constant at 226K over the past few weeks.  This week the revisions for those past weeks are in and reporting from the Golden State has resumed. The most recent claims reading from that state came in at 158K compared to the revised 176K last week. In other words, although it did not account for the entirety of the big moves, California’s numbers accounted for a large portion of the downward revision last week as well as this week’s decline.

Regardless of the nuance concerning California, overall national claims were healthier this week. Unadjusted claims fell as is seasonally normal for this week of the year, coming in at a pandemic low of 756.6K.  That is a 73.1K decline from last week’s revised 829.7K print (revised down from 885.9K).

Lagged one week to initial claims, continuing jobless claims were also lower this week falling to 8.373 million.  That is not only the lowest level since the final two weeks of March, but it was also the first time that continuing claims were below 10 million in back to back weeks since then. Again, with the point that state-level reporting quirks could play a role in the large moves, this week also marked a third consecutive week that claims have fallen by more than one million week over week; the only time in the history of the data that has happened.

While regular continuing claims have continued to fall, they do not necessarily tell the full story as there are multiple other programs like Pandemic Unemployment Assistance (PUA), Pandemic Emergency Unemployment Compensation (PEUC), and extended benefits to name a few.  Although these are lagged yet another week (most recent data for the first week of October), they show the same story of continued improvements as total claims have fallen for three straight weeks.  The two largest programs—regular state claims and PUA claims—have been the main drivers. On the other hand, one worrying sign is PEUC and extended benefits have been on the rise in recent weeks, though they both remain relatively small but still a growing shares of total claims. Click here to view Bespoke’s premium membership options for our best research available.