Recently we have noted how different sentiment indicators have been showing mixed results. While some like AAII’s weekly survey continue to show overall bearish readings, others like the survey from Investors Intelligence are more optimistic. Typically, when the S&P 500 is at an all-time high, AAII’s reading on bullish sentiment has averaged a reading around 40%.  But in recent weeks not even a third of respondents have been bullish.  After rising for the past four consecutive weeks and despite more all-time highs in that time, bullish sentiment pulled back this week to 30.8% from 32.08% last week.  While that remains at the upper end of the past several month’s range, it is very muted compared to where equities are trading.

Meanwhile, the Investors Intelligence survey of equity newsletter writers has much more bullish tones.  This week, that survey saw 61.5% of respondents report as bullish.  That is the highest reading of bullishness since October of 2018 and the fourth week over week increase in a row.

Additionally, Investors Intelligence collects the percentage of respondents that are looking for a correction.  This week that reading fell for a fourth straight week to 22.1%. Similar to bullish sentiment from this survey, that is the most optimistic reading since October of 2018.

Meanwhile, AAII saw bearish sentiment rise back above 40%. Bearish sentiment remains the predominant sentiment in this survey even though this week’s reading of 41.77% is actually lower than most readings of the past several months. Again, the Investors Intelligence survey is showing the opposite from AAII as bearish sentiment is at 16.4%. That is up slightly from 16.2% last week, but that is still around some of the lowest levels since March of 2018.

Finally, investors also are slightly more decisive in the bear or bull decision as neutral sentiment fell this week from 28.3% to 27.43%,  While there have been plenty of lower readings in the late spring and summer, that is still around four percentage points lower than the historical average. Click here to view Bespoke’s premium membership options for our best research available.

Today’s ISM Services report for the month of August came in slightly lower than forecasts, but one of the bigger stories in the report was the trend of rising prices.  The Prices Paid component of August’s report rose to 64.2 which is not far from the five-year high of 64.9.  Within the monthly commodities survey, there were price increases all over the place. Respondents in this month’s report noted prices increases in 26 commodities and declines in just four.  The 26 commodities rising in price is the highest since October 2017.  Not only that, but respondents also noted that 22 commodities were in short supply.  Anyone with a basic understanding of economics can tell you that when commodities become scarce, they usually rise in price.  Therefore, there’s likely a healthy pipeline of commodities that have the potential to show up in the “Up in Price” section.

Combining the results from today’s ISM Services report with the commodity survey from Tuesday’s ISM Manufacturing report, a total of 41 commodities were up in price during the month of August while just six were down.  That net reading of 35 ranks as the highest in just over two years (July 2018). The chart below compares the six-month average of the net number of commodities rising in price and y/y CPI going back to 1999.  As the chart illustrates, trends in the commodities survey typically track and often lead changes in y/y CPI, and while the six-month average has now been trending higher for a few months now, CPI is only just starting to tick higher.  Not only that but in the next three months, the moving average of the commodities survey is only going to keep rising.  Start a two-week free trial to Bespoke Institutional for full access to our research and interactive tools.

The widely quoted seasonally adjusted initial jobless claims number for this week was 881K, which was well below estimates of 950K and last week’s print of 1.011 million. While that is a decline, a like for like comparison of this week’s data to past readings is not entirely accurate.  This week was the first week that the Department of Labor changed the seasonal adjustment methodology.  In a nutshell, previously the DOL had utilized a multiplicative seasonal effect which is dependent on the level of claims meaning at times of sudden large moves like the past several months, seasonal adjustments tend to over-correct. Instead, the DOL will now use an additive seasonal effect which is independent on the level of the series and should mitigate over or under adjustments. At this point, past weeks’ readings were not revised with this new adjustment methodology and will not be revised until the usual annual revisions at the start of the calendar year.

As a result of the changes in seasonal adjustment methodology, looking at the non-seasonally adjusted numbers is a better look at the data for the time being.  NSA initial claims rose slightly by 7.6K to 833.4K this week.  That is the smallest weekly change since June 25th when they fell by 3.3K.  That leaves claims up 659.8K versus the same week last year.

As for continuing jobless claims, on a non-seasonally adjusted basis claims were lower by 764.7K.  Now at 13.1 million, continuing claims are at their lowest level since early April, albeit they remain up significantly compared to the same week last year.

While the regular number for claims has been headed lower for both initial and continuing claims, factoring in Pandemic Unemployment Assistance it is not as strong of a picture.  Initial PUA claims have risen for a third consecutive week coming in at 0.76 million today.  That is the highest amount since late July bringing total claims (PUA + regular claims) to 1.59 million; that is the highest since the last week of July.  As for PUA continuing claims, which are lagged another additional week, this week saw a 2.598 million jump in claims. That was the largest one week increase since mid-May and brings total continuing claims to their highest level since July 17th despite a consistent move lower in normal continuing claims. While that is a weaker reading than the past few months, part of that week over week increase could be due to seasonality as claims tend to trend higher from September through the end of the year. Click here to view Bespoke’s premium membership options for our best research available.

One near constant of 2020 has been the outperformance of Technology stocks.  Both during the bear market and in its aftermath, Technology stocks—many of these businesses being insulated or benefiting from the pandemic—have consistently outperformed.  Given this outperformance of Technology, lofty valuations, and more, there have been parallels drawn between now and the Dot Com era.

In the charts below, we show the long-term ratios of the S&P 500 Technology sector to other major indices as well as the other sectors.  As shown, the Tech sector’s outperformance (rising line) versus basically everything else is clearly evident with the line having risen sharply over the past few years.  Currently, Technology in relation to the S&P 500, Russell 2000, Dow, and Dow Transports are all around some of their highest levels since the Dot Com era. Of these, the ratios of Tech to the S&P 500 and Dow are the most elevated and of most concern.  On the other hand, the ratio of Tech to Transports is far more muted, and Tech to small caps is also not as dramatically high as the Dot Com days.  For these two, there were also even more elevated readings back in the early 1970s; over two decades before the Dot Com boom and bust.

When comparing Technology to other sectors, it is a more mixed bag.  The ratio of Technology to Communication Services is the only one that is around a record high.  As for the other sectors, the readings are much less extreme.  While there are elevated readings like in the case of Financials, Materials, and Energy, they are either not yet at a new high or have other readings prior to the 1990s that are higher just like the ratio of Technology to the Dow Transports.  Meanwhile, Technology versus Consumer Discretionary and Health Care are actually more on their low end of historical readings.  In other words, Technology has been a massive outperformer and these readings certainly raise an eyebrow, but are perhaps not as extreme as the 1990s or even other years prior to that.  Start a two-week free trial to Bespoke Institutional to access our interactive economic indicators monitor and much more.

As unrest has erupted around the country this year, Federal background checks for firearms have been rising to record levels. Just three months ago, in June, there were a record 3.931 million background checks.  In July that total declined by nearly 300K to 3.639 million.  Figures for the month of August were released earlier today and showed an additional decline of 524K to 3.115 million.  While August’s decline was the largest m/m decline in background checks going back to 1998, the total number of background checks was still the 6th highest monthly total on record, and all but one (December 2015) of the five months that saw larger numbers of background checks were all this year (March, May, June, and July).

Despite what was one of the largest monthly declines on record, the y/y change in background checks was still more than 30% which while down from the 79% y/y rate in July is still a blistering pace. Start a two-week free trial to Bespoke Institutional to access all of our research and interactive tools.

Every day in our Daily Sector Snapshot, we provide a look at the net percentage of S&P 500 stocks that are making new 52-week highs (percentage of new 52 week highs minus the percentage of new 52 week lows).  Even though the S&P 500 has continued to hit new highs recently, the same cannot be said for much of the individual stocks that the index is comprised of.  Historically for the S&P 500 when it has reached all-time highs, the average reading on the net percentage of new highs has stood at 12.35%.  Today, it is around 5 percentage points lower at 7.33% and is off the post bear market low peak of 10.1% from July 23rd. The same can also be said for each of the eleven sectors. At the moment there is only one sector, Materials, that is currently at its highest level since the bear market low.  Every other sector is currently off-peak with no stocks reaching new highs in Energy, Real Estates, and Utilities. Meanwhile, Consumer Staples has seen its share of stocks at new highs fall the most dramatically recently with the reading as of yesterday’s close the lowest since August 13th.  Financials also continue to show positive readings but those remain far more muted than what was observed prior to the pandemic. On the other hand, unsurprisingly the sector with the highest net percentage of new highs currently is Technology at 16.9%, but that too is off the peak of nearly 20% from just about a week ago. Granted, for Tech that reading has generally been trending higher recently as it also has for Health Care, Industrials, Communication Services, and Consumer Discretionary.  Start a two-week free trial to Bespoke Institutional to access our interactive economic indicators monitor and much more.