The preliminary read on sentiment from the University of Michigan was a surprising bright spot in Friday’s weak economic data as the headline reading improved from 71.8 up to 73.7 versus expectations for a decline to 68.0.  Even with this increase, sentiment remains near a 10-year low, so it’s not as though investors are actually positive, they’re just less negative.  While the increase in sentiment was a bit of a surprise, it makes sense.  April was a month where the economy was essentially shut down, so the impact of that sudden stop on sentiment was intense.  However, now that things have started to thaw a little bit, you can’t fault people for becoming more optimistic.

While consumers are feeling a bit better about the way things are, they are still extremely uneasy about the future.  The chart below breaks down sentiment towards current conditions and expectations about the future.  While the current conditions component showed some improvement, the expectations component saw further declines.

One question in the monthly survey that caused us to do a double-take was the question that asks, “During the last few months, have you heard of any favorable or unfavorable changes in business conditions? And what did you hear?” In this month’s survey, the index that tracks instances of unfavorable news mentions hit a record high of 141.  This series goes all the way back to 1959, and never before has it been near current levels.  The prior high for this index was back in the depths of the financial crisis when the index peaked at 133.  There hasn’t been much good news lately, but even this reading is extreme. Start a two-week free trial to Bespoke Institutional for full access to our research and interactive tools.

With the S&P 500 range bound over the past couple of weeks, short term breadth has left something to be desired.  So far in May less than half of trading days have seen a positive net number of advancing stocks in the S&P 500 . As such, and as we noted earlier this week, the 10-day advance/decline lines across sectors had broadly entered oversold territory this week. Some of the more beaten down sectors like Consumer Discretionary and Financials did so to a more extreme degree than other sectors.  But yesterday’s intraday reversal higher marked the first day this week with positive breadth for the index which allowed the 10-day A/D lines of Communication Services, Energy, Utilities and the S&P 500 to exit oversold territory. Meanwhile breadth for Consumer Discretionary, Financials, Industrials, Materials, and Real Estate all remain pretty weak. Start a two-week free trial to Bespoke Institutional to access our Daily Sector Snapshot and much more.

It has been a pretty quiet week of economic data so far, but the week closes out on a busy and what will ultimately be an ugly note.  Reports on the calendar for tomorrow include Retail Sales, Industrial Production, and Capacity Utilization, which all cover the month of April.  In addition to those reports, data for May includes Empire Manufacturing and preliminary Michigan Confidence.  April was the peak period of the economic shutdowns, and the data will highlight that.  Retail sales is expected to show its largest m/m declines on record (dating back to 1990), building on already weak readings from March.  The history for Industrial Production goes all the way back to 1920, and even with 100 years of data (including the Great Depression), there has never been another month where it saw a larger m/m decline at least based on current estimates. Likewise, data for Capacity Utilization goes back to WWII, and that too will likely be the weakest on record.  With all the weak hard data, it’s somewhat surprising to see that Michigan Confidence is only expected to fall to its lowest level since 2011.  In any other time, a nine-year low reading in an economic indicator would be notable enough, but in the midst of a global pandemic, it’s peanuts.  Start a free trial to Bespoke’s premium platform for full access to our stock market analysis and interactive tools.

In a post earlier today, we noted that individual investors still remain overwhelmingly bearish despite the equity market’s rally off the March lows.  Another sentiment indicator released by TD Ameritrade supports this view that investors aren’t particularly bullish right now.  The TD Ameritrade Investor Movement Index is a proprietary, behavior-based index created by TD Ameritrade designed to indicate the sentiment of individual investors’ portfolios. It measures what investors are actually doing, and how they are actually positioned in the markets.

The TD Ameritrade Investor Movement Index has been in existence since 2010, and in that entire history there have only been five months where the index was weaker than it is now, and that was from October 2011 through February 2012.  That was also a period that marked a major low in the equity market and was followed by a nearly uninterrupted three-year rally in the S&P 500.

While the Investor Movement Index is near record lows right now, it has been weak for some time, and that weakness came even as the S&P 500 was climbing to record highs over the last 12-18 months.  In other words, while investors are just about as cautious as they have been at any time in the last ten years, this conservatism is nothing new.  Start a two-week free trial to Bespoke Institutional for full access to our analysis and interactive tools.

In last Thursday’s Chart of the Day, we noted that for the first time in a decade less than a quarter of respondents were bullish or neutral while over half were bearish.  Although that isn’t exactly the case again this week, sentiment still leans heavily bearish.  Bullish sentiment dropped down further to 23.31% from 23.67% last week. That is the lowest level of bullish sentiment since the COVID-19 pandemic began and the lowest number since last October when the percentage of investors reporting as bullish bottomed out at 20.31%.

The move out of the bullish camp didn’t exactly flow into the bearish camp, though.  Bearish sentiment likewise fell slightly this week from 52.66% to 50.61%.  Although that is slightly lower, the majority of those surveyed are still bearish.

Simply put, bearish sentiment has been high for a long time.  Of the previously mentioned past ten weeks, even if bearish sentiment was not above 50% it was at least one standard deviation above its historical average.  That now ranks as the longest streak since 2008 (14 weeks) and the fourth-longest in the history of the survey daying back to 1987.

With such a large divergence between bulls and bears, the bull-bear spread now stands at -27.3 which is slightly better than the -28.99 reading last week but still clearly at the low end of the past decade’s readings. Start a two-week free trial to Bespoke Institutional to access our interactive economic indicators monitor and much more.