The market may be reaching all-time highs today, but sentiment is hardly reflective of that. The AAII weekly sentiment survey continues to see modest improvements in bullish sentiment as it rose 2.7% this week to 29.51%, returning it to its normal range (less than 1 standard deviation from the historical average). But this improvement has not necessarily been at the same pace as the market’s rally off of recent lows. Bullish sentiment is now around 10 percentage points off of where it stood the last time the S&P 500 was at these levels.

Versus all other times in the history of the survey that the market was at all-time highs, the current reading for bullish sentiment stands in the 8th percentile, so it is very rare to see bullish sentiment this low given the market’s current state.  This means individual investors are likely totally caught off guard by recent gains, and there’s plenty of cash on the sidelines that can still be put to work.

Bearish sentiment saw a similar sized decline to the increase in bullish sentiment.  The percentage of investors reporting as bearish fell from 34.2% to 32.13%, a 2.07% decline. That is also about 10% from a high in bearish sentiment of 42.58% that was reached in the first week of the month.  This brings this outlook more into a normal range as it is only a little less than two percentage points above the historical average.

Neutral sentiment still remains at the upper end of the past few years’ range coming in at 38.36% this week, only a minor decrease (0.6%) from last week. As has been the case for most of the past few months, neutral sentiment has been the predominant sentiment reading among surveyed investors.  Start a two-week free trial to one of Bespoke’s three membership levels to access our interactive tools and in-depth research.

The Department of Labor’s weekly report on initial jobless claims were expected to fall from 220K from 222K last week on a seasonally adjusted basis.  The release surprised with stronger results showing only 216K initial jobless claims.  That is the lowest print since claims came in at 212K on May 23rd.  With this stronger print, a couple of impressive streaks continue.  For starters, claims have remained at or below 300K for a record 224 weeks.  Additionally, this week marks the 89th week at or below 250K.  That ties the previous record of 89 weeks ending January 10th, 1970! Save a massive spike higher, claims will likely beat that record next week.

The less volatile four-week moving average saw a small increase of 1K this week to 218.75K.  As we mentioned last week, the four-week moving average has been very stable in the past month.  Since the May 30th release, the four-week moving average has only moved in a tight 3.5K range with this week’s print actually being at the high end of this range.

As is typical for the current week of the year, claims saw a sizeable downtick this week on a non-seasonally adjusted basis.  The NSA number fell from 220K last week down to 205K.  As is usually the case, that is well below the average for the current week of the year since 2000 of 320K.  As we have mentioned in the past, this year has seen a significant number of weeks with YoY increases in the NSA data unlike what can be observed over the past several years.  After last week saw another YoY increase, this week caught a break, albeit, the YoY decline was only 1K.  So this week’s NSA claims number was just barely the strongest of the current cycle for the current week of the year. Start a two-week free trial to Bespoke Institutional to access our interactive economic indicators monitor and much more.

US equities surely liked what they heard from the FOMC on Wednesday, but emerging markets cheered the comments even more.  Starting with the group as a whole, the Emerging Markets ETF (EEM) rose 0.8% and closed above its 50-DMA for the first time since May 3rd and also looks to have broken above some short term resistance as well.

Down in Brazil, the benchmark Ibovespa index saw a similar move closing at a record high and above 100,000 for the first time in its history.

On a dollar-adjusted basis, the Brazilian benchmark still remains well off its recent highs, but it does look to have broken its downtrend from its highs in early February.  No one likes easy money more than emerging markets and this week’s moves from global central banks has been music to their ears. Start a two-week free trial to Bespoke Institutional to access our interactive economic indicators monitor and much more.

Yesterday, Bank of America released the results of its Global Fund Manager Survey conducted from June 7th to the 13th, and the data did not paint a very positive picture for the global economy.  In fact, BofAML labeled the monthly survey as the “most bearish survey of investor confidence since the Global Financial Crisis.”  The trade war was reported as the greatest concern among respondents, but monetary policy and a slowdown in growth also came in high up on the list of risks.  Given these trends, growth expectations are now at a record low for the survey.

These concerns have been playing into positioning as allocations reported in the survey have become increasingly defensive. The average cash balance held by respondents has skyrocketed to the largest since August 2011.  Additionally, those surveyed reported the second largest MoM drop in equity allocation in the survey’s history.  Equities that have been bought include defensive sectors like REITs, Utilities, and Staples. Currently, these are also the most overbought sectors from a technical perspective. Meanwhile, the most crowded trade as per the survey has become the safety of being long US Treasuries. That’s notable given the massive disparity of late between bond and equity flows.

Mutual fund flow data from ICI, most recently released today, is our best evidence for flows. Total equity outflows totaled $4.84 billion over the past week, which is in the 21st percentile of all flows in the data’s history. Meanwhile, bonds saw inflows totaling $3.43 bn.  All equities except for Emerging Markets saw outflows with large-cap domestics seeing the largest of these outflows totaling $1.76 bn; EM saw a small inflow of $0.07 bn. Again, bonds broadly saw inflows, although Taxable Government and High Yield did see modest outflows. On a cumulative basis, bonds and world equities have been seeing inflows in very high percentiles.  The opposite is true for equities. The Global Fund Manager Survey’s indicated elevated cash level is also showing up in ICI data as mutual funds overall saw total outflows this week of $2.89 billion.

Just one more piece of economic data mirroring the outflow from equities was the most recent quarterly Federal Reserve Z.1 Report released on June 6th.  While this is lower frequency than these other reports, it showed a similar story of US households having less of their allocation placed in equities versus prior years.  Whereas households have seen equities take up a greater portion of assets in the past several years, more recently this percentage has pulled back a bit, driven in no small part by market price declines in Q4.  Start a two-week free trial to Bespoke Institutional to access our interactive economic indicators monitor and much more.