The US-China trade war continues to be stuck in the mud with comments today by the two countries’ presidents being a prime example of the back and forth banter that has been the case for the past year and a half.  Early this morning China’s President Xi Jinping said that the country is willing to make a deal but is also willing to “fight back”. A few hours after, President Trump announced that the deal is “potentially very close”. As with the mixed commentary from the two leaders, the countries’ equities are also looking quite different as US equities continue to reach towards all-time highs and Chinese equities sit firmly below their 52-week highs.

While the pullback this week for the S&P 500 leaves the index less than half of one percent below its all-time highs, Chinese equities by proxy of the Xtrackers CSI 300 A-Shares ETF (ASHR) is over 10% below its 52-week high of $30.72 that was put in place back on April 5th.  Since reaching that high, ASHR has continued to be stuck under resistance just over $29. The most recent failed test of this resistance took place earlier this month. A 1.69% decline today has left ASHR over 5% below this recent high. Additionally, for the first time since October 8th, ASHR has closed below both its 50 and 200-DMA.  While that could be taken as a bearish sign, the past few times the ETF has crossed below was followed by another run back up to that resistance near $29. Start a two-week free trial to Bespoke Institutional to access our interactive Chart Scanner, Trend Analyzer, and more.

In just about any economic discussion you read or listen to these days, there’s one recurring theme- the strong consumer is picking up the slack.  Strong consumer sentiment and generational lows in the unemployment rate are just two of many examples.  A search of the term “strong consumer” on Google Trends also illustrates the strength of the consumer. While there’s still another nine days left in the month, searches for the term “strong consumer” in November are on pace to be the highest in at least a year.

So, we all agree that the consumer is strong.  Right?  Well, recently the market begs to differ.  The chart below shows the relative strength of the S&P 500 Consumer Discretionary sector versus the S&P 500 over the last year.  When the line is rising, it indicates that the Consumer Discretionary sector is outperforming the S&P 500.  However, when the line is falling it indicates that the Consumer Discretionary sector is underperforming, and underperforming is what the sector is doing now…in a big way.  Even as the S&P 500 is up around 4% in the last month, the Consumer Discretionary sector is down 1%.  While many traditional brick and mortar retailers that have fallen on hard times are in the sector because these stocks are already down so much, their weighting in the index has become very small. Meanwhile, stocks that have previously been big winners like Amazon.com (AMZN), Home Depot (HD), and McDonald’s (MCD) are the sector’s largest components.  Does the market know something we don’t? Sign up for Bespoke’s “2020” special and get our upcoming Bespoke Report 2020 Market Outlook and Investor Toolkit.

As the S&P 500 has pulled off of its record highs in the past week, investors have been more hesitant to label themselves as bulls.  This week’s survey of individual investor sentiment from AAII saw 34.24% of investors responding as bullish compared to 40.72% last week.  This was the biggest one week decline since an 8 percentage point drop in the first week of October.  After spending two weeks above it, this decline has also brought bullish sentiment back below its historical average. Additionally, this is the first time in two weeks that bullish sentiment was not the predominant sentiment level.  Despite this, the bull-bear spread is still in favor of bulls by 5.21 percentage points as has been the case for the past six weeks.

Although the bull-bear spread still leans positive, it has been narrowing over the past couple of weeks.  This is on account of bullish sentiment pulling back with those losses going to the bears. Bearish sentiment is now at 29.03%, up from 24.82% last week.  Bearish sentiment is still below (but now close) to its historical average of 30.36% as has been the case for the past five consecutive weeks.  This is the longest such streak since a seven-week run ending on May 9th.

As mentioned before, bullish sentiment no longer takes the crown for being the predominant sentiment. Instead, the highest share of investors, 36.72%, now consider themselves neutral.

Neutral sentiment has been above its historical average for 15 consecutive weeks now. This is just the eighth time in the history of AAII’s survey where there has been a streak of 15 weeks or more. Most of these have actually occurred in the current bull market with at least one occurring in each of the past five years except for 2018.  Even though the current run is long, previous streaks lasted much longer. The current streak is the longest streak since the one in 2017 that ultimately ended at 25 weeks long. Even that was not the longest streak on record though. That accolade belongs to the 41-week streak that lasted from 2015 through late 2016.  In other words, there is a historical precedent for extended streaks of above-average neutral sentiment.

Performance following past streaks once they reach 15 weeks has leaned on the weaker side with underperformance one month, three months, and six months later.  One and three months out the S&P 500 has actually averaged a decline.  On the other hand, the next week has typically experienced outperformance as has the next year, albeit to a lesser extent on average. Sign up for Bespoke’s “2020” special and get our upcoming Bespoke Report 2020 Market Outlook and Investor Toolkit.

Initial jobless claims last week came in surprisingly high at 225K.  That number has since been revised even higher to 227K.  Despite expectations of a decline to 218K, this week’s print was unchanged from the previous week’s revised number.  The past two weeks’ reports represent the highest level for jobless claims since June 21st’s reading of 229K.  Given the lack of improvement this week, the indicator remains above the past few months range, although the record streaks at or below 250K and 300K are still going strong at 111 and 246 weeks, respectively.

Given the increase in the seasonally adjusted number over the past two weeks, the moving average has also begun to tick higher, especially given the narrow range it has remained in recently. Rising to 221K, the four-week moving average is also now at its highest level since June’s when it reached 222.5K. This was also a slight increase, 0.25K, from the same week last year.

Turning to the non-seasonally adjusted data, jobless claims actually fell to 226.4K from 239K last week.  That is a bit of a break from the seasonal trend higher towards the year’s highs around this time of year.  This week’s reading was down year over year as NSA claims sit well below the average of 335.1K for the current week of the year since 2000.

Continuing claims were also a disappointment in labor data today as they rose to 1695K compared to estimates predicting no change at 1683K. As with initial claims, last week’s number was also revised higher to 1693K. Yet another parallel with initial jobless claims, continuing claims have been fairly flat over the past year.  As shown in the second chart below, the year-over-year change in continuing claims can no longer boast the same strength that it has since the start of the cycle. In the final week of September, continuing claims experienced their first year-over-year increase since 2010 when claims were still recovering from the last recession. Since then, claims have seen seven consecutive weeks rising versus last year. Start a two-week free trial to Bespoke Institutional to access our interactive economic indicators monitor and much more.