Thursday, July 30, 2020

Market Climbing A Wall Of Worry: Weakening Bullish Investor Sentiment

AAII reported bullish investor sentiment fell 5.83 percentage points to 20.23% in the Sentiment Survey release today (7/30/2020.) This is the lowest bullishness reading since bullish sentiment was reported at 17.75% on May 26, 2016. The Sentiment Survey is derived from AAII's requests of its members to report their expectation about the stock market's direction in the upcoming six months.

Sentiment measures are contrarian ones and with the continued decline in individual investor bullishness, this is one variable that is positive for further stock gains. Certainly with the strong equity market recovery from the March 23 low, the S&P 500 Index is up 45.1% as of 7/30/2020, it does seem reasonable to think further advances will be harder to come by. In other words, the equity market seems to be in the "climb a wall of worry" phase.

The one economic variable that is top of mind for me is the weekly jobless claims report. I intend to write more on this this weekend, but it is important that that number comes down at a significant pace. I am more focused on the total number of individuals claiming benefits, 30.2 million individuals, which includes the Pandemic Assistance Programs. This total is down 1.6 million this week. A year ago the total number of people claiming Unemployment Insurance benefits equaled 1.7 million. A lot more improvement is needed in the jobs market. More to come on this....

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