Yesterday’s pullback came was blamed on concerns the Fed might taper its asset purchase program as early as this month following some better-than-expected initial claims and Q3 GDP data. The headline print for each certainly aided such thinking. Initial claims for the week ending November 30 checked in at just 298,000 (Briefing.com consensus 330,000) while the second estimate for Q3 GDP jumped to 3.6% (Briefing.com consensus 3.0%) from 2.8%.
The headlines had an undeniably encouraging feel to them. That was the first sub-300,000 print for initial claims since early September and the 3.6% growth in Q3 GDP was the strongest since the second quarter of 2010. Upon closer review, though, the headlines were a little misleading.
The Department of Labor acknowledged that seasonal adjustment problems biased the claims number lower (which means we are likely to see a higher print in subsequent weeks) while the change in private inventories accounted for 1.68 percentage points of Q3 GDP growth. Take the change in inventories out of the equation and real final sales were up just 1.9% versus 2.0% in the first estimate. Furthermore, the 1.4% growth rate in personal consumption expenditures was the lowest rate since the fourth quarter of 2009.
A big jump in inventories and a deceleration in personal spending isn’t exactly a combination befitting a robust growth picture. In that context, the tapering trade in our estimation probably had more to do today with the angst surrounding the November employment report on Friday than it did with a true read of today’s data.
Following the strong ADP Employment Change report on Wednesday, there is a presumption that the nonfarm payrolls number on Friday will also produce a positive surprise. The Briefing.com consensus estimate for nonfarm payrolls is set at 188,000 and at 200,000 for nonfarm private payrolls.
Given the four-day losing streak for the S&P 500, one shouldn’t be surprised if individual investors were a little less bullish this week. After last week’s surge in bullish sentiment, that is exactly what we saw. According to the weekly survey from the American Association of Individual Investors (AAII), bullish sentiment declined from 47.3% down to 42.64%. Perhaps the most surprising aspect of individual investor sentiment over the last few weeks is the fact that even after an eight week winning streak for the S&P 500, AAII’s measurement of bullish sentiment never increased above 50%.
While investors turned a little less bullish this week, they didn’t shift into the bearish camp. As shown in the lower chart, bearish sentiment fell this week as well. After coming in at a level of 28.25% last week, bearish sentiment declined to 27.55% this week. Neutral sentiment, on the other hand, saw an increase of 5.4 percentage points to 29.81%.
Friday’s action is sure to be dictated by the details of the November employment report and the direction long-term interest rates take in its wake.
IN THE NEWS:
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