Individual investor pessimism nears Great Recession levels. (0:15) DOGE layoffs starting to show in data. (2:39) Amazon unveils quantum chip. (4:40)Show NotesMedian age of first-time homebuyers tops 50Analysts applaud NvidiaEpisode transcripts: seekingalpha.com/wsb Sign up for our daily newsletter here and for full access to analyst ratings, stock quant scores, dividend grades, subscribe to Seeking Alpha Premium at seekingalpha.com/subscriptions.
Chapter 1: What is the current level of bearish sentiment among investors?
Welcome to Seeking Alpha's Wall Street Lunch, our afternoon update on today's market action, news, and analysis. Good afternoon. Today is Thursday, February 27th, and I'm your host, Kim Kahn. Our top story so far, it's a country bear jamboree.
Bearish sentiment among individual investors surged to the highest level in two and a half years this past week as the tech and momentum trades showed some vulnerability.
The American Association of Individual Investors said in its survey for the week ending February 26th that the bearish camp, those who think the market will be lower in the next six months, jumped to 60.6% from 40.5% the week before. Bulls fell to 19.4% from 29.2%. The spread between bulls and bears jumped to 41.2% in favor of the bears, up from 11.3%.
Chapter 2: What historical comparisons exist for the current bearish sentiment levels?
Bearish sentiment hasn't been that high since September 2022, when the level hit 60.87%. That year, the S&P 500 fell 25% from January to October and saw the worst performance in the first six months of the year since 1970. Before that, you'd have to go back to the financial crisis to see bearish levels above 60%, with bear sentiment hitting 70.27% in March 2009.
The spread of 41.2% to the bears hasn't been this high since it hit 43.1% in September 2022. Before that, it would be March 2009's 51.4%. The stock market has seen a recent stumble, with the S&P 500 off 3% from its recent high, but it's still up 1.3% year-to-date. The Nasdaq is off just 1.2% for the year, and the Dow is up 2.1%. The bond market may hold a small clue to the pessimism.
Chapter 3: How are the stock and bond markets reacting to the current sentiment?
The 10-year Treasury yield has dropped from near 4.8% in January to close to 4.3%. Given inflation expectations rising, the drop in rates looks more like pessimism on growth, which could bring a U.S. recession back into the conversation. Looking to today's economic data, January durable goods orders rose after two straight months of decreases of 3.1% and topping the 2% consensus.
Chapter 4: What does the latest economic data say about durable goods orders?
But core durable orders ex-transportation were virtually unchanged, compared with the 0.3% expected. Wells Fargo economists noted the 0.8% rise in non-defense ex-aircraft orders, which is now rising at the fastest three-month pace since 2022.
To the extent this pickup in core capital goods orders does reflect a pull forward in demand, we should brace for some payback as that intention subsides mid to late in the year. On the labor front, weekly jobless claims rose by 22,000 to 242,000, sharply higher than the 224,000 consensus. That's up from a revised 220,000 the week before.
Chapter 5: What is the impact of recent jobless claims on the labor market?
In a sign federal layoffs may be starting to show up, claims filed in the District of Columbia rose by 421 to 2,047. The claims filed in Maryland dropped by 147 to 2512, and claims filed in Virginia declined by 533 to 2366. Pantheon macroeconomist Samuel Toom says extreme weather was chiefly responsible for the pickup in initial claims last week.
Snowfall was much higher than usual across most of the Midwest and the East. Doge's efforts to shrink the federal workforce also probably boosted claims last week, but by no more than 5,000, he added. Federal employees are widely distributed across the country, but roughly 20% are located in D.C., Virginia, and Maryland, despite these areas accounting for only about 5% of the population.
Among active stocks, Warner Bros. Discovery said it expects strong momentum in its direct-to-consumer business this year, which helped investors overlook the top and bottom line misses in its fourth quarter earnings report.
The company said, "...we expect strong DTC subscriber growth to continue through 2025, and we now have a clear path to reach at least 150 million global subscribers by the end of 2026, with corresponding strong DTC revenue and adjusted EBITDA growth." Snowflake is rallying sharply after fourth quarter results and guidance beat expectations.
Jefferies analyst Brent Thill said Snowflake is back on track towards an acceleration narrative, and they view the story as a key AI play investors need to continue to be long in 2025. And analysts are encouraged by NVIDIA's numbers.
Morgan Stanley analyst Joseph Morris said that Blackwell demand is likely to remain exceptional through the end of the year, even if some investors had a concern about the company's gross margins. Evercore ISI analyst Mark Lepassis said that the $11 billion in revenue from Blackwell was well above expectations. In addition, company management made the case for excellent visibility in 2025.
In other news of note, Amazon's cloud computing business, Amazon Web Services, announced its new quantum computing chip called Ocelot following similar launches from Alphabet and Microsoft. Ocelot can reduce the cost of implementing quantum error correction by up to 90% compared to current approaches, AWS said.
Quantum chips are used to perform computations, but instead of traditional binary bits that are 1 or 0, they use quantum bits, or qubits, which can be both 1 and 0 at the same time, speeding up complex processes like drug discovery. And in the Wall Street research corner, will most people be ready to retire before they buy their first home?
Apollo Asset Management highlights that the combination of higher house prices and elevated mortgage rates has resulted in a significant rise in the median age of homebuyers. That reached a historic 56 years in 2024 compared to 45 years in 2021. This marks a sharp contrast to 1981, when the typical age of a homebuyer was just 31 years old. That's all for today's Wall Street Lunch.
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