Small Business Optimism Jumps Above 50-year Average in November
The NFIB Small Business Optimism Index rose by eight points in November to 101.7, after 34 months of remaining below the 50-year average of 98. This is the highest reading since June 2021. Of the 10 Optimism Index components, nine increased, none decreased, and one was unchanged. Following last month’s record high of 110, the Uncertainty Index declined 12 points in November to 98.
“The election results signal a major shift in economic policy, leading to a surge in optimism among small business owners,” said NFIB Chief Economist Bill Dunkelberg. “Main Street also became more certain about future business conditions following the election, breaking a nearly three-year streak of record high uncertainty. Owners are particularly hopeful for tax and regulation policies that favor strong economic growth as well as relief from inflationary pressures. In addition, small business owners are eager to expand their operations.”
Key findings include:
- The net percent of owners expecting the economy to improve rose 41 points from October to a net 36%, the highest since June 2020. This component had the greatest impact on the overall increase in the Optimism Index.
- The net percent of small business owners believing it is a good time to expand their business rose eight points to a net 14%. This is the highest reading since June 2021.
- A net negative 13% of all owners (seasonally adjusted) reported higher nominal sales in the past three months, seven points better than October’s worst reading since July 2020. The net percent of owners expecting higher real sales volumes rose 18 points to a net 14% (seasonally adjusted), the highest reading since February 2020.
- The net percent of owners expecting higher real sales volumes rose 18 points to a net 14% (seasonally adjusted), the highest reading since February 2020.
- Twenty-eight percent (seasonally adjusted) plan capital outlays in the next six months, up six points from October. This is the highest reading since January 2022.
- The frequency of reports of positive profit trends was a net negative 26% (seasonally adjusted), up seven points from October and the highest reading of this year.
- Twenty percent of owners reported that inflation was their single most important problem in operating their business (higher input and labor costs), down three points from October and surpassing labor quality as the top issue by one point.
- Thirty-six percent (seasonally adjusted) of all owners reported job openings they could not fill in the current period, up one point from October.
- Seasonally adjusted, a net 32% reported raising compensation, up one point from October and a historically very strong reading. A seasonally adjusted net 28% plan to raise compensation in the next three months, up five points from October and the highest reading of the year.
CEOs have high hopes the former president will usher in an era of low taxes and regulations.
Mainstream economists warn the economy will take a hit from some of Trump’s proposals, but CEOs see a brighter outlook for their industries in the months ahead.
The index — first seen by Axios — jumped 12 points from last quarter to the highest level in more than two years.
Cisco CEO Chuck Robbins, who chairs the Business Roundtable, said in a statement that top executives feel “energized,” with Washington set to “consider measures that can protect and strengthen tax reform, enable a sensible regulatory environment, and drive investment and job creation.”
US Households’ Views of Finances Are Brightest Since Early 2020 Share of consumers seeing better year-ahead finances climbs
Nearly 38% of consumers foresee being somewhat or much better off, according to data from the Federal Reserve Bank of New York. The percentage of people who anticipate a worse financial situation, meanwhile, dropped to the lowest level since May 2021. About 42% of Americans expect conditions to remain roughly the same.
The survey also showed that consumers have a brighter outlook for equities. The average perceived odds that US stock prices will be higher in a year increased by 1.3 percentage points to 40.4%. Expected income growth also edged higher.
Inflation expectations, meanwhile, increased by 0.1 percentage point across all three time horizons studied in the survey. Americans anticipate 3% price growth in one year, 2.6% in three years and 2.9% in five years. Respondents’ uncertainty about those figures also increased.
(…) The problem, as with so much else, is intense political polarization. People vent to researchers in accord with the line of their favorite party. It’s not clear that these judgments really affect decisions when they go shopping. The University of Michigan has just released its first consumer sentiment survey compiled after the US election. Unsurprisingly, places have switched. Jubilant Republicans, braced for 8% inflation scarcely two years ago, now think it will be more like 1% over the next year. Meanwhile, Democrats’ expectations have roughly doubled to more than 3%.
This isn’t just about inflation. Michigan has been breaking out answers to its core expectations survey by party identification since the 2016 election. The way partisans on both sides are convinced that an election result can transform the economy is remarkable, and troubling:
That said, it’s possible that Trump’s return to office has helped assuage extreme fears of inflation. Michigan publishes inflation expectation numbers on both a median and a mean basis. The mean has recently moved radically higher than the median, showing that the researchers are encountering a large group of consumers who believe that inflation will soon veer seriously out of control. The survey still shows mean expected five-year inflation close to 6% — a number that, if it happened, would virtually guarantee defeat for the Republicans four years from now — but it has begun to moderate.
(…) The risk party raged anew on Friday after data showing the continued vigor of the labor market. The S&P 500 ended the week at fresh records and the Nasdaq 100 is up more than 28% this year. Credit markets continue to validate the good vibes across Corporate America, with borrowing premiums sitting at the lowest in more than two decades.
Along the way, the last-remaining short traders are taking hits. Among 126 ETFs that seek to profit from declines, only 14 are up this year and the average loss is 27%, according to Bloomberg Intelligence. For every single dollar invested in these so-called inverse funds, there’s $11 betting on gains instead across leveraged long ETFs, based on the amount of money tracking those strategies. An index tracking the most-shorted stocks is up some 30% this year alone.
“It’s hard to be bearish on risk right now,” said Cayla Seder, macro multi-asset strategist at State Street. “Liquidity remains abundant, the Fed has started its cutting cycle all while economic data continue to generally surprise on the upside.”
Yet suspicions are only growing that market froth is running rampant thanks to the trend-chasing set. The latest sign: Bitcoin surpassed the once-unimaginable $100,000 mark earlier this week in a broad rally that’s lifting coins across the digital-asset industry and inspiring animal spirits.
Richard Bernstein, who heads the eponymous Richard Bernstein Advisors LLC, says the top seven megacap stocks may look stretched, even if the broader market isn’t. But Bitcoin? Yep, it’s a “bubble on steroids,” he said. “There’s nothing fundamental going on. It’s all about liquidity.”
Bubble or not — the crypto frenzy dovetails with a now all-encompassing risk rally. Unprofitable tech companies are up 20% so far this quarter and junk-bond funds are now on course for a record year of inflows. It’s all lending a fresh boost to wealth creation. The number of millionaire 401(k) accounts at Fidelity Investments hit a record high of 544,000 in the third quarter. The net worth of US households also reached a fresh record in the second quarter of $163.8 trillion, according to data from the Federal Reserve.
The price, as ever, is driving sentiment. US consumers’ confidence in the stock market is at unprecedented levels, according to data by The Conference Board.
Underscoring the sense of investor infallibility, the cost to hedge against around a 10% drop in the S&P 500 has been falling for the past two months. Protecting against a bigger selloff is even less fashionable. The latest sign: one of the few remaining ETFs designed to withstand so-called Black Swan events has filed to liquidate this week, after years of losses.
To Lindsay Rosner, there are plenty of good reasons to be bullish for now — and plenty of good reasons to pay up for insurance along the way.
“We feel tail hedges will continue to play an important role in portfolio management,” said the head of multi-sector fixed income investing at Goldman Sachs Asset Management. “We are short-term constructive on the risk environment as we await clarity on what US policy will be and continue to monitor potential inflation risk to the upside.”
Fundamentally, from Ed Yardeni:
Q3’s revenues per share and earnings per share rose to new record highs, while the profit margin edged up to 12.6%. (…)
In any event, the industry analysts’ consensus outlook for annual earnings per share remains bullish (chart): 2024 ($243, up 10.0% y/y), 2025 ($275, up 13.2%), and 2026 ($310, up 12.7%). Are they too bullish? We don’t think so. We are forecasting $240, $285, and $320 as productivity growth boosts margins in our Roaring 2020s scenario.
Goldman Sachs reviewed the Q3 corporate earnings season by analyzing company fundamentals, equity analyst forecasts, and management commentary.
In addition to continued healthy real revenue growth, we draw three main takeaways for the economy. First, sentiment around the health of the US consumer improved to the highest level in nearly three years, and solid real income growth across the income distribution next year should narrow the dispersion in spending growth across income levels. Second, the labor market appears fully rebalanced, which continues to put downward pressure on wage and price growth. Third, when asked how they planned to mitigate the impact of potential tariff rate increases, management teams provided three strategies: passing along the higher costs to customers, stockpiling goods ahead of the implementation of tariffs, and reshuffling supply chains to avoid tariffed countries.
Chinese Exports Climb as Firms Rush to Get Ahead of US Tariffs Exports to America jump to highest in more than two years
Companies in China rushing to ship goods to the US before new tariffs drove exports higher in November, while imports unexpectedly fell in another sign of continued weakness in the domestic economy.
Exports rose almost 7% to $312 billion in November from a year earlier, the customs administration said on Tuesday. Shipments to the US hit their highest level since September 2022, while exports to Southeast Asia surged to a record, likely as Chinese firms aimed to have goods processed there and then shipped to the US before Jan. 20, when Donald Trump returns to the White House. (…)
The unexpected drop in imports shows just how weak Chinese demand is, with inbound shipments falling almost 4%, the largest contraction since February, when the country was on holiday for Lunar New Year. (…)
In recent months, the volume of exports has risen faster than their value, a reflection of price cuts by firms both at home and abroad. Prices at the factory gate dropped in November for the 26th straight month despite the government’s attempts in recent months to stabilize the economy and boost demand. (…)
China now sells more goods to almost 170 countries and economies than it buys from them, the highest since 2021. (…)
Equity investors are hopeful…
Bond investors not so much:
