Small Business Capex Divergences

Feb 10, 2026

This morning, the National Federation of Independent Business (NFIB) published their monthly read on small business sentiment.  As shown below, the headline index was pretty much uninteresting with a marginal drop of 0.2 points to 99.3. This index has now consistently been narrowing following the surge in response to the 2024 election, and the latest reading is not only in the middle of that post-election range, but also in the middle of the historical range, ranking in the 49th percentile.

While the headline index isn’t jumping off the page, there have been some interesting details under the hood. The January drop in the index occurred on weak breadth as six of the nine inputs fell month over month.  Non-inputs to the Optimism Index saw stronger breadth, with five of the eight indices rising.

Among several topics we discussed in our Morning Lineup today, we noted how labor market indices included in the NFIB report have been trending in the right direction. In the charts below, we show a more granular look at each of the six relevant indices to this category.  As shown, hiring and compensation plans did fall in January, but that was counteracted by observed upticks in actual employment and compensation. For actual employment changes, January saw a net positive reading (meaning firms saw net hiring during the month) for the first time since last April. Further, since 2020, positive readings have also been somewhat uncommon, only occurring 17.8% of the time.

While those readings were not at any sort of significant high, this month’s report saw the lowest share of respondents reporting jobs as hard to fill since July 2020. Additionally, labor was cited as the biggest single problem for only a quarter of firms, tying last May for the lowest share since May 2020.

Looking to the other side of the production function, capex has seen an interesting divergence.  Capex plans dropped to 18 for the joint lowest reading since 2010.  Conversely, actual capital expenditures have risen sharply, hitting the high end of the past few years’ range.

In the breakdown of spending, equipment seems to be the driving force of that capex spend. That category registered its strongest reading since May 2021, while vehicle spending has also remained elevated.

The share of firms viewing now as a good time to expand was middling versus history, as that index is in the 52nd percentile following a 2-point jump in the index to 15. As shown below, economic conditions are the predominant reason for both negative and positive expansion outlooks.  While the former has seen that reason fall to the low end of its recent range, those pointing to the economy as a reason to expand hit the highest level in nearly five years.

Finally, we would note that there was a 4-point drop in the index for higher prices, and the share of respondents reporting inflation as their biggest problem was unchanged at 12%. In other words, inflation did not appear to see any dramatic increase in importance. However, a related series showing the share of respondents reporting cost or availability as their biggest problem has surged up to 13%, tying December 2018 for the highest reading since August 2008.

Software Getting Skinny

Feb 9, 2026

In the past couple of weeks, we have repeatedly highlighted the weakness in the software stocks. Fears that AI will pose a significant threat to the sector have caused large losses in terms of both price and weighting. In the charts below, we show the industry’s weighting in the S&P 500 versus other industries within the Tech sector. Last Thursday, the Software and Services industry saw its market cap as a share of total S&P 500 market cap fall below 9% for the first time since July 24, 2011.  A significant portion of that drop has come from a dramatic move over the past several months; however, that is also in the context of a longer-term drawdown since the peak weighting in the summer of 2018, shortly before a reclassification that shifted several large-cap Tech names into other sectors.

The recent declines also put the software industry’s weighting on par with one of its peers in the Tech sector: the Tech Hardware and Equipment industry. In fact, at the low last Thursday, Software saw its weighting in the S&P 500 fall below that of Tech Hardware and Equipment for the first time since April 30, 2010.  Whereas there have been steadier trends in software weighting over the long run, Hardware and Equipment has seen a relatively stable range of readings in the mid to high single digits since the early 2000s. That followed extremely elevated weights that crossed into the mid-20% range during the height of the Dot Com era. Fast forward back to today, even with the lower weighting in Software recently, Tech hardware hasn’t been picking up much.

The third and final industry that comprises the Tech sector is Semiconductors, and its weight trend is the polar opposite. This is a group that has been an absolute star of the show since AI came to the mainstream in late 2022, and as a result, it is now hovering around a record share of the S&P 500’s market cap. Today, its weight is up to 14.3%, which is again still a far cry from the Tech Hardware and Equipment Industry over a quarter century ago. That also leaves software in the dust as there is now a record 5 percentage-point difference in the weightings of the two industry groups.