Back in March, long-standing blue chip company General Electric (GE) spun-off and merged its energy businesses (formerly GE Power, GE Digital, and GE Renewable Energy) into GE Veranova (GEV).  Since the spin-off on March 27, GEV is the second best performing stock in the S&P 500 with a 161.9% gain.  That is second only to the near-200% gain in shares of Palantir (PLTR) in that same span and compares to a 15.76% gain for the S&P 500.  Meanwhile, parent company General Electric (GE) has slightly outperformed the S&P 500 with a 16.5% gain while another one of its semi-recent spin-offs (occurring in January of last year), GE HealthCare Technologies (GEHC), is down double-digits.

The S&P U.S. Spin-Off Index measures the performance of companies that have a market cap of at least $1 billion and have been spun-off of a parent within the past four years. In the chart below, we show the return of this index versus the S&P 500 over the past decade.  As shown, spin-offs have offered respectable returns albeit coming up short of that of the S&P 500. On a relative strength basis, spin-offs were actually outperforming the broader market throughout 2014 into 2017, but the trend has shifted out of favor in the past several years. With that being said, the recent strong run in GEV among others has meant that the relative strength line has made a considerable pivot higher in recent months.

Of course, in being one of the best performing S&P 500 stocks this year, GEV also leads in performance since the spring among other spin-offs.  In the table below, we show the members of the spin-off index in addition to when they were spun-off, their performance since GEV’s spin-off, and their dividend yields.  The only one of these companies holding a candle to GEV has been Victoria’s Secret (VSCO) which has also more than doubled since the spring.  Conversely, there are ten that have fallen in that span.

In addition to its big rally, GEV is also worth mentioning because in a press release earlier this week the stock instated a dividend and announced a buyback.  Among the aforementioned spin-off stocks, about half pay a dividend and GEV’s new dividend yield of just 0.3% is at the lower end of these names.  The $0.25 payout goes ex-dividend on December 19 with it planned to be paid out in late January.

Switching over to the parent company, General Electric (GE) is an interesting story with a dividend history worth mentioning. Currently, GE has the 14th lowest dividend yield among dividend payers in the S&P 500 Industrials sector.  While the sector itself doesn’t have a particularly large yield, almost half (45%) of its member stocks have a larger yield than the S&P 500.  For GE, the company had an impressive 32 year run of raising its dividend annually from 1977 through 2009. However, hard times during the Financial Crisis resulted in that dividend to get slashed. The 2010s saw the company undergo significant restructurings which have clearly continued into today. Those culminated in another big cut in the dividend in 2017 and 2018. After the continued restructurings, in the current iteration, General Electric is focused primarily on the aerospace business. While the stock’s price has rebounded (currently it is around some of the highest levels since 2008), the dividend yield is a shell of its former self. With that being said, GE raised its dividend by 20 cents in the first quarter of the year, marking the first time GE raised its dividend since 2016.

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The inaugural year of the 12-team College Football Playoff kicks off next Friday night (12/20) with the intra-state matchup of Indiana and Notre Dame. The number 7 and 10 seeds are just a three-hour car ride apart, so you can imagine that demand for those tickets is off the charts. Notre Dame Stadium has a capacity of just under 78,000, and according to Ticketmaster, if you want to see the game in person, it will cost you just under a grand per ticket before fees.

The first game of the Playoffs is the most expensive get-in price of the four first-round games, but the cheapest will be the next afternoon on 12/21 at noon when SMU travels to Happy Valley to face Penn State. The game isn’t even sold out yet, so you can get in for just $100, or a tenth of the cost of getting into the Notre Dame game. Not only that but for the same price as the worst seat in South Bend, you can currently sit in the ninth row on the 50-yard line to see the Nittany Lions take on the Mustangs. While neither SMU nor PSU has quite the cache of Notre Dame, the discrepancy in ticket prices looks extreme. The fact that Beaver Stadium has a capacity of nearly 107,000, or 37% more than Notre Dame could also help to explain the difference in ticket prices, but if this game is anywhere close to as as exciting as SMU’s ACC Championship game, this would be the Graham and Dodd game of the College Football Playoff with Notre Dame – Indiana being priced like more of a wallstreetbets type of stock. Here’s an idea; the drive from South Bend to Happy Valley is just seven hours and a flight (private of course) is less than two. Who’s up for a doubleheader next weekend?

Early this morning, the National Federation of Independent Business (NFIB) released its November survey for small business sentiment.  As shown below, the headline Optimism Index surged by 8 points month-over-month for its biggest jump since 1980 and up to the highest level since June 2021.  The main catalyst for the surge in optimism was the election.  As we often discuss with this indicator, this release has increasingly been politically sensitive in recent election cycles. Republican administrations have tended to correlate with stronger small-business optimism and vice versa when Democrats have been in power.  That means that while the indicator is useful, there is a political caveat that needs to be acknowledged.

In the table below, we show readings for each category in the report both for the most recent month and the previous month, the month-over-month change, and how those rank in percentile terms versus all periods in the survey’s history since it began releasing on a monthly basis in 1986.  Under the hood, expectations for the economy to improve shared in seeing a record month-over-month gain, rising 41 points from -5 up to +36. Capital expenditure plans, expectations for higher real sales, and viewing now as a good time to expand were not far behind with some of the largest increases in their respective histories. Positive moves were observed far and wide with only one category declining on the month: credit availability.

As previously noted, the index for economic outlook saw a record increase rising an astonishing 41 points from a negative reading up to the highest since June 2020.

Given the strength in the economic outlook, the highest share of firms see now as a good time to expand since June 2021. While the reading is surging, it has plenty of ground to make up to return to levels seen during the last Trump administration.

Fortunately, the survey provides a detailed breakout into the reasons why firms are either positive or negative, and the results are perhaps the most clear sign of responding firms’ political biases. For those firms that did give a negative expansion outlook, economic conditions and political climate have been the two most commonly offered reasons in the past several years. However in November, in addition to fewer firms offering a negative outlook, fewer firms reported economic conditions or political climate as the culprit. For other categories, there was only a marginal uptick in financials & interest rates.  Conversely, for those that gave a positive expansion outlook, the highest percentage of firms pointed to the political climate for their optimism.

In reviewing the data, it may have become clear that a number of the categories that observed major improvements have the basis in answering a question of how a firm is feeling rather than how it is actually doing.  For example, while there was a six point increase in plans to increase capex, there was no change in actual capex spending.  In other words, there has been a divergence in the survey’s soft and hard data.

In the charts below, we have taken each category of the report (standardizing using a z-score) and averaged whether they are based on hard or soft data.  As shown, although November did see stronger hard data, the jump in soft data was much larger.  In other words, businesses did see improvements, but their expectations and feelings are much more rosy than more substantiated data may imply. Taking a spread of the two, soft data now leads hard data to the widest degree since the end of the last Trump administration.  Looking back historically, that’s normal.  On average, the spread has tended to be modestly positive (+0.07) during Republican administrations versus a firmly negative (-0.23) average reading when the Democratic party was in power.