The NFIB released its latest small business survey this morning with data as of the month of September.  As we discussed in today’s Morning Lineup, the report showed sentiment rebounded in September although labor market indicators decelerated further.  That was also reflected in the report’s survey of what businesses consider to be their most important problem.  While those reporting ‘cost of labor’ as the biggest problem went unchanged, the percentage of respondents reporting quality of labor as their biggest concern dropped four percentage points to 22%. While there was an even lower reading as recently as July, it was the biggest drop since last December, and the current level has fallen out of the top decile of historical readings.

While the lower reading in labor market-related problems seems to reaffirm the slowing employment situation, inflation concerns ramped up modestly in September.  30% of businesses (versus 29% in August) reported inflation as their biggest concern.  Additionally, another inflation-adjacent reading also rose with 5% reporting the cost or availability of insurance to be their biggest problem.

On a combined basis, government-related concerns saw a net lower reading last month as well.  Concerns around requirements and red tape rose up to a 5% share of responses, but those gains were offset by a two percentage point drop in the share of respondents seeing taxes as their biggest issue.  With inflation and labor concerns remaining front and center of small business problems, government-related concerns continue to be muted to a historic degree.

While the bulk of responses view labor or inflation as their biggest issues—62% of combined responses report one of these to be their biggest problem—there was a considerable pickup in those choosing “other” as their response last month. That reading rose from 5% to 8% bringing it from a 14th percentile reading all the way up to the 65th percentile. That is now the highest reading since May when it came in at an elevated 11%. Unfortunately, the report does not provide further detail as to what those “other” concerns specifically are but geo-political issues are likely part of the mix. Click here to learn more about Bespoke’s premium stock market research service.

As the weakness in equities continues, we wanted to provide an update on where the major averages stand relative to their pre-COVID highs in February 2020. In the case of the S&P 500 and Nasdaq, they’re both still up, but the gains are quickly fading. It has now been just about two and a half years since the pre-COVID high for the S&P 500, and from that peak to this morning, the S&P 500 is up just 5.5% and the Nasdaq is up 5.6%.  On an annualized basis, that works out to less than 2.5%. What’s that phrase people kept saying about irrational moves in stock prices?

As if equity market returns relative to the pre-COVID high weren’t pedestrian enough, keep in mind that once you take the impact of inflation into account, investors are actually now solidly in the red.  The charts below show the performance of the S&P 500 and Nasdaq on an inflation-adjusted basis by adjusting historical prices based on headline CPI. After adjustments, the S&P 500 and Nasdaq are both down 7.7% from their February 2020 highs.  As bad as the investing backdrop has been for equities, long-term US Treasuries have fared much worse than that.  On a nominal basis, long-term US Treasuries have declined 28%, and after adjusting for inflation, the declines have been well over 30%. Click here to learn more about Bespoke’s premium stock market research service.

Taking a glance across sector ETFs in our Trend Analyzer tool, performance last week through Friday’s close wasn’t fully lost as many sectors managed to hold onto their gains from earlier in the week while others like Real Estate (XLRE), Utilities (XLU), and Consumer Discretionary (XLY) finished more firmly in the red.  As was the case earlier this year, the most standout sector has continued to be Energy (XLE).  Although the sector has been pretty much trending sideways since the late spring and remains down double digit percentage points from its 52-week high, short term performance has been impressive.  Last week the sector ETF rose 13.6% to move from one standard deviation below its 50-day to one standard deviation above.  Meanwhile, every other sector remains oversold.

Compared to the S&P 500’s modest gains on the week, Energy’s outperformance has little precedence prior to the pandemic.  Below we show the spread of the five day performance of the S&P 500 Energy sector and the S&P 500.  Rounding out last week with a high of 12.4 percentage points, the spread hit the highest level since the first week of January.  Prior to that, March, June, and November 2020 were the only other recent occurrences with as large of a spread.  In our data going back to 1990, the only other time that Energy has outperformed the broader market by as much in a one week span was October 2000 and April 1999.    Click here to learn more about Bespoke’s premium stock market research service.

Welcome to Bespoke Brunch Reads — a linkfest of the favorite things we read over the past week. The links are mostly market related, but there are some other interesting subjects covered as well. We hope you enjoy the food for thought as a supplement to the research we provide you during the week.

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Ukraine

Russia’s Elites Are Starting to Admit the Possibility of Defeat by Tatiana Stanovaya (Carnegie Endowment)

There are emerging signs that Russian elites are losing patience with the disastrous prosecution of the war in Ukraine after months of solid support. [Link]

She’s a Doctor. He Was a Limo Driver. They Pitched a $30 Million Arms Deal. by Justin Scheck (NYT)

A rush to supply arms to Ukraine has led to shady, untested ventures sprawling across countries delivering large scale shipments of weapons to the embattled country. [Link; soft paywall]

Rate Hikes

U.N. Calls On Fed, Other Central Banks to Halt Interest-Rate Increases by Paul Hannon (WSJ)

The United Nations Conference on Trade and Development (UNCTAD) argued that the speed and size of Fed rate hikes risk a global recession and are getting carried away. [Link; paywall]

Fed’s Rate Increases Defy All the Rules by Greg Ip (WSJ)

The Federal Reserve’s monetary policy has departed from a series of different rules that relate inflation, unemployment, and the policy rate. [Link; paywall]

Lives Lived

I just learned I only have months to live. This is what I want to say. by Jack Thomas (Boston Globe)

A heartfelt essay on the meaning of a life spent with family, words, and the many details of life that the author will mis when he shoves off this mortal coil. [Link]

Layoffs

Peloton is slashing 500 more jobs as its CEO says it has 6 months to turn itself around by Grace Dean (Business Insider/MSN)

The exercise technology company has announced a fourth round of layoffs with a fresh 12% of workers being dropped as part of a sprawling turnaround plan that has seen headcount cut in half from its peak. [Link]

New Tech

100% Electric Vehicles = 11% Of New Vehicle Sales Globally! by José Pontes (CleanTechnica)

Fully electric vehicle sales were up 60% YoY and area headed for 1mm units in September; the August sales pace was good for 1 car in 10 globally and that share is only growing. [Link]

Walgreens Turns to Prescription-Filling Robots to Free Up Pharmacists by Sharon Terlep (WSJ)

Machine-based dispensaries have helped Walgreens fill prescriptions by raising productivity; total cost savings are more than $1bn. [Link; paywall]

Real Estate

Hybrid Working, Commuting Time, and the Coming Long-Term Boom in Home Construction by Jordan Rappaport (KC Fed)

With more workers able to spend only a couple of days per week at the office, out-lying suburbs and exurbs could be the source of a major building boom in the coming decades. [Link; 35 page PDF]

House Prices: 7 Years in Purgatory by Bill McBride (Calculated Risk)

Widely-cited housing observer Bill McBride has gotten a lot more bearish on the housing market after the pandemic era surge has reversed into monthly declines: he sees long-term declines ahead for both real and nominal home prices. [Link]

Global Trade

WTO Sees Sharp Slowdown in Global Trade, Pointing to Possible Recession by Paul Hannon (WSJ)

The World Trade Organization sees trade activity growing by 1% in 2023, versus 3.5% growth this year and a 3.4% growth rate previously forecasted. High energy prices, war, and surging interest rates are all key factors. [Link; paywall]

China property woes trigger decline in global cement output by Oliver Telling, Thomas Hale, and Andy Lin (FT)

Collapsing real estate investment in China has driven global cement output down 8% in the first half of 2022 versus the first half of 2021; Chinese cement production (which is about half of the global market) fell 15%. [Link; paywall]

Cargo Shipowners Cancel Sailings as Global Trade Flips From Backlogs to Empty Containers by Costas Paris (WSJ)

After 2021 and early 2022 saw catastrophically high demand for ocean freight capacity, shipping lines are cancelling sailings amidst shipping rates in freefall and collapsing bidding for capacity from North American retail clients. [Link; paywall]

Contras

The Fund That Helped Investors Bet Against Cathie Wood Is Taking on Jim Cramer by Claire Ballentine (Bloomberg)

The ETF provider that gained prominence through a fund designed to move inverse to Cathie Wood’s ARK Invest funds is targeting another big “take the other side” opportunity: bets against stocks recommended by Jim Cramer on CNBC. [Link; soft paywall]

Social Media

Supreme Court takes up a divisive issue: Should tech companies have immunity over problematic user content? by Lawrence Hurley and David Ingram (NBC)

The Supreme Court has agreed to hear a case that could strip internet companies of immunity over content posted by their users; changes could mean much more aggressive content moderation across the political spectrum from companies like Twitter, Facebook, and Google. [Link]

The Call of The Wild

Coyotes Came to New York City, but Not for Our Pizza by Bethany Brookshire (NYT)

While coyotes enjoy the occasional nibble of human chow, even urban packs subsist mostly on the wild foods that they would be eating in any other environment. [Link; soft paywall]

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Have a great weekend!

The past week’s rebound in equity prices has bolstered sentiment a bit as the latest AAII survey showed an increase in bullishness.  For the second week in a row, bullish sentiment rose week over week to come in at 23.9%.  That is, of course, still below the reading of 26.1% only three weeks ago and even further depressed relative to the historical average.

The pickup in bullish sentiment borrowed from bears.  After two consecutive weeks of readings above 60% (the first such occurrence in the history of the survey), bearish sentiment has turned lower falling to 54.8%.  As with bullish sentiment, that marks some improvement, but much more progress would need to be made to bring bearish sentiment back in line with the historical average of 30.5%.

Although the streak of readings above 60% is over, more than half of the respondents remain bearish.  As shown below, that has grown to be the longest streak of such readings since the depths of the COVID Crash.  Prior to that, there have only been six other such streaks: four occurring between 2008 and 2009 and the others occurring in August and October of 1990.

With both bullish and bearish sentiment improving, the bull-bear spread has risen up to -30.9 after hitting the lowest level since 2009 only two weeks ago.

Again, in spite of any improvement, sentiment remains heavily in favor of bears as it has for more than half a year. As shown below, the bull-bear spread has remained negative for 27 weeks in a row.  That is the second-longest streak of negative readings on record but would need to continue for another two months to surpass the 2020 record.

Not all of the losses to bearish sentiment went to bulls.  Neutral sentiment also rebounded slightly rising from sub-20% (the lowest level since April 2020) to 21.3%.    Click here to learn more about Bespoke’s premium stock market research service.