The most important problems section of this month’s NFIB report on small businesses showed one clear problem: labor.  A combined 40% of businesses reported either cost or quality of labor as their single most pressing issue.  While the percentage of respondents stating the quality of labor as the biggest issue went unchanged at 28%, there was a record one-month increase in the percentage of firms stating costs were their biggest problem. The percent reporting cost of labor as their biggest issue rose 4 percentage points to a record high of 12%.

While a massive share of respondents reported either cost or quality of labor as their biggest issue, the next largest share sees government-related issues as the biggest concern.  A combined 28% reported either taxes or government requirements & red tape as their most important problems which is actually a muted share on a historical basis.  Even though it was up 1 percentage point to 17% in September, the percentage reporting taxes as their biggest problem sits in the bottom decile of the historical range and the reading on government requirements and red tape sits in the 15th percentile.

As for the other readings, Poor Sales, Competition from Big Business, and Financial & Interest Rate concerns are at record lows.  While not at a record low, the Cost/Availability of Insurance fell by a record amount. Inflation also experienced a historic drop of 3 percentage points in September. With that said, 10% of owners still reported that as their biggest problem which is still in the top 5% of all readings. The single biggest gainer in September was “Other”. This category is not as old as the other problems but the 7 percentage point surge was a record jump in a single month and leaves the reading at one of the highest levels to date.   Click here to view Bespoke’s premium membership options.

Small business optimism measured through the NFIB’s monthly survey dipped in September by a full point to a six-month low of 99.1.  That is in the middle of the pandemic range as small business sentiment never quite fully recovered to pre-pandemic levels let alone its August 2018 record high.

Breadth in this month’s report was mixed perhaps leaning slightly more negative with nine categories falling month over month while seven were higher. Another three went unchanged.  The largest declines were for plans to increase employment and expectations for the economy to improve.  While those were the two biggest decliners, they are coming from polar opposites of their respective ranges.  The index tracking plans to increase employment remains in the top 2% of readings even after the six-point decline that ranks in the bottom 2% of all monthly moves.  Meanwhile, the magnitude of the decline in the index for expectations for the economy to Improve ranks in the 20th percentile of all other monthly readings, but that leaves it just off of a record low. In other words, readings throughout the report are nuanced with some at or near record highs and others at or near record lows.

As previously mentioned, Outlook for General Business Conditions plummeted in September showing that a net -33% of reporting owners foresee better business conditions in six months.  The only two months with weaker readings on record were November and December of 2012 just after President Obama’s re-election. Given that weak reading, the number of firms that see now as a good time to expand remains muted with this month’s reading unchanged at 11 which is short of the bottom quartile of the historical range.  Actual sales changes improved back to a positive reading that sits in the middle of its range. Sales Expectations also improved to positive territory, but that reading is far lower with respect to its historic range. Earnings changes also improved as fewer businesses reported higher prices although that reading remains well above any other period in the history of the report.

In today’s Morning Lineup, we discussed some of the price and labor pressures evident in the report.  Revisiting these, firms continue to show strong albeit slowing labor demand as hiring plans remain elevated but dropping sharply month over month.  Meanwhile, Actual Employment Changes rose sharply, though, this reading remains negative. Additionally, firms have continued to raise compensation and plan to continue to do so as a record number reported that openings are hard to fill.

Not only did plans for employment fall but so too did capital expenditure plans as well as actual capital expenditures.  Inventory levels are also abating to a degree as fewer—but still a historically high share—report current inventory levels are too low. There was also a 2 point pullback to 9 in the net percent of businesses looking to increase inventory plans. Click here to view Bespoke’s premium membership options.

In January of this year, we looked at the relative performance of the United States versus the rest of the world (ROW). At the time, ROW was making up lost ground relative to the US, but that didn’t last long. Through the first three quarters of 2021, the US (SPDR S&P 500 ETF-SPY) picked up steam once again and has significantly outpaced both the rest of the world (Vanguard FTSE All-World ex-US ETF- VEU) and emerging markets (iShares MSCI Emerging Markets ETF- EEM). Emerging markets have been the underperformers of the group while the US has led. Although EEM outperformed at the beginning of 2021, the index has since moved lower while the US trudged higher right up through early September. YTD through the end of Q3, SPY has outperformed EEM by 19.5 percentage points, which ranks as the second-widest spread between the two ETFs since EEM started trading in 2004. While not to the same degree, the US has also notably outperformed the rest of the world as well with a performance gap of 12.4 percentage points.

Over the last 17 years, Q4 performance has been mixed after the performance spread between SPY and EEM during the first three quarters of the year was in the double digits. Since 2004, there have been five prior occurrences, and in three of those years, SPY continued to outperform in Q4 while it lagged twice. Over the last decade, EEM has only outperformed SPY two times through the end of Q3 (2016 and 2017), and this year is the fourth in a row where SPY outperformed EEM.

Similar to EEM, SPY has also steadily outperformed VEU in the first three quarters of the year with outperformance in 11 of the last 14 years. Interestingly, in the three years where SPY lagged VEU, it outperformed in Q4 all three times. Like this year, SPY outperformed VEU by double-digit percentages in the first three quarters of the year only three other times since 2008. The last two times there was a positive double-digit spread (2018 and 2020), VEU outperformed for the remainder of the year.

Investors often look to play trends in the first three quarters of the year for a continuation through Q4 or a reversion to the mean.  However, in terms of big performance gaps between US stocks and both international and emerging markets in the first three quarters of the year, like the analysis we highlighted last week with sectors, historically there’s been no discernible trend of either a continuation or reversal of that trend in Q4. Click here to view Bespoke’s premium membership options.

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.

While you’re here, join Bespoke Premium with a 30-day free trial!

Florida

Cathie Wood’s ARK Departs NYC With Shift to Florida Office by

The team behind ARK Invest has closed its New York City office and moved its headquarters and operations to St. Petersburg, Florida, an untraditional hub for high finance. [Link]

Miami Vice’s Journey From Misfire to Masterpiece by Bilge Ebiri (Vulture)

A retrospective on Michael Mann’s 2006 reboot of the iconic 1980s television series, and how its many pitfalls have started to look much better with age. [Link]

Reopening

This Halloween, Americans Are Ready to Party Like It’s 2019 by Alyssa Meyers (Morning Consult)

Only 42% of American adults reported they were planning to celebrate Halloween during the pandemic-dominated 2020. But this year, numbers are back to normal, with more than half saying they’ll partake. [Link]

New Zealand admits it can no longer get rid of coronavirus by Nick Perry (AP)

Relative to its population, New Zealand has suffered roughly one quarter of one percent as many deaths as the US, but the sterling performance of lockdowns and test and trace in New Zealand has finally reached too high of a cost for the island nation. [Link]

Climate

Pick-up trucks and climate politics: will American drivers go electric? by Claire Bushey (FT)

A comprehensive review of the American auto industry’s efforts to get Americans to drive electric pickups, which the industry is hoping will play a spectacular role in fueling both profits and emissions reductions. [Link; soft paywall]

Feeding Cattle Seaweed Reduces Their Greenhouse Gas Emissions 82 Percent by Diane Nelson (UC Davis)

A study found that adding 3 ounce doses of seaweed to cattle feed helped reduce their methane emissions by more than 80% with no impact for their weight gain. [Link]

Labor Markets

The fast-food chain Raising Cane’s is sending corporate staff to work as fry cooks, cashiers, and recruiters in its restaurants amid an expansion drive and the labor shortage: report by Stephen Jones (Insider)

It’s getting so bad in low-prerequisite labor markets that one chicken finger chain is re-tasking corporate headcount from spreadsheets and presentations to deep frying and customer service. [Link]

Teens Are Being Trained to Drive 18-Wheelers Amid Truck Driver Shortage (Inside Edition)

A California program is putting teens behind the wheel to train them to drive trucks. Boosters hope the new drivers will alleviate a labor shortage and provide good-paying careers for teenagers just out of high school. [Link; auto-playing video]

Casino’s Open

Is the Stock Market Open at 3 a.m.? This Startup Says It Should Be by Alexander Osipovich (WSJ)

A new startup exchange has filed for permission to act as a 24/7 trading venue for stocks similar to the always-on crypto markets. Existing electronic exchanges for equity-linked assets like futures are still not operating around the clock, despite much longer trading hours than US cash equity markets. [Link; paywall]

Traders phone up gambling helplines as game-like broker apps spread by Madison Darbyshire (FT)

Day traders are piling in to gambling addiction recovery groups and the SEC is looking in to the practice of gamification by app-based brokers as well as how they undermine small investors. [Link; soft paywall]

Crypto

Anyone Seen Tether’s Billions? by Zeke Faux (Bloomberg)

A global hunt for the investments that back the world’s most popular stablecoin, and a deep dive into the team that claims to be standing guard over tens of billions in client assets. [Link; soft paywall]

An Irate Collector Is Suing the NFT Platform Nifty Gateway Over the Terms of a Very Weird Beeple Auction by Sarah Cascone (Artnet)

As if losing an auction for an extremely rare NFT wasn’t enough, one investor still had to pony up for the second-place offering, part of what can only be described as an obvious scam that is par for the course in the wild west of digital art. [Link]

Big Thoughts

The long-run effects of religious persecution: Evidence from the Spanish Inquisition by Maricio Drelichman, Jordi Vidal-Robert, and Hans-Joachim Voth (PNAS)

The upheaval of persecutions during the Spanish Inquisition was so dramatic that it has a direct impact on incomes, education levels, and social trust levels in Spain half a millennia after the original conflict. [Link]

We have no theory of inflation by Duncan Weldon (Value Added)

A long musing on the dearth of viable inflation models and why that complicates the task of monetary policy setting in both directions. [Link]

The Mafia

Lousy Management, Knucklehead Hires Plague Operations of Real-Life Sopranos by James Fanelli (WSJ)

A reliance on phones, less street smarts, and a cushy suburban upbringing make the newest generation of mobsters poorly suited to the role of wise guy, and a major liability when indictments come down. [Link; paywall]

Hand-Wringing

Valuation not stories ultimately determines investment returns by Richard Bernstein (FT)

The latest in a long string of luminaries blames the Federal Reserve for perceived ills in the market, while simultaneously comparing the current bubble to the tech boom in the late 1990s when monetary policy was much less accommodative. [Link; soft paywall]

Real Estate

The feared eviction ‘tsunami’ has not yet happened. Experts are conflicted on why. by Rachel Siegel and Jonathan O’Connell (WaPo)

The end of a national eviction moratorium has come and gone, but the number of evictions has not surged in a much of the country, puzzling experts who worried millions would be cast out during the pandemic. [Link; soft paywall]

Serial

Zodiac Killer Allegedly Identified by Team of Independent Investigators by Trace William Cowen (Complex)

While police representatives argue the findings are incorrect, a team of independent investigators claims to have identified the Zodiac serial killer who haunted the San Francisco Bay Area in the 1970s. [Link]

Vaccines

In major decision, WHO recommends broad rollout of world’s first malaria vaccine by Helen Branswell (StatNews)

A 4-dose malaria vaccine has been recommended for broad use by the World Health Organization following promising clinical trials in sub-Saharan Africa. [Link]

Governing

Idaho lieutenant governor bans vaccine mandates, tries to deploy National Guard during governor’s 2-day trip by Peter Weber (Yahoo!/The Week)

For the second time this year, the Lieutenant Governor of Idaho has usurped the Governor of that state to make policy changes while the Governor is out of the state. [Link]

Social Media

Facebook Is Not a Teen Favorite, Survey Says. These Social-Media Sites Are. by Eric J. Savitz (Barron’s)

Teenagers prefer Snapchat and TikTok to Facebook’s Instagram platform or the core site. Twitter and Twitch were also well down the popularity list. [Link; paywall]

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Have a great weekend!

The fourth quarter is now off to the races and we thought it worthwhile to check in on the best and worst-performing S&P 500 stocks on a year-to-date basis.  As shown below, there are currently six members of the index that have rallied over 100% this year.  Apt for the year that its vaccine has rolled out, the biggest gainer of these has been Moderna (MRNA) with a 196.12% rally.  It now has a market cap of $124.87 billion versus a market cap of only $41 billion at the start of the year. Of the 20 best performers, MRNA is also the only one with a market cap above $100 billion. The next largest is ConocoPhillips (COP) with a $95.76 billion market cap.  COP is one of multiple Energy stocks on this list as well. Of the top 20 performers, Energy sector names dominate the list with 8 members.

Pivoting to the other end of the spectrum, Las Vegas Sands (LVS) is down the most this year having been cut by 36.18%.  IPG Photonics (IPGP), Lamb Weston Holdings (LW), Viatris (VTRS), MarketAxess (MKTX), and Global Payments (GPN) also have fallen by at least 25%.  Once again, there is only one member of this list with a market cap above $100 billion: Qualcomm (QCOM).  One other interesting factor to note of the worst performers is there are several stocks that were at some point plays on pandemic trends, whether those be reopening or stay at home. For example, in addition to LVS, another gaming/reopening name, Wynn Resorts (WYNN), ranks as the eighth-worst performer YTD.  Additionally, strong performers during the onset of the pandemic like Clorox (CLX), Activision Blizzard (ATVI), and Take-Two Interactive (TTWO) are all down double digits this year.  Click here to view Bespoke’s premium membership options.

Since the late spring, both silver and gold have been in steady downtrends spending much of that time below their 50-DMAs. Those downtrends remain in place, but both metals did find a short-term bottom on September 29th. While they have been rallying in the past week and a half, today each one has stalled out.  From the early morning leading up to the Nonfarm Payrolls report, precious metals ramped higher with a surge immediately following the weaker than expected report. Only a couple hours after the release, gold and silver had erased a large portion of their earlier gains. In fact, silver is now 2.15% below its intraday high and gold is 1.36% below its high.  For gold, in particular, that intraday reversal also marked a rejection of its 50-DMA which it—as well as silver—has struggled to stay above for most of the past several months.

Crude oil is yet another commodity that is currently down off of its intraday highs, and like gold, the reversal came at a pretty interesting level.  At its high Friday morning, front-month WTI futures rose above $80 for the first time since November 2014.  Click here to view Bespoke’s premium membership options.

Columbus Day is an interesting trading day for financial markets as it is one of the few trading days of the year when the equity market is open, but the bond market is closed. This may lead investors to think that equity markets should perform positively, as investors do not have credit markets to allocate capital to on that specific day. However, looking at the S&P 500’s historical performance on Columbus Day over the last 25 years doesn’t necessarily show a real positive bias.  Columbus Day tends to act just like any other trading day. Over the last 25 years, median performance on Columbus Day has been a gain of 10 basis points (bps) with positive returns 55.6% of the time.  While that’s slightly higher than the median one-day gain of 7 bps for all trading days over the last 25 years, the difference isn’t significant.  That’s not to say that Columbus Day hasn’t seen some outliers, though.  Who can forget in 2008, during the middle of the Financial Crisis, when the S&P 500 rallied more than 11% on Columbus Day!

For the week of Columbus Day, the S&P 500’s median gain has been 0.31% with positive returns 63% of the time which also isn’t extraordinary relative to average weekly returns for the S&P 500 over the last 25 years.  The worst Columbus Day weeks were in 1999 (-6.63%) and 2018 (-4.10%) while the best were in 1998 (+7.32%), 2002 (5.87%), and 2011 (+5.98%).  Interestingly enough, in 2008, even after rallying over 11% on Columbus Day, the S&P 500 finished the week up just 4.60% as it erased more than half of its gains from the holiday session.

The table below lists the S&P 500’s performance leading up to and after Columbus Day for each of the last 25 years.  With a decline of over 2.5% since the start of September, this year ranks as the weakest performance for the equity market since 2014. Click here to view Bespoke’s premium membership options.

The S&P 500 has found some support in the past week but sentiment readings from AAII have not shown a major shift toward bullish sentiment.  The percentage of respondents reporting as bullish this week fell for the second week in a row to 25.5%.  That is still above the low of 22.4% from the week of 9/15.

Not only did bullish sentiment fall but so too did bearish sentiment.  Whereas over 40% of respondents reported as bears last week, this week, the reading fell to 36.8%.  That remains elevated relative to the past year, but it also marks the lowest level of bearish sentiment since September 9th.

That means neutral sentiment saw a notable jump to 37.7% this week borrowing from the losses to the bullish and bearish camps.  Since the start of the pandemic, this week’s reading ranks as the fifth-highest and is 6.3 percentage points above the historical average. That makes for the first time since the end of July that neutral sentiment was the predominant sentiment reading.

Apart from the AAII survey, the National Association of Active Investment Managers’ (NAAIM) Exposure Index also showed a reversal in pessimism this week.  The index measures managers’ exposure to US equities. Readings of positive/negative 200 would indicate reporting managers are levered long/short, positive/negative 100 is fully long/short, and zero would be market neutral.  Last week, this index hit a low of 55 which was the weakest reading since the spring. This week, we saw a modest bounce to 68.6. While improved, that is still below the spring and summer’s range.  Click here to view Bespoke’s premium membership options.