Early this morning, the NFIB published small business sentiment data for September.  The Small Business Optimism Index ticked up from 91.2 to 91.5. While stronger, that wasn’t as large of an uptick as was expected as the consensus forecast expected an increase to 92.0.  Regardless, sentiment remains historically low in the bottom quintile of historical readings back to 1986.

In the table below, we show each category of the report including the previous month’s reading, the month-over-month change in index points, and how those rank as a percentile of all periods of the survey’s history.  Breadth for components to the headline number was slightly positive with five categories rising, two going unchanged, and another three falling month over month.  As for other categories, the results were much weaker. Of the non-inputs to the optimism index, only three components were higher versus five that declined.  Across indicators, the vast majority are historically low—many ranking in the bottom decile of readings—save for some labor market-related points like Job Openings Hard to Fill, Compensation, and Compensation plans.  With that said, those labor indices are also well off highs from recent years, and as we discussed in today’s Morning Lineup, the past few months have seen stabilization in these indicators.

Of those indices that saw improvement in September, the largest MoM jump was in expectations for higher real sales.  That index jumped from -18 in August to -9 in September. That ties July for the strongest reading of the year, albeit it is also the 33rd consecutive negative reading in this index, a record streak.  While sales expectations improved materially, actual sales changes have continued to deteriorate falling 1 point to -17. That ties last November and October for the lowest readings since the pandemic.  As actual top-line results have been reported as weaker, actual earnings changes improved from -37 to -34 even as the higher prices index rebounded a couple of points. Granted, even with that improvement, actual earnings changes continue to see some of the weakest readings in this index since the Great Recession.

One other key area of weakness we noted in today’s Morning Lineup concerned capex.  Both actual and expected capex dropped in September.  For plans, the index is down to 19 which is the lowest reading since April 2023 whereas actual capex at 51 hit its lowest since July 2022.

Finally, we would note that an auxiliary index to the report, the Economic Policy Uncertainty Index, is surging.  This index tracking small business trepidation concerning economic policy typically rises during presidential election years; at that, those increases are usually far larger than non-election years.  However, the 24-point leap over the past year through September is the largest YoY jump for that month of any year in the index’s history, Presidential election year or otherwise, and the index itself is now at a record high.  As we noted last month (see here and here), the NFIB survey typically has political sensitivities and the increasingly tight presidential race would make sense with that rise in policy uncertainty.

It was a brutal overnight session for stocks in Hong Kong where the Hang Seng plunged 9.4% after Chinese stocks rallied less than investors had hoped after re-opening from the six-trading session National Holiday. Last night’s decline was the largest one-day decline for the Hang Seng since the depths of the Financial Crisis in October 2008 and before that two days in October 1997. Although stocks in Hong Kong were down sharply during the session, the Hang Seng is still up over 23% from its September low.

As mentioned above, the last four times that the Hang Seng has declined more than 9% in a day occurred in October.  Including these four days, eight of the eighteen days that the Hang Seng has declined by more than 9% occurred in October. So while October is the most volatile month of the year for US stocks, the same applies to Hong Kong as well!

To illustrate this another way, the chart below shows a distribution of 5% one-day drops in the Hang Seng since 1964. Of the 132 occurrences, 20 occurred in October, and the next closest month is March with just 14.

October has not only been the champion of 5%+ daily declines, but 5%+ gains as well. Throughout its history, the Hang Seng has gained 5% or more 138 times, and 23 of those occurred in October which is more than 50% greater than the next closest month (November). Overall, October has been home to 43 (15.9%) of the Hang Seng’s 270 daily moves of at least 5%.

Welcome to Bespoke Brunch Reads — a linkfest of some of our favorite articles 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.

Bad Blood Bout: On October 6th, 2018, UFC 229 became the most-watched event in UFC history and certainly in Mixed Martial Arts. The event drew massive attention for its main event between Conor McGregor and Khabib Nurmagomedov, generating more than 2.4 million pay-per-view buys. That staggering figure is only behind two Floyd Mayweather boxing matches, one against McGregor. Anybody who pays attention to the fighting world knows the huge draw of Conor McGregor. Couple that with a matchup against the undefeated Khabib and a bad-blood backstory, and people are bound to tune in. It’s a recipe that has worked for decades.

In retaliation to McGregor’s friend being confronted by Khabib and his team in a hotel lobby, McGregor infamously attacked a bus carrying Khabib and other fighters at UFC 223, throwing a dolly at its window. Personal attacks were made in dark press conferences, and the stage was set. Khabib controlled most of the fight with his signature wrestling ability before ultimately submitting McGregor in the fourth round with a neck crank. Immediately after, Khabib made a shocking move, jumping the caging and attacking McGregor’s cornerman. While an all-out brawl ensued outside the cage, another began inside as members of Khabib’s team ambushed McGregor. Whether you bet on the Irishman or Russian, UFC 229 lived up to the hype.

Education

Sorry, Harvard. Everyone Wants to Go to College in the South Now. (WSJ)
More Northern high school seniors are choosing Southern universities like Clemson, Alabama, and Georgia Tech, drawn by lower tuition, school spirit, and a more laid-back, politically neutral atmosphere. The pandemic played a big role, with students seeing life carry on in Southern schools while the Northeast remained locked down. It’s led to an 84% increase in Northerners attending Southern public schools over the past two decades, and many are staying in the region post-graduation to take advantage of booming job markets. The trend is reshaping both college landscapes and local economies. [Link]

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