Early this morning, the NFIB updated their latest gauge on small business sentiment.  The headline number came in at 93.7 this month compared to a lower number of 91.5 last month. That was a larger than expected uptick as it was forecasted to only rise to 92. At current levels, the index remains in the bottom quartile of its historical range, but it’s tied with this past July for the strongest reading since February 2022.

In the table below, we show each category of the report including non-inputs to the Optimism Index. We show this month’s reading, last month’s reading, and the month over month change in addition to how each of those rank as a percentile of all periods.  As shown, improvements were broad in October with no inputs to the Optimism Index falling and many of those MoM gains ranking in the upper quintile of monthly changes or better. Breadth was a bit weaker for indices that are not inputs to the Optimism Index. For example, higher prices was lower, although that can be considered a good thing.

Even though the release showed most categories moving higher, overall it was somewhat of a mixed bag.  As we discussed in today’s Morning Lineup, labor readings are weak but showing some signs of stabilization.  When it comes to many demand gauges, as shown below, outlook for general business conditions remains negative as has been the case for a record span of almost four years running (47 straight months). Granted, October saw the best reading since the 2020 election (this survey’s political sensitives discussed in more detail below).  Meanwhile, the share of firms reporting now as a good time to expand their business is still very low historically, albeit picking up to 6%.  Elsewhere in outlook/expectations indices, sales expectations have rebounded significantly but remain negative.

Those weak but improving expectation indices contrast with much weaker readings for actual sales and earnings.  Actual sales changes continue to plummet reaching a new low of -20 in October.  The only periods in which this was lower was the depths of COVID and during the Financial Crisis years. Actual earnings changes moved higher for a second month in a row, but current levels are likewise some of the worst on record. As for inflation, the higher prices index is no longer falling at the same pace as yesteryear having stabilized around still historically elevated levels.

The NFIB has some auxiliary data within the report that surveys businesses reporting lower earnings on the reason for such a response.  Weak actual sales are again reflected here.  The share of businesses reporting sales volumes as the cause for lower earnings jumped to 16%. That matches last November for the highest reading since March 2021 and unseats increased costs for the number one reason.  While increased costs are no longer the most common response, the reading is still well above pre-pandemic norms and has been mostly flat over the past few years.

More broadly in response to the question posed to all businesses of what is their most important problem, 9% of firms reported poor sales.  That reading has been trending higher and is now the most elevated since March 2021. While poor sales is rising, other issues like inflation (23%), quality of labor (20%) and taxes (16%) all rank higher at the moment.

Circling back on expansion outlooks, again a historically low share of firms see now as a good time to grow.  As shown below, economic conditions are far and away the most common reason given for this outlook. However, the next most common reason is political climate. As we often note including in today’s Morning Lineup, one downside to the NFIB data is consistent sensitivity to politics.

In the chart below, we show the combined share of businesses reporting politics as their reason for a negative or uncertain expansion outlook. As shown, this reading has tended to rise sharply ahead of an election. After Trump won in 2016, this measure dropped sharply while the opposite played out in 2020 when Biden was elected.  This go around, it has again risen into the election, but since Trump has won, it will likely head lower (maybe even dramatically so) in the next report. It also wouldn’t be surprising to see this sort of positive turnaround in other categories of the report.

As noted in today’s Morning Lineup, the US dollar among other assets has continued to rise post election. The Bloomberg Trade-Weighted Dollar Index is now up 1.66% versus the close on election day. With those gains, the dollar is now trading at some of the highest levels of the past year.

In last week’s Bespoke Report, we discussed the market’s winners and the losers from the election, and obviously as shown above, the dollar has fallen into the winners category.  As we have discussed in the past, generally in strong dollar environments, the stocks most poised to benefit are those that generate the highest share of revenues domestically. Conversely, in weak dollar environments, it’s the stocks that generate the majority of their revenues outside the US that tend to perform relatively well as their goods and services become cheaper for international customers.

That dynamic has exactly played out.  Below, we show the average performance since Election Day by deciles of Russell 1,000 members based on their international revenue exposure. Decile one is comprised of all stocks with 100% domestic revenues (domestics), and each group moving up the chain to decile 10 has an increasingly higher share of international revenues. The top performers, with an over 5% average gain, are the domestics whereas the most internationally exposed stocks are up a meager 1%.

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.

Semper Fidelis: The United States Marine Corps was founded on November 10th, 1775, in Philadelphia, Pennsylvania, during the early days of the American Revolutionary War. The Continental Congress authorized the formation of two battalions of Marines to serve as an amphibious infantry force, capable of fighting both on land and at sea. Led by Captain Samuel Nicholas, the Marine Corps was established with a mission to enforce naval discipline, protect American ships, and carry out raids along enemy coastlines.

The Marines’ first major mission came in March 1776, when they successfully stormed the British-held island of New Providence in the Bahamas, marking the Corps’ first amphibious landing and setting the stage for its storied legacy. Over the years, the Marine Corps has grown from a small battalion into one of the world’s most respected military forces, known for its discipline, versatility, and unique esprit de corps. Today, the Marine Corps celebrates its founding every November 10, honoring nearly 250 years of service to the United States, just days after JD Vance was elected to become the first Vice President who served as a Marine.

Space Exploration

China’s New Heavy Lift Rocket Looks a Whole Lot Like SpaceX’s Starship (WIRED)
China’s latest update to its Long March 9 rocket makes it look like a direct take from SpaceX’s playbook, with a reusable first stage and methane-fueled engines that are almost a carbon copy of Starship. With a focus on landing and establishing a presence on the moon’s south pole, China is moving fast toward reusable tech, while NASA is still tied to the pricey, single-use Space Launch System. The real goal isn’t just a moon landing anymore, it’s the ability to make multiple repeat trips. [Link]

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