Earlier this morning, the National Federation of Independent Businesses, or NFIB, published its latest report on small business sentiment for May.  The headline number continued its rebound off of the 11-year low of 88.5 set in March, rising to 90.5.  While still historically muted, this month’s reading was the highest level of small business sentiment since last December.

Breadth in the report was decent with five inputs of the headline number moving higher, two going unchanged, and another three falling month over month.  As with the main reading, most of these indices are historically low despite recent improvements.  In fact, most of these categories currently sit in the bottom decile of their historical ranges with the few notable exceptions being a couple of labor-related indices.  For example, plans to increase employment rose significantly to move back into the 63rd percentile while the percentage of respondents reporting job openings as hard to fill is still very high in the 93rd percentile.  However, as we discussed in today’s Morning Lineup,  the overall trends are not particularly favorable across all labor categories included in the report.

The report continues to show that there is an overwhelming share of businesses that hold a pessimistic view of the economy. Granted, that index picked up to -30 in May which matches last July for the joint highest readings since August 2021. Of course, that is still a very low reading ranking in the bottom 7% of readings historically, and as such, the percentage of businesses that view the current time as a good time to expand is low at 4%.

The NFIB breaks out reasons for businesses’ expansion outlook.  As shown below, by far the most common reason for a negative expansion outlook is economic conditions albeit that has continued to trend lower over the past couple of years.  The next biggest reason is the political climate (discussed further below) then financials and interest rates.

In addition to being the third most common reason for a negative expansion outlook, we would also note that the percentage of firms reporting financials and interest rates as their biggest issue has risen to a new high of 6%.  While that is far from the most common problem (issues like labor costs and quality, government red tape, taxes, and inflation account for a massively larger portion of response), it is the highest amount since 2010.

The one index that stood out the most in this month’s report had to do with inventories.   A net 6% of small businesses reported drawing down inventory levels over the past three months.  While that does not set any new low for the series, it is another reading at the lower end of the historical range. As for the reason so many businesses are working down inventory levels, the net share of respondents reporting that current inventory levels are too low versus too high hit a record low. In other words, a record number of respondents reported that inventories are too high.  Perhaps an example of the bullwhip effect, that comes 2.5 years after the index’s record high.

Finally, we would note that this month also saw a significant pickup in the NFIB’s Economic Policy Uncertainty Index.  As we discussed in the Morning Lineup, one factor working against the usefulness of the NFIB survey is a sensitivity to politics.  For example, looking at the aforementioned expansion outlook index, politics are a historically popular reason for negativity with readings that were much more elevated during Democratic administrations versus Republican administrations.  As could be expected, the Economic Policy Uncertainty Index has not been immune to this trend.

As shown below, the uncertainty index tracking apprehension of small businesses towards economic policy typically rises in the 12 months before a presidential election and has seen particularly large jumps over the past few elections.  This time around, though, the increase has been even larger than normal with a 20-point jump since November. Compared to the same months in prior election cycles, it has been a record increase, and assuming it follows the pattern of the past three election cycles, it would not be surprising to see it continue to rise through Election Day.

For over a year now, shares of Apple (AAPL) have been stuck between the low $160s and the high $190s as the market impatiently waits for the company to outline its AI strategy.  In just the last seven weeks, though, the stock has tested both ends of the range, and ahead of today’s Worldwide Developers Conference, shares of AAPL are modestly pulling back from the top end of the range. In case you missed it, in last week’s Bespoke Report, we discussed the stock’s performance leading up to, during, and after prior conferences including its performance when it rallied in the weeks leading up to the conference. If you missed that on Friday, make sure to check it out.

As the stock has rallied from its lows in the last several weeks, AAPL is on the verge of completing a golden cross formation, which technical analysts consider a bullish pattern. A golden cross occurs when a stock’s shorter-term moving average (in this the 50-DMA) crosses up through a longer-term moving average (in this case the 200-DMA) as both are rising.  Conversely, the opposite of a golden cross is an iron cross which occurs when the short-term moving average crosses down through a longer-term moving average as both are falling.

As recently as May 1st, AAPL’s 50-DMA was more than 5% below its 200-DMA, but that spread has narrowed quickly in the last six weeks to less than 1% today. The gap is also continuing to narrow fast, and barring an absolute plunge in the stock, it’s likely that the 50-DMA will cross up through the 200-DMA within a week or so.

While golden crosses are a positive technical formation in theory, they don’t necessarily play out that way in practice.  The table below summarizes the performance of AAPL after each prior golden cross and iron cross in the post-iPod era (since 2001).

After the four golden crosses, AAPL traded down over the next week three out of four times, and one and three months later, it was only up half the time. Six and twelve months later, AAPL’s stock was higher three out of four times with the lone exception being its performance after the golden cross in May 2008 just ahead of the financial crisis.

In the post-iPod era, AAPL has experienced five iron crosses with the most recent being in March 2024.  Performance following these prior occurrences was similarly weak over the short term, but six and twelve months later, median returns were stronger than after golden crosses.

What stands out concerning performance following both golden and iron crosses, though, is the fact that the median returns for both golden and iron crosses are weaker than the average for all periods.

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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On This Day in History:

Why the Pandemic Probably Started in a Lab, in 5 Key Points (NYT)
You may have seen Dr. Fauci’s hearing earlier this week, which delved into the controversial handling of Covid-19, particularly focusing on the potential origins of the virus. Evidence is mounting that the pandemic likely resulted from a lab accident at the Wuhan Institute of Virology, as depicted through the intricate web of virus research, including genetic manipulations and the international collaboration that supported such activities. The lab in Wuhan had proposed creating viruses with SARS-CoV-2 features and did so under low biosafety conditions, according to the evidence, which stacks up heavily against other, less-supported, theories. [Link]

‘Unusual’ cancers emerged after the pandemic. Doctors ask if covid is to blame. (MSN)
In 2021, Dr. Kashyap Patel and his team noticed an unusual spike in rare cancers among younger patients, raising concerns about a link to COVID-19. The spike included cases of cholangiocarcinoma, a cancer typically seen in much older individuals. While some attribute this trend to pandemic-related healthcare delays, others, like Patel, believe the virus could have played a direct role. Research is starting to explore if COVID-19 triggers inflammation that may accelerate cancer growth. Despite skepticism, a growing number of scientists advocate for prioritizing studies on COVID-19’s potential long-term effects on cancer, recognizing that it could significantly impact future treatment and patient care. [Link]

Woman Declared Dead Is Found Alive at Funeral Home (NYT)
In a shocking incident in Nebraska, 74-year-old Constance Glantz was pronounced dead at a nursing home but was later found breathing by a funeral home employee. Transported by Butherus-Maser & Love Funeral Home, Glantz was discovered alive during preparation for her funeral, leading to an immediate call to emergency services. She was revived and taken to a hospital but passed away later that day. No criminal intent has been found so far. [Link]

A new discovery about carbon dioxide is challenging decades-old ventilation doctrine (STAT)
Carbon dioxide monitors became important tools during the pandemic, serving as proxies for indoor air quality and potential virus transmission. High CO2 levels indicate poor ventilation, meaning there’s a higher likelihood of inhaling airborne pathogens. Elevated CO2 levels not only indicate poor ventilation but also enhance virus survival, making air more conducive to sustaining infectious particles. Studies suggest that even moderate increases in CO2 can significantly prolong the viability of viruses like Covid. [Link]

AI & Technology

Windows feature that screenshots everything labeled a security “disaster” (The Verge)
Microsoft is launching a new AI-powered feature called Recall on June 18th, designed to screenshot everything you do on your PC for easy search and retrieval. Despite promises of security and local data storage, cybersecurity expert Kevin Beaumont has pointed out vulnerabilities, such as storing data in plain text, making it easy for malware to extract sensitive information. Privacy campaigners and the UK’s Information Commissioner’s Office have already expressed concerns, and while Microsoft claims Recall is optional and secure, the opt-out setup and lack of content moderation add to the worries. [Link]

Yes, artificial intelligence is running for mayor of Cheyenne; city, county clerks comment on candidate VIC (Oil City News)
In Cheyenne, six individuals have filed to run for mayor, with one standout candidate: VIC, or Virtual Integrated Citizen. Developed by OpenAI, VIC uses AI for data-driven decision-making, transparency, efficiency, and innovation in city administration. Although VIC is supported by a human team, the candidacy presents legal questions, as current law requires candidates to be human registered voters. Local clerks are grappling with this unprecedented situation, noting that AI cannot be a registered voter, and thus may not qualify for the ballot under Wyoming law. The resolution of VIC’s candidacy remains pending, but it’s interesting to think how an AI candidate may fare against humans during a very hot political year in the US. [Link]

Researchers Use AI to Decode the Secret Language of Dog Barks (Gizmodo)
Researchers are using AI models trained on human speech to decode dog barks. By employing the state-of-the-art AI speech model Wav2Vec2, they trained one model on human speech and then fine-tuned it on dog barks, and another model solely on dog barks. The model pre-trained on human speech performed better, achieving 62% accuracy in identifying a dog’s emotion and breed, 69% accuracy in gender, and 50% accuracy in identifying individual dogs. The findings suggest that AI models trained on human speech could revolutionize our understanding of animal communication. Researchers plan to expand their studies to include more breeds, emotions, and species, aiming to further explore the potential of this technology in decoding animal languages. [Link]

Transportation

A Traffic Engineer Hits Back at His Profession (Bloomberg)
Pedestrian and cyclist deaths in the US have reached a 40-year high, and safety advocates argue that transportation engineering itself is to blame. In “Killed by a Traffic Engineer,” Wesley Marshall, a civil engineering professor, critiques the field for prioritizing speed over safety and debunks myths like the blame on human error. The book reveals how current practices, that use outdated standards and are geared towards avoiding liability, fail to address the real causes of traffic fatalities. Marshall calls for designing streets that consider human behavior and prioritize safety for all users, which is apparently against the status quo in transportation engineering. [Link]

America’s Commute to Work Is Getting Longer and Longer (MSN)
American workers are accepting longer commutes as housing costs around cities and hybrid work make hour-plus drives more common. Research shows a substantial rise in “super commutes” of 75 miles or more since 2020, led driven by people who tolerate long drives due to less frequent office visits. The study reveals a pattern of workers, especially younger ones and high earners, moving farther from urban centers. Even though lengthy drives and high parking costs might be a deal-breaker for some, many find the trade-offs for larger living spaces and hybrid work schedules worth it. [Link]

Did she even count the MTA votes? (Poltico)
New York Gov. Kathy Hochul’s sudden decision to pause the congestion pricing plan has caused confusion and concern among MTA board members, who were not consulted in advance. This decision leaves a $1 billion budget gap, with the Legislature unlikely to implement a last-minute payroll tax to cover it. The responsibility may fall to the MTA board, which is composed of various gubernatorial, mayoral, and county appointees. Five board members have publicly opposed the governor’s move, suggesting potential resistance if the issue comes to a vote. Hochul has not commented publicly on her decision, and the situation remains uncertain as lawmakers explore other funding options. [Link]

Taxes

IRS makes Direct File a permanent option to file federal tax returns; expanded access for more taxpayers planned for the 2025 filing season (IRS)
The IRS announced that its Direct File service will become a permanent option for filing federal tax returns starting in 2025 after the success it had with its pilot program. Direct File was praised for its ease of use and efficiency, allowing taxpayers to file electronically at no cost. Plans are in place to expand its availability to more states and tax situations. Despite some concerns about existing free filing options, the IRS is improving Direct File based on user feedback to simplify the tax filing process. [Link]

Sports

Is This America’s First $100 Million-a-Year Athlete? (WSJ)
Luka Doncic, the Dallas Mavericks’ star who is playing for an NBA championship right now, stands to out-earn legends like Michael Jordan and LeBron James, potentially making over $1 billion by the end of his career. Rising TV and streaming deals, such as the NBA’s upcoming $76 billion contracts with ESPN, NBC, and Amazon, have fueled unprecedented salary increases. Projections indicate that a $100 million annual salary could become a reality by the 2032-33 season. Put that together with lucrative shoe deals and that becomes a lot of money for some of the league’s best. Even the WNBA is seeing a boost as the women’s game has SURGED in popularity this year with more televised games, shoe deals, and viral moments! [Link]

Economic Trends

Want to Pay Cash? That’ll Cost You Extra (WSJ)
If you go to Yankee Stadium concessions with cash, you’ll have to use a reverse ATM due to the stadium’s cashless policy. The ATM deducts a fee and issues debit cards that can be used in place of the unaccepted cash. Many venues and businesses are now adopting cashless systems, which often result in extra fees for cash users. While cash remains a popular payment method, accounting for 16% of all transactions in 2023, the dominance of digital payments is burdening those who prefer or rely on cash, especially older and lower-income individuals, or even those who don’t want all their transactions tracked. Despite some states mandating acceptance of cash, the trend towards cashless transactions continues to grow, driven by convenience and security concerns. [Link]

The low-end consumer ‘is really being stretched,’ says Five Below CEO (CNBC)
Joel Anderson, CEO of Five Below, highlighted ongoing challenges for consumers, particularly in lower-income demographics, despite signs of easing inflation. On a recent earnings call, Anderson emphasized the need to deliver value to attract stretched customers. Five Below’s revenue guidance for Q2 and full year fell short of expectations, with Q1 revenue also underperforming. The company’s shares dropped nearly 11% on Thursday, reaching a 52-week low and marking a 44% decline in 2024. Anderson noted a shift in consumer behavior towards “consumable” items like candy, food, beauty, and health aids, with the Five Beyond section, offering some items for more than $5, showing the best performance among lower-income households. Despite some positive economic indicators, consumer sentiment remains low, with a notable drop in May, and many Americans mistakenly believe the country is in a recession. Anderson concluded that prolonged inflation in key areas like food, fuel, and rent has made consumers more cautious with discretionary spending. [Link]

Policy & Law

Should Finfluencers Be Regulated as Financial Advisors? (Barron’s)
The rise of financial influencers (“influencers”) on social media is a challenge for regulators. There’s a tension between protecting investors and free speech. The SEC is unsure if it can regulate finfluencers as investment advisors. Some influencers might be exempt if their advice is impersonal and they don’t mislead investors. Regulators might encourage disclosure and education to address the issue.[Link}

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