Small Business Optimism Bounces, But Still Off Recent Highs
After a bit of a dip in December, sentiment on the part of small businesses rebounded in January but still came in shy of its November peak. While economists were expecting the January read of the NFIB Small Business Optimism Index to rise from 104.9 up to 105.3, the actual increase was much larger as the headline index came in at 106.9. While sentiment may be just off of recent highs, it remains well above the historical average of 96.6 since 2000.
The commentary surrounding this month’s report was positive, to say the least. According to the NFIB President and CEO, “Main Street is roaring. Small business owners are not only reporting better profits, but they’re also ready to grow and expand. The record level of enthusiasm for expansion follows a year of record-breaking optimism among small businesses.” Additionally, 32% of small business owners believe that now is a good time to expand, which is the highest level in the history of the survey dating back to 1973. According to NFIB Chief Economist Bill Dunkelberg, the reason for the big boost to confidence we have seen over the last year “is in large response to the new management in Washington tackling the biggest concerns of small business owners – high taxes and regulations.”
You can certainly make the case that these issues of high taxes and regulations are no longer the biggest obstacles facing small businesses. In each month’s report, the NFIB asks respondents what the number one problem they face in their business is. The table below summarizes this month’s responses compared to where they were last month. Based on January’s data, small businesses are now having the biggest problem finding qualified candidates to fill open positions with 22% citing Quality of Labor as their biggest problem. With so many businesses having trouble finding quality workers, you would expect to see labor costs rising, but so far it doesn’t seem to be that much of a problem as only 6% of small business owners cited Costs of Labor as their number one problem.
The fact that Quality of Labor moved into the top spot this month is notable for another reason. It also marks the first time in over five years that Taxes or Government/Red Tape weren’t one of the biggest problems. As shown in the chart below, while those two problems have been slowly drifting lower in the last couple of years, problems regarding Labor Quality have been surging. One would think that it is only a matter of time before the higher wages that employers will have to pay to attract quality labor will become a problem.
Bespoke Stock Scores — 2/13/18
The Closer — V For Victory? — 2/12/18
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Short Interest Report: 2/12/18
Tracking Multi-Year Highs in Beat Rates
The S&P 500 just experienced its first 10%+ correction in two years right in the middle of earnings season. So how do beat rates look this earnings season? Excellent.
Even with analysts hiking their Q4 EPS estimates at the fastest rate in a decade coming into earnings season, companies have had no problem beating those estimates. Thus far, with more than 1,000 companies having reported, 70% have beaten consensus analyst EPS estimates. The 70% beat rate puts this quarter on track for the strongest bottom-line beat rate in more than ten years.
And while bottom-line numbers have been really impressive, top-line revenue beat rates have been even stronger this season. As shown below, 73.4% of companies that have reported have beaten consensus analyst revenue estimates. That’s tracking to be the strongest top-line beat rate since Q3 2004!
Again, these beat rates would be impressive in any quarter, but what makes them really stand out is that analysts were hiking estimates coming into this season, and companies have still managed to beat estimates at a very high clip. So far, analysts have not hiked estimates enough!
Two-Day Bounce
With the S&P 500 now up more than 3% since the close on Thursday, we thought it was a good time to update our asset class performance matrix to see what else has been moving the most over the past two trading days. The matrix below highlights the total return of each ETF over the last two days, since the close on 1/26 (which was the date of the S&P’s last all-time high), and year-to-date.
As shown, the Nasdaq 100 (QQQ) is up the most of the US index ETFs with a gain of 3.48%, while the small-caps (IWM, IJH) are up less than 2%. Looking at US sectors, Tech (XLK), Financials (XLF), and Materials (XLB) are up the most, while Consumer Staples (XLP), Energy (XLE), and Telecom (IYZ) are up the least.
Outside of the US, India (PIN), Brazil (EWZ), and Russia (RSX) are up the most over the last two days, while China (ASHR) is actually down and Hong Kong (EWH) is only up 4 basis points. The emerging markets ETF (EEM) has also posted a nice gain of 3.5%.
Commodities (DBC) are down by 0.70% over this period, with oil (USO) and natural gas (UNG) leading the way lower. Treasury ETFs are down slightly as well during this two-day equity rally.
Chart of the Day: Fiscal Stimulus Arrives
S&P 500 Stock Seasonality: 2/12/18
While we don’t ever suggest that investors should base their trading solely on the calendar, there is evidence that the market and many stocks do indeed follow seasonal patterns. This makes our S&P 500 Stock Seasonality report a useful addition to every investor’s toolbox. Using the last ten years worth of price data, our Stock Seasonality report looks at the average returns for the S&P 500, its eleven sectors, and its 500 individual stocks. In the report, we highlight the five stocks in each sector that have historically been the best and worst performers over the next two weeks. For each stock, we also include information such as average returns, the percent of time each stock or sector is positive/outperforms the S&P 500, and its historical performance over the next two weeks for each of the last ten years. The Stock Seasonality report is published on a weekly basis on Mondays, and it is available to all Bespoke Premium and Bespoke Institutional subscribers.
One stock that we wanted to highlight this week is Wynn Resorts (WYNN). As if things weren’t bad enough for the company given the controversies surrounding Steve Wynn, the stock is also now entering what has historically been one of the weakest times of the year for the stock. As shown in the chart below, WYNN has traded lower during the upcoming two-week period in six of the last ten years for a median decline of 5.3%. That makes it the worst performing stock for the upcoming two-week period in the S&P 500.
For active traders, our Stock Seasonality report is an excellent tool to help keep track of the best and worst times of year for the overall market, sectors, and individual stocks. To see the report and which two stocks have performed even better than EA in the upcoming two-week period, sign up for a monthly Bespoke Premium membership now!
Bespoke Brunch Reads: 2/11/18
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.
Investing
Fidelity Reports Web Issues After Robo-Adviser Sites Crash by Brandon Kochkodin, Suzanne Woolley, and Ben Steverman (Bloomberg)
As equity markets plunged, technology platforms that have sought to create a new, more passive approach to investing saw crashes during the equity market decline Monday. [Link; auto-playing video]
Banks Cheer Return of Wild Markets by Max Colchester, Jenny Strasburg and Liz Hoffman (WSJ)
Low volatility meant low trading volumes for banks’ fixed income, currency, and commodities desks. But equity market declines this week have analysts anticipating good things for those parts of the financial system. [Link; paywall]
I somehow made $110k this morning and I’m still not totally sure how by flopsie123 (r/wallstreetbets)
A Reddit user was short a put spread, had 863 of 1000 puts on one leg exercised against him. Despite a $50,000 account the broker allowed $23mm worth of SPY shares to end up in his long account. That’s quite a margin loan! Remarkably, the investor managed to come out well ahead. [Link]
Crypto
As Bitcoin Bubble Loses Air, Frauds and Flaws Rise to Surface by Nathaniel Popper (NYT)
An accounting of recent frauds, schemes, and hacks related to the retreat in crypto prices and the poor practices they have revealed. [Link; soft paywall]
China to stamp out cryptocurrency trading completely with ban on foreign platforms by Xie Yu (SCMP)
After taking earlier steps to curtail access to cryptocurrency access by closing domestic exchanges among other measures, China has now moved to block all websites related to crypto trading. [Link]
Tech
No telecommuting allowed: Why is Google investing billions of dollars in office buildings? by Tom Foremski (ZDnet)
Despite a suite of products and a culture that would seem to support remote work, Google has an absolutely voracious appetite for physical real estate and office space. [Link]
Twitter Made a Small Change to How It Shows Retweets. That’s Bad News for Bots. by April Glaser (Slate)
Embedded tweets that are shown on websites outside of the social network will now refer to how many people are discussing a tweet, rather than including retweet counts. [Link]
Space Cowboys
Falcon Heavy, in a Roar of Thunder, Carries SpaceX’s Ambition Into Orbit by Kenneth Chang (NYT)
A glowing review of the first test flight of SpaceX’s Falcon Heavy launch system, the new and powerful multistage rocket designed to lift much larger satellites than the current Falcon 9 workhorse. [Link; soft paywall/auto-playing video]
This Mutant Crayfish Clones Itself, and It’s Taking Over Europe by Carl Zimmer (NYT)
A single mutation in a crayfish in Europe about 20 years ago let the creature clone itself, creating vast waves of progeny which have spread across the entire world. [Link; soft paywall]
EHang’s driverless MEGADRONE carries passengers around China at 80mph in its first ever test flights by Phoebe West (Daily Mail)
A Chinese company has run thousands of tests flights with a two passenger aerial vehicle, which can fly to, pick up, and drop off passengers all without a human driver. [Link]
Bonds
Someone on the internet was wrong, $1tn of Treasuries edition by Alexandra Scaggs (FTAV)
Scaggs does some excellent mythbusting about US federal debt dynamics and mechanics as well as critiquing reports of forecasts portrayed as facts. [Link; registration required]
Trade
China to Probe U.S. Sorghum Subsidies (Bloomberg)
Following new Trump administration tariffs on solar panels and washing machines, China has announced a probe of subsidies paid to US sorghum exporters; describing this dust-up as a trade war is premature, but it’s got some similarities. [Link]
Economic Research
New Perspectives on the Decline of U.S. Manufacturing Employment by Teresa Fort, Justin Pierce, and Peter Schott (NBER/Fed Working Papers Preliminary Draft)
Using data from the Census, the authors introduce new dynamics relating to US manufacturing employment and import substitution. They find non-manufacturing workers hired by manufacturing firms largely offset the manufacturing employment decline until 2000; plant closures were offset in large part by new establishments containing high skill professional workers and other non-manufacturing jobs. [Link; 29 page PDF]
Have a great Sunday!