The NFIB released its latest small business survey this morning with data as of the month of September.  As we discussed in today’s Morning Lineup, the report showed sentiment rebounded in September although labor market indicators decelerated further.  That was also reflected in the report’s survey of what businesses consider to be their most important problem.  While those reporting ‘cost of labor’ as the biggest problem went unchanged, the percentage of respondents reporting quality of labor as their biggest concern dropped four percentage points to 22%. While there was an even lower reading as recently as July, it was the biggest drop since last December, and the current level has fallen out of the top decile of historical readings.

While the lower reading in labor market-related problems seems to reaffirm the slowing employment situation, inflation concerns ramped up modestly in September.  30% of businesses (versus 29% in August) reported inflation as their biggest concern.  Additionally, another inflation-adjacent reading also rose with 5% reporting the cost or availability of insurance to be their biggest problem.

On a combined basis, government-related concerns saw a net lower reading last month as well.  Concerns around requirements and red tape rose up to a 5% share of responses, but those gains were offset by a two percentage point drop in the share of respondents seeing taxes as their biggest issue.  With inflation and labor concerns remaining front and center of small business problems, government-related concerns continue to be muted to a historic degree.

While the bulk of responses view labor or inflation as their biggest issues—62% of combined responses report one of these to be their biggest problem—there was a considerable pickup in those choosing “other” as their response last month. That reading rose from 5% to 8% bringing it from a 14th percentile reading all the way up to the 65th percentile. That is now the highest reading since May when it came in at an elevated 11%. Unfortunately, the report does not provide further detail as to what those “other” concerns specifically are but geo-political issues are likely part of the mix. Click here to learn more about Bespoke’s premium stock market research service.

As the weakness in equities continues, we wanted to provide an update on where the major averages stand relative to their pre-COVID highs in February 2020. In the case of the S&P 500 and Nasdaq, they’re both still up, but the gains are quickly fading. It has now been just about two and a half years since the pre-COVID high for the S&P 500, and from that peak to this morning, the S&P 500 is up just 5.5% and the Nasdaq is up 5.6%.  On an annualized basis, that works out to less than 2.5%. What’s that phrase people kept saying about irrational moves in stock prices?

As if equity market returns relative to the pre-COVID high weren’t pedestrian enough, keep in mind that once you take the impact of inflation into account, investors are actually now solidly in the red.  The charts below show the performance of the S&P 500 and Nasdaq on an inflation-adjusted basis by adjusting historical prices based on headline CPI. After adjustments, the S&P 500 and Nasdaq are both down 7.7% from their February 2020 highs.  As bad as the investing backdrop has been for equities, long-term US Treasuries have fared much worse than that.  On a nominal basis, long-term US Treasuries have declined 28%, and after adjusting for inflation, the declines have been well over 30%. Click here to learn more about Bespoke’s premium stock market research service.

Taking a glance across sector ETFs in our Trend Analyzer tool, performance last week through Friday’s close wasn’t fully lost as many sectors managed to hold onto their gains from earlier in the week while others like Real Estate (XLRE), Utilities (XLU), and Consumer Discretionary (XLY) finished more firmly in the red.  As was the case earlier this year, the most standout sector has continued to be Energy (XLE).  Although the sector has been pretty much trending sideways since the late spring and remains down double digit percentage points from its 52-week high, short term performance has been impressive.  Last week the sector ETF rose 13.6% to move from one standard deviation below its 50-day to one standard deviation above.  Meanwhile, every other sector remains oversold.

Compared to the S&P 500’s modest gains on the week, Energy’s outperformance has little precedence prior to the pandemic.  Below we show the spread of the five day performance of the S&P 500 Energy sector and the S&P 500.  Rounding out last week with a high of 12.4 percentage points, the spread hit the highest level since the first week of January.  Prior to that, March, June, and November 2020 were the only other recent occurrences with as large of a spread.  In our data going back to 1990, the only other time that Energy has outperformed the broader market by as much in a one week span was October 2000 and April 1999.    Click here to learn more about Bespoke’s premium stock market research service.