Daily Sector Snapshot — 1/14/25
Small Business Expectations vs. Reality
This morning’s release of the NFIB’s Small Business Optimism Index for the month of December was expected to fall down to 101.4 versus a reading of 101.7 in November. However, the politically sensitive report has continued to surge following the election. The index rose all the way up to 105.1 to set the highest reading since October 2018. As shown below, small businesses have gone from being extreme pessimists six months ago to extreme optimists today.
Small business optimism has now surged 11.4 points since the October report, which is a record two-month increase in the history of the survey going back to 1986. As shown below, the only 2-month increases that even come close were a comparable 10.9 point increase in the wake of the 2016 election, a 9.7 point rebound in June 2020 after the worst of COVID lockdowns, and an 8.9 point jump in March 1991.
In the table below, we provide a breakdown of the levels of each category of the report in December as well as the month-over-month change and how those all rank as percentiles of their respective historical range. Obviously given the surge in the headline number, there were multiple categories that saw top decile month-over-month jumps in December.
As shown in the table above, the single largest jump of any category was for expectations for the economy to improve (the outlook for general business conditions). That index rose 16 points to reach the second highest level on record. The current reading is only one point below the record of 53 set in March 2002.
As the outlook for the economy improved dramatically, small businesses are increasingly thinking it’s now a good time to expand. As shown below, 20% of firms reported that they view the next three months as a good time to expand. That is the highest share of the post-COVID era.
The NFIB provides a breakdown of the reasons small businesses have for their current expansion outlooks. For those with a negative outlook, 19% report that it is due to economic conditions with an identical percentage for those reporting an uncertain outlook. In both cases, those were the most common reasons given. Alternatively, for those that gave a positive expansion outlook, only 4% reported it was due to the economy whereas an overwhelming 10% indicated it was due to the political climate. In other words, small businesses see now as a good time largely due to changes in the political, rather than economic, landscape.
As we have frequently noted in the past, one downside to the NFIB survey is the presence of extremely strong political biases, especially in the past few election cycles. Historically, the index and its components have been stronger during Republican administrations and weaker during Democrat administrations, hence the recent surge following President Trump’s win this past November. With that said, certain categories of the report (which we highlighted in today’s Morning Lineup) have tended to be less politically sensitive.
In the charts below we standardize and average across the individual categories of the report those that measure “actual” changes to the businesses (i.e. – actual earnings changes, actual sales changes, actual employment changes, etc.) versus those that survey on “expectations” or “plans” (i.e. – hiring plans, expect economy to improve, etc.). As shown, while both indices for expectations and actuals have risen significantly in the past couple of months, it’s the former that has seen the more pronounced move. As a result, the spread between expectations and actuals hit a record high in December. That means in the history of the survey, there has never been a time in which small businesses reported stronger optimism and expectations relative to what they have actually reported is going on within their businesses.
Q4 2024 Earnings Conference Call Recaps: KB Home (KBH)
Bespoke’s Conference Call Recaps use AI to summarize lengthy earnings calls. The commentary below is AI-generated and then edited by Bespoke for quality control. As always, none of these summaries should be construed as recommendations to buy or sell any securities, and investors should do their own research and/or consult with a financial professional before making any investment decisions.
Our latest recap available to Bespoke subscribers covers KB Home’s (KBH) Q4 2024 earnings call.
KB Home (KBH) is a US homebuilder specializing in the “Built to Order” model, which allows buyers to customize their homes to their preferences. Along with the Built to Order model that can also make homes more affordable for homebuyers, KBH offers mortgage rate locks and buy-downs to address financial constraints. KBH works with all demographics, including Millennials and Gen Z, in high-demand markets across the country, which makes for valuable insight into housing demand and consumer sentiment. To finish 2024, KBH increased deliveries by 17% and reduced build times by 28%. The company invested $744 million in land acquisition, increasing its lot position by 37% to nearly 77,000. Demand stayed strong despite mortgage rate volatility, with net orders rising 41% YoY and website leads up. Mortgage concessions were consistent, with 60% of net orders benefiting from rate locks or buy-downs. While affordability and election concerns tempered near-term sales, KBH expects steady demand in 2025. On better-than-expected results, KBH shares opened 12.6% higher on 1/14 but gave up nearly all of those gains through the morning of trading…
Continue reading our Conference Call Recap for KBH by becoming a Bespoke Institutional subscriber. You can sign up for Bespoke Institutional now and receive a 14-day trial to read our newest Conference Call Recap. To sign up, choose either the monthly or annual checkout link below:
Chart of the Day – Small Caps Break a Long Running Streak
Bespoke’s Morning Lineup – 1/14/25 – Inflation Takes Center Stage
See what’s driving market performance around the world in today’s Morning Lineup. Bespoke’s Morning Lineup is the best way to start your trading day. Read it now by starting a two-week trial to Bespoke Premium. CLICK HERE to learn more and start your trial.
“I took a negative and I turned it into a positive.” – Garo Yepremian
Below is a snippet of commentary from today’s Morning Lineup. Start a two-week trial to Bespoke Premium to view the full report.
52 years ago today, the Miami Dolphins were on the verge of a perfect season and icing a win in Super Bowl VII. They were up 14-0 over the Washington Redskins, and it was fourth and four on the Washington 25-yard line with just about two minutes left in the game. Dolphin kicker Garo Yepremian came out to kick a 42-yard field goal which would have taken the score to a fitting 17-0 capping off Miami’s season with a 17-0 record.
It should have been a pretty easy field goal, but Washington’s defensive end Bill Brundige blocked the kick. Yepremian recovered it, but rather than fall on it, he made the boneheaded decision to pick it up and make a play. When he tried to pass it, the ball slipped out and into the hands of Washington’s cornerback Mike Bass who ran it back for a touchdown. Instead of 17-0, the score was 14-7, sending a scare down the Miami bench. With just two minutes left, Miami still had the lead and with a 14-7 was still likely to win. After the fact, they were even able to laugh about it. At the moment, though, it was anything but a joke and illustrated that even a “perfect season” can have its ugly moments.
The markets are experiencing a Yepremian scare right now. Since early December, nothing has seemingly gone right for equities where breadth has weakened, the dollar and yields have surged, and now even oil is on the rise. Like everything else, this too shall pass. At some point, we’ll be able to look back without a lot of concern regarding the last six weeks. The only question is when. Weeks? Months? Even longer?
For the very short-term, yesterday’s intraday rebound followed through to Asian markets overnight as Chinese stocks rallied over 2% after government officials pledged that measures would be taken to stabilize the market. Other countries in the region were also higher, although Japan was an outlier as the Nikkei fell over 1.5% (it was closed on Monday). In Europe, the STOXX 600 bounced 0.5%, and every country in the region except for the UK is trading higher.
Ahead of the US open, equity futures are higher this morning but off their highs as yields have reversed higher with the 10-year pushing close to 4.8%. Small business optimism continued its post-election surge rising to 105.1 which was the highest reading since late 2018 and was three full points ahead of consensus expectations. The report du jour, though, is the December PPI. That report will dictate the market’s direction today, but even that will only be an appetizer for tomorrow’s CPI.
The December PPI just hit the tape and at both the headline and core readings, the reported data came in well below forecasts, and the immediate reaction in markets has been for yields to fall and pre-market equity futures to build on their gains.
Semiconductors are a key area we’ll be watching for signs of where the market is going. While the broader market has only recently started to succumb to weakness, semiconductors started to roll over way back in July and fell 25% from early July to early August. After recovering half of those losses late in the summer, the Philadelphia Semiconductor Index (SOX) has been essentially trading in a sideways range for the last four months. As shown in the chart below, that range has resulted in a convergence between the 50 and 200-day moving averages.
What makes the recent convergence even more unique is that yesterday broke a streak of 14 trading days where the percentage spread between the level of these two moving averages was less than 0.50%. The chart below shows prior periods when the spread between the SOX’s 50 and 200-day moving average was less than 0.5%, and the just-ended streak was the second longest on record. The only streak lasting longer ended at 20 days in July 2005, and two other streaks lasted 13 trading days (one in March 2005 and another in January 2016).
Bespoke’s Consumer Pulse Report – January 2025
Bespoke’s Consumer Pulse Report is an analysis of a huge consumer survey that we run each month. Our goal with this survey is to track trends across the economic and financial landscape in the US. Using the results from our proprietary monthly survey, we dissect and analyze all of the data and publish the Consumer Pulse Report, which we sell access to on a subscription basis. Sign up for a 30-day free trial to our Bespoke Consumer Pulse subscription service. With a trial, you’ll get coverage of consumer electronics, social media, streaming media, retail, autos, and much more. The report also has numerous proprietary US economic data points that are extremely timely and useful for investors.
We’ve just released our most recent monthly report to Pulse subscribers, and it’s definitely worth the read if you’re curious about the health of the consumer in the current market environment. Start a 30-day free trial for a full breakdown of all of our proprietary Pulse economic indicators.
Chart of the Day: Intraday Strength to Start the Week
The Closer – Tariff Talk, Private Credit, Consumers – 1/13/25
Log-in here if you’re a member with access to the Closer.
Looking for deeper insight into markets? In tonight’s Closer sent to Bespoke Institutional clients, we lead off with commentary on tariffs and the impacts on crude oil prices (page 1). We then check in on the latest news in private credit and earnings (page 2). Next, we review the latest data from the New York Fed’s Survey of Consumer Expectations (pages 3 and 4) before closing out with our weekly rundown of positioning data (pages 5-8).
See today’s full post-market Closer and everything else Bespoke publishes by starting a 14-day trial to Bespoke Institutional today!