Trade wars. What trade wars?  While markets are freaking out about the latest tweets from the President related to trade tensions with China, small business owners are grinding away and becoming increasingly confident after sentiment took a hit late last year and earlier this year due in part to the government shutdown and tighter Fed.  In this month’s report from the NFIB, overall sentiment came in at a level of 103.5 compared to expectations for a reading of 102.0 and last month’s reading of 101.8.  We’re still quite a ways from the cycle high of 108.8 reached last August, but also still comfortably above the historical average reading of 97.1.  In the words of the NFIB, “Overall, the Index remains at a historically very strong level, consistent with solid growth, keeping the economy at full employment.  There is no recession in sight this year.”

In each month’s report, one area we like to focus on is the section of the report where small business owners are asked what the single most important problem they face is.  In this month’s survey, Labor Quality continued to top the list with nearly a quarter of respondents saying they are having difficulty finding qualified workers.  That’s up from 21% last month and isn’t far off the record high of 25% we saw in August and November of 2018.  As shown in the chart below, there have only been three other months in the history of this report where either as large or a larger percentage of small business owners cited Labor Quality as the biggest problem.  The first was in May 2000, while the other two were in the second half of 2018.

Strangely enough, while Labor Quality is a big issue, the cost of labor has been much less problematic as just 8% of small business owners cited it as their most important problem.  That’s unchanged from March and is right in the range of where it has been for the last two years.  That’s a positive from an inflation perspective as wages play such a large role in prices and with just 1% of small business owners citing inflation as their biggest problem, they don’t seem particularly worried about the prospect of rising prices.  Start a two-week free trial to Bespoke Institutional to access all of our research and interactive investor tools.

Tacking onto the past week’s losses, yesterday was the first decline of over 2% in more than five months for the S&P 500 (SPY). Currently, every major index ETF has now declined over 4% in the past five days.  Small caps and mid caps, in particular, have gotten hit hard as each one has fallen over 5%.  Meanwhile, the Nasdaq (QQQ) has more dramatically underperformed, currently sitting just under 6% below where it was last week at this time.  QQQ has still outperformed all other major index ETFs on a year to date basis, though.  There is also no longer any major index ETF sitting above the 50-DMA.  Whereas last week the group was entirely overbought, they head into trading today at either oversold levels or neutral and on the cusp of oversold. As seen through the long tails across each name in our Trend Analyzer, the movement towards this lower end of the ETFs’ trading ranges has been rapid. But this pullback provides a good timing opportunity considering each one is still in an uptrend over the past six months.  Start a two-week free trial to Bespoke Institutional to access our Trend Analyzer and much more.

Like the broader market, declines can be seen across the eleven sectors as only Utilities (XLU) has managed to edge out a gain over the past week.  XLU is now up just over 1% and is also the only sector ETF to sit in overbought territory.  Other defensives like Real Estate (XLRE) and Consumer Staples (XLP), while not positive, have held up better than their peers.  These two have only seen declines of less than 1% versus losses upwards of 6.29% from Technology (XLK). Despite XLK’s steep declines in the past week, it actually has yet to push into oversold territory. Along with six other sectors, XLK is in neutral territory, but similar to most other sectors, XLK has fallen below its 50-DMA. Only XLRE, XLP, and XLU have managed to hold above their respective 50-DMAs.  Some have fallen far enough below the 50-DMA to now sit in oversold territory, with Energy (XLE) doing so to an extreme degree. This is in part due to volatile oil prices over the past few days. The silver lining once again is that each of these (except for the overbought XLU) have good timing scores and XLE actually has a perfect timing rating.

The S&P 500 SPY ETF opened lower by more than 1% this Monday morning after no progress was made between the US and China on trade.  When SPY opens down 1% or more, how does the ETF typically perform during regular trading hours from the open to the close?  Since 1993 when SPY began trading, the ETF has averaged a decline of 0.27% from the open to the close when it opens down 1%+ on a Monday morning.  As shown in the chart below, Monday is the worst day of the week for a 1%+ open lower.

When SPY has opened down 1%+ on Tuesdays or Fridays, it has actually bounced back very nicely throughout the trading day with an average open to close change of ~0.50%.  On Wednesdays and Thursdays, the open to close change is basically flat following a 1%+ gap down.

Based on historical price action, big opens lower on a Monday typically see continued selling throughout the trading day, while Tuesdays and Fridays see buyers step in.  Start a two-week free trial to Bespoke Institutional to access our thought-provoking investment research and all of our interactive investor tools.