Strong Equity Inflows

Investors directed sizable investment fund flows towards equities for the week ending 9/19/2018 as reported by the Investment Company Institute (ICI) on 9/26/2018. Total equity inflows for that week equaled $10.2 billion dollars. This completely reversed the $10.4 billion net outflows reported over the prior seven weeks that ended 9/12/2018. Bonds continue to receive inflows as well and equaled $4.3 billion in the week ending 9/19/2018. Bonds have had positive inflows in the prior seven weeks and on a monthly basis, the last net out flow for bonds was in the month of December 2016. One week does not make a trend; however, this reported flow into equities is worth watching to see if similar or at least positive flows are sustained into subsequent weeks and months.

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Equity Market Performance Before And After The U.S. Midterm Election

September this year certainly seemed like an odd month. For example, the fifth business day of the month was Tuesday, September 10 as Labor Day in the U.S. was on Monday September 3. The first business day was September 4. The end of the month is this Friday, September 28. I mention this as the Presidential cycle is getting more attention since the mid term elections are a little more than a month away. So how does the equity market perform in the second year of the presidential cycle?

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Instilling Fear In Investors Via Charts

In the mid 1990's famed investor Peter Lynch stated, "Far more money has been lost by investors in preparing for corrections, or anticipating corrections, than has been lost in the corrections themselves." With this quote in mind it seems a number of investment pundits are once again trying to sell fear regarding the current equity market. This morning I ran across the following chart on Twitter.

Source: Roosevelt Capital

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Job Openings And Quits Rising At Faster Pace Than Job Hires

The Labor Department's release of the Job Openings and Labor Turnover (JOLTs) report this morning is further confirmation of a strong labor market. The NFIB Small Business Optimism report I highlighted earlier today also noted the difficulty small business are having in filling open job positions. The JOLTs report continues to show the number of job openings exceeding the number of unemployed individuals. This unusual occurrence has been the case since March of this year. 

Also compounding hiring issues for companies is the fact the rate of job openings and job quits is increasing at a faster pace than company hires as seen in the below chart.

The next chart shows the absolute number of openings versus quits and hires and clearly openings appear to have accelerated.

The NFIB report and the JOLT report are reflective of a tight labor market with the likely result of continued upward pressure on wage inflation. The Fed will certainly take into account these tight labor market reports into future rate hike decisions.

New Record High For The NFIB Small Business Optimism Index

The National Federation of Independent Businesses (NFIB) reported that August's Small Business Optimism Index set a new record high at 108.8. The prior high mark for the index was set 45-years ago (July 1983) when the index reached 108. NFIB's President & CEO, Juanita Duggan, stated in the report,

"Today’s groundbreaking numbers are demonstrative of what I’m hearing everyday from small business owners – that business is booming. As the tax and regulatory landscape changed, so did small business expectations and plans. We’re now seeing the tangible results of those plans as small businesses report historically high, some record breaking, levels of increased sales, investment, earnings, and hiring."

Duggan's also noted in the report that earlier in the positive trend higher in the index was the fact many of the component gains were dominated by what she calls expectations, i.e., good time to expand, expected real sales, expected business conditions, etc. Today, the highlights in the report are related to real business activity, i.e., job openings, inventory investment plans, capital spending plans, etc. This real activity data is supportive of higher GDP growth as one looks ahead. Some of this real activity data can be seen below with the noted survey components at high levels.

Small businesses are a critical part of driving economic growth and today's survey indicates the current economic expansion has further room to run to the upside.