Tuesday, July 14, 2020

Strong Rebound In The June NFIB Small Business Optimism Index

I still believe the recent economic data is experiencing a "V-shaped" recovery and the equity market seems to concur. So many times though, we do note the market and the economy do not always react to the same information. With the S&P 500 Index's 1.34% gain today, it is now up .40% on the week. Over the last eight trading days the market is up 6.14% since June 29. If the market finishes positive this week, it will be the third consecutive week of positive gain for the S&P 500 Index.

Today the National Federation of Independent Business (NFIB) reported that the Small Business Optimism Index increased 6.2 points to 100.6. Also included on the below chart is the fact more firms are expecting an improved economy six months from now versus a worse one. 

The report notes eight of the ten components of the Optimism Index improved. A couple of key highlights from the survey:
  • "Small business owners continue to be optimistic about future business conditions and indicate they expect the recession to be short-lived."
  • "The percent of owners who think now is a good time to expand improved 8 points to 13% of owners."
  • "Job creation plans increased 8 points to a net 16%."
  • "The net percent of owners planning to expand inventory holdings increased from May by 5 points to a net 7% as sales improved. This is one of the highest readings historically and good news for growth."
Small businesses tend to be the job creators and the survey notes 16% of firms plan to increase employment, up from 1% compared to April's report. Given the high level of the unemployment rate, this is a positive sign for the job market.

Certainly, the equity market might be pricing in the anticipated positive developments economically. The market will not go up in a straight line, however broadly, business and economic data seems to be improving more than it is disappointing expectations.

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