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When you consider that gasoline prices are near their lowest of the decade and jobs are firming up, you would expect that small-business owners should be optimistic.
Yet they’re not. In fact, new data from the National Federation of Independent Business shows the Index of Small Business Optimism fell 1 point in February to 92.9, which is very weak.
Analyst Steve Schork points out that after rising to the 40-year mean of 100.2 back in December 2014, the index is now testing the mean of the last six recessions, which is 92.3. In other words, the bear market in crude oil has led small businesses to grow more worried about the future, not more hopeful.
In his report, Schork quotes directly from NFIB report author William Dunkelberg: “Overall, a ‘ho hum’ outcome, confirming that the small business sector is not headed up with any strength, just treading water waiting for a good reason to invest in the future. Spending and hiring plans weakened … as expectations for growth in real sales volumes fell. Earnings trends worsened … as owners continued to report widespread gains in worker compensation while holding the line on price increases (more firms cut prices than raised them). The political climate continued to be the second most frequently cited reason for the current period being a bad time to expand.”
There is obviously a lot of data that suggests business is anemic but steady in the United States. But when you look at these numbers and commentary — and consider that small businesses are responsible for most of the employment in this country — you realize that the picture may not be all that rosy. Something to think about.
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Jason Goepfert, of Sundial Capital, made an interesting observation last week. While financial television shows were celebrating the ninth anniversary of the bull market, a more relevant milestone was also reached: The S&P 500 has gone 200 days since its last 52-week high, while at the same time it has not fallen into a bear market.
This turns out to be a relatively uncommon phenomenon, and similar situations over the past 90 years have led to below-average returns over the next three to six months.
This matter of being down a long time but not down enough to create a cataclysmic panic means we are in no-man’s-land. Goepfert then asked his database this question: “How long can we go without hitting a new high and also not falling into a bear market?”
Quite a while, it turns out. Going back to 1928, he looked at every time the S&P 500 went 200 days without hitting a 52-week high and without declining more than 20% from that high. Out of the 14 precedents, six ultimately ended up mired in bear markets (1949, 1957, 1969, 1973, 1981 and 2001), meaning eight of them managed to avoid a 20% decline before recovering. So, technically, stocks had a better chance of moving to a new high than falling into a bear market.
But it wasn’t exactly rosy, Goepfert found. A month later, the market was essentially flat on average; after three months it was still flat (vs. +2.9% for all such periods); after six months it was down slightly (vs. +4.3% for all such periods); and a year later it was up only 6% on average (vs. 8.1% for all such periods).
The results going forward were even worse when the market was not in recession, and worse yet when valuations were relatively high, as they are now.
This data suggests that we may be in for another stretch similar to 2015, which amounted to 12 months of mostly flat returns punctuated by a few scary dips and some abrupt recoveries. Kind of puts a damper on the whole bull market birthday party.
Best wishes,
Jon Markman
P.S. As the Dow doubles, some stocks will see explosive gains of 300%, 400%, 500% and more. To help you get ready to take full advantage of the bull market of a lifetime, I want to send you a complete Dow 31,000 Preparedness Kit — five distinct free reports! The first free report spells out step-by-step what you must do now to position yourself for amazing profits (and protection) over the next two years. Click here to download now! – Larry
{ 16 comments }
Nice presentation with useful support data, Jon. Thanks and much alpreciated.
What in the heck do you mean “that jobs are firming up”? Many people are working for 40% less than they were making ten years ago! When you make statements like that, please tell the whole unemployment story.
The good paying jobs are going away while benefits and pensions disappear. Average household income is down 1000s $ for the last 7 years. Part time, service, and retail jobs will not make up the difference. I also do not believe the market is going to be flat an think that the day of reckoning is soon approaching. We have a major credit and debt issue that has given us $20 trillion in Federal Gov’t debt, trillions in consumer and business debt. Company buybacks and shorting the markets has been the only drivers in keeping this thing a float. The ECB creating more fictional QE programs to prop up European markets is another scam to make things look ok but how much longer can this last. The stock market is no indicator of true economic conditions and if you look at the real stats such as the Labor participation rate things a lot worse. Many are just not working and families are now living off of one income and cutting their spending to compensate the loss of the other. This is how it is and with healthcare going up big time it will only get worse.
Watch the market from now until Oct. I believe it will get ugly.
Great article. Small businesses are hampered in many ways, not the least of which is the requirement of Obamacare regarding businesses with 30 or more employees to provide health care benefits. Downsizing has and will take place under such a near sighted regulation. Small businesses I am familiar with have reverted to hiring day laborers in place of full time employeesIf anything, incentives like lower taxes need to be legislated to provide small businesses with a path for growth.
Small businesses are arguably the most important part of the economy. Over half of employees work for companies with no more than 500 employees. Over a third work for companies with under 100 workers, and nearly 20% of people work for employers of no more than 20. Of course small employers are the least stable – the SBA says half will fail within five years of first opening. More are likely to give up in troubled times for the economy.
If you take a job with a new business, do everything you can to help it succeed. Your future might well depend on it.
The market probably will remain flat trading within ranges beneath highs and above lows.
Stock buy backs and short covers prop up the market which draws in some cash laden investors, then it wears off and the Market will dip to levels of value where short covers and value seekers jump in again. The Market is really just the emotion of its investors thats why it seemingly ignores: government facts and figures, some profitable companies, The true value of companies. The market is overpriced with some outrageous ratios of actual earnings to future expectations but they are also ignored. Top execs are reaping their profits from options and increased dividends and share grants, while the economy is not ripe for expansion or hiring and there is no immediate return for R&D. What is the logic in expecting companies to exceed their profitability quarter after quarter and year after year given lessened income and reduced hours in the consumer arena. Investing is a crap shoot, but I am going to keep rolling the dice (SELECTIVELY)
Technically, if we look at the monthly chart of the S&P 500 going back 20 years or more, lets just say with a CAPE Ratio today of 25.40, IMHO things look ominous! There is a long way for this market to tank. Consider slowing earnings and sales and the lack of income to produce sales, meaning PE is likely to fall because of price and not earnings growth, and that is a recipe for a PE dropping to 5 to 8 instead of 25.40 and you get a major decline in the S&P 500. Can’t wait for this to happen. Be Short!
It happening here in Australia. More casual job than permanent job. Small business are taking the blunt of it.
nobody wanted to buy stocks in 2009. the metrics were awful. the experts were bears. looking back, i’m glad i didn’t listen to them. no wonder economists never get rich.
It takes an army of lawyers for big business to operate through the myrid government strictures. No wonder small and medium size businesses feel overwhelmed by it all. It would appear that no matter who is elected president, there appears no relief in sight. Just today, the Obama administration backtracked on off shoe drilling regulations. With uncertainty like this, who can plan?
missed ya, $1,000 gold. glad to see you’re back. how do you put that â„¢ behind your name?
$1,000 goldâ„¢ no longer works here. he said the whole purpose of his name was to prove a point – that gold would reach the $1,000 range ($1,042 to be exact) at a time when the experts were calling for $5,000 gold.
Boom, Recession, Depression, Recovery and Growth.
The employment figures are as wrong as the inflation rate. Why don’t hey have a person on the street do this reporting?
Businessmen, via Republican economic policies, have destroyed the consumer class.
Low wages, fewer benefits, fewer pensions, unaffordable apartments and homes.
Here we are.