CAMS Weekly View from the Corner – Week ending 9/14/2018
September 17, 2018
The NFIB Small Business Optimism Index soared to 108.8 in August, a new record in the survey’s 45-year history, topping the July 1983 high water mark of 108. https://www.nfib.com/surveys/small-business-economic-trends/
Let’s recap the central theme we have been sharing here in these Weekly Views in the last couple of years when it comes to markets generally and the must-have economic growth to support them.
The extreme brief: Markets – from real estate to stock markets on through bond markets etc – are highly valued through the lens of history. By some measures they are at historic extremes.
Over numerous editions we have chronicled these markets through various measures of valuation with the same general message emanating from the study; markets are historically highly valued, i.e. expensive.
The problem with valuation studies is they have a poor track record when it comes to their ability to time markets. Simply, they will tell us how expensive markets are but offer little in terms of when we should exit said markets in light of the extreme valuations.
With this, our focus with the above in mind is that we must have on-going solid economic growth to at least support these highly valued markets.
With the basic backdrop described we continually turn to the economic landscape for assistance.
Per our header quote, this past week we experienced yet another economic eye-opener offering historic strength.
The National Federation of Independent Business is the largest small business association in the United States. Their most recent Small Business Optimism Index startled us when the data was released. Attaining the highest level ever reached in the 45 year history of this Index was an impressive statement from its membership.
The above chart reflects said history and offers an amazing view of the strength of our current economic backdrop as reported from these front-line small business owners.
For my part, when I look at the current reading of this Index and think back through the decades of various levels of economic strength it is eye-opening to think current day tops them all.
This is an on-going reflection of the type of economic growth we need to see to support our highly valued markets.
If these markets lose economic growth, in particular to the point of recession, look out for tremendous downside.
This is not a doom-and-gloom message but rather allowing history to share her experience with us.
Recessionary levels of economic activity bring on notable downside pricing adjustments to markets – especially historically highly valued markets such as we have had in recent years.
Currently, per these front-line small business owners, the economic backdrop remains rock solid!
I wish you well…
Ken Reinhart
Director, Market Research & Portfolio Analysis
Portfolio Manager, CAMS Spectrum Portfolio
Footnote:
H&UP’s is a quick summation of a rating system for SPX9 (abbreviation encompassing 9 Sectors of the S&P 500 with 107 sub-groups within those 9 sectors) that quickly references the percentage that is deemed healthy and higher (H&UP). This comes from the proprietary “V-NN” ranking system that is composed of 4 ratings which are “V-H-N-or NN”. A “V” or an “H” is a positive or constructive rank for said sector or sub-group within the sectors.
This commentary is presented only to provide perspectives on investment strategies and opportunities. The material contains opinions of the author, which are subject to markets change without notice. Statements concerning financial market trends are based on current market conditions which fluctuate. References to specific securities and issuers are for descriptive purposes only and are not intended to be, and should not be interpreted as, recommendations to purchase or sell such securities. There is no guarantee that any investment strategy will work under all market conditions. Each investor should evaluate their ability to invest for the long-term, especially during periods of downturn in the market. PERFORMANCE IS NOT GUARANTEED AND LOSSES CAN OCCUR WITH ANY INVESTMENT STRATEGY.
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