Markets Don’t Care About December Weakness

The main driver of the decline was the 19 point decline in expectations for the economy to improve. It’s now just 8%. That’s likely because of the election. The pandemic is worse than it was in November, but no one should be surprised it’s worse.

The other notable declines were in plans to increase inventories and earnings trends which fell 7 and 4 points to 5% and -7%. Plans to increase employment rose 3 points to a net 21% which doesn’t really make sense if firms actually are negative on the economy. 

If you think the economy will be worse in 6 months, you won’t hire new workers. This inference is small businesses got negative on the economy in the short term, but they see the economy reopening next year which is why they plan to hire more people.

More Optimism

The American Staffing Association’s staffing index rose from -9% to -7.7% in the week of November 28th. That correlates with growth in the BLS’s temporary help measurement. It means the cyclical improvement in the labor market is continuing. 

This is a cyclical recovery in the midst of a speculative blow-off in stocks. Some investors are moderately bearish on the S&P 500 and on the Nasdaq 100, yet are bullish on the economy. As you can see from the top chart below, the 2020 Q4 CEO economic outlook survey hit 88% which is above where it was before the recession.

Furthermore, the CAPEX plans index rose to 34% which is also above where it was in early 2020. If it wasn’t for COVID-19, the economy would have had a cyclical upturn in the first half of 2020 following a modest slowdown. Instead, we had a recession which made the economy worse in the short term but will make the recovery stronger in the intermediate-term.

Finally, the hiring plans index rose to 7.1% just like the NFIB small business index. This one isn’t yet back to pre-recessionary levels. Don’t worry, this will increase throughout 2021. The labor market has the potential to approach fullness by the end of the year if the vaccine rollout is successful. 

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