Capitulation - Stock Market Reached On Monday

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The biggest improvement was in the net percentage of small businesses saying earnings trends improved. That went from -8% to -3%. Usually, that index is negative, so don’t view it as a terrible reading. Net plans to increase inventories and net expectations for credit conditions to improve were both up 3%. Those readings were 2% and -4%. 

As you know, the Q1 build up in inventories boosted GDP growth. Regardless of what this index said, inventory growth probably won’t be strong in back to back quarters. I wouldn’t be surprised if small businesses became more negative on credit conditions if they were asked the same question today. Primarily because of the selloff in high yield bonds and stocks caused by trade worries.

In my opinion, the 2 most important categories in this index are net expectations for real sales to increase and net plans to make capital outlays. Those get at how business is doing rather than measuring economic sentiment which can be flippant. Those indexes didn’t improve much as one was up 1 point to 20% and the other stayed the same at 27%. Net plans to increase employment were up 2% to 18%.

As you can see from the table below, 24% of small businesses stated the quality of labor was their biggest issue. 3% more named it their biggest issue in April than March. It’s interesting to see how the cost of labor was only named by 8% as their biggest issue. 

These two aspects go hand in hand. If a firm really wants to find workers, it can offer more pay and give more benefits. That would make quality less of an issue and cost more of an issue.

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International Firms Underperform

Capitulation - Investors have always been interested in FactSet’s final Q1 earnings growth calculation. Personally, I have expected it to be very close to the flat-line. Some calculations such as The Earnings Scout’s already have Q1 earnings growth much above the flat-line. 

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