12 Jun WHAT STREET IS CORRECT?
In my view there is a disconnect between Main Street and Wall Street. Utilizing May’s NFIB small business optimism index [aka Main Street], economic activity is robust. May’s readings was the highest since October, hiring plans rose to the greatest level since December and problems finding qualified applicants for job openings is hovering around record highs.
The NFIB concluded “optimism among small business owners has surged to historical highs thanks to strong hiring, investment and sales…taking advantage of lower taxes and fewer regulations…”
Regarding Wall Street, pessimism is rising with the markets suggesting three interest rate reductions by year end.
What street is correct?
Historically economic and job growth is propelled by Main Street. Historically the smaller capitalized issues are regarded as “growth issues” offering greater potential returns.
Twenty years ago or the last era of 4% growth for almost four consecutive years, 90% of job creation occurred in companies with fewer than 400 employees. Moreover the small capitalized outperformed.
Today the mega capitalized firms are regarded as growth companies. Until recently job creation was centered in these behemoths, a major reason for the populist surge that propelled the President into office.
And then there is the massive difference in performance. Mega sized capitalized companies have greatly outperformed any other vehicle.
Humans eat, sleep and extrapolate. What we think we can foresee is often nothing more than what we have recently seen. “More of the same” is the sensible default prediction in politics, baseball, and the markets. The past continues until it does not.
In so many dimensions, I think the world has changed, a change that I believe is not reflected in prices.
Commenting briefly on yesterday’s market action, stocks fluctuated on trade outlook, ending essentially unchanged. Some are speculating there will be a breakthrough at next week’s G-20 meeting.
Last night the foreign markets were down. London was down 0.74%, Paris down 0.75% and Frankfurt down 0.53%. China was down 0.56%, Japan down 0.35% and Hang Sang down 1.73%.
The Dow should open moderately lower on trade concerns. A question at hand is whether the rising tensions in Hong Kong are a one off event or will it evolve into something of more significance? The 10-year is up 5/32 to yield 2.12%.