2020 was certainly a year of many emotions, new policies, and opinions that influenced consumer spending and business owners. At the start of 2021, emotions are still running high, challenging investors' strategy, and investment allocations.
The National Federation of Independent Business (NFIB) released today its December small business optimism index that, not surprisingly, indicated a sharp pessimistic decline after several months of steady improvement since April. It is important to know that small businesses represent 99.7% of all US employers, hire 64% of all new private-sector jobs, and represent 49.2% of private-sector employment. Small business owners have a major influence on the stability and growth of the economy.
However, despite the obvious doom and gloom forecasts, December’s reading of 95.9 is about the average of the past 25 years. Also, notice that the lowest index reading in 2020 was well above the low reached during the 2008 housing crisis.
Also important is the temperament of consumers, which represent 66% of all commerce in the US. In April, consumer sentiment reaches a nine-year low, and small business owners also beginning to recover.
Similar to the NFIB report, the low consumer sentiment reading in April was well above the low reached in mid-2008.
In comparison to the 2008 housing crisis, the sentiment of small business owners and consumers during this crisis has so far been less impactful to both key groups of the US economy.
What Does This Mean to Me?
While small business owners and consumers seem to be weathering through this crisis in better form than in 2008, it will be important to monitor these readings for any indication of further declines. Should the confidence and sentiment of either small business owners and consumers wane, then the risks increase for a recession. The year is just getting started, and sentiment could rise with the potential of favorable vaccine results and politicians being more thorough and consistent with their restrictions on citizens and businesses.
So far this year, investors have been significantly increasing their allocations to small and mid-sized companies over the safer large-cap companies. This seems counter-intuitive to the rise of new violence in Washington DC and many unresolved political and social issues. None the less, the S&P 400 (mid-cap) and S&P 600 (small-cap) have significantly outperformed (by nearly 7X) both the S&P 500 (large-cap) and NASDAQ.
Please call or email us if you have any questions about your account. This is a terrific time to evaluate last year and determine what adjustments are appropriate as you approach retirement or other key life events. We are here to help.
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