After seeing the tax reform inspired to jump in small business optimism from the NFIB, today the Duke CFO survey optimism index rose the to the best level since June 2004. Also, it was driven by tax reform. This is though coming with building inflation pressures as the survey ‘also finds the difficulty that companies are having hiring and retaining qualified employees is at a 20 yr high, and that in part will lead to higher wages.’ The survey said CFO’s expect ‘median wage growth of about 3% over the next 12 months.’ Hopefully, higher productivity can offset this as opposed to companies passing that on in higher prices. There is also healthcare inflation that is a worry as expectations are for an 8% rise next year. ‘Nearly half of US companies indicate that the cost of employee health benefits crowds out their ability to spend on long-term corporate investment.’ Like I said before, embrace lower corporate taxes but don’t assume all else equal.
There was a slight ebbing of bullish enthusiasm according to Investors Intelligence. Bulls fell to 61.9 from 64.2 while Bears ticked up a hair to 15.2 from 15.1. The spread between the two of 46.7 is a 3 week low but is just 3.3 pts from a 30 yr high. Since bulls got back to 60 on October 11th, the Value Line Equal Weighted Geometric index is up 2.2%. A lot of tax reform generated optimism, along with better global growth will meet faster monetary tightening next year. The former certainly won that battle in 2017 also helped by $2 Trillion of ECB and BoJ largesse. That largesse changes dramatically in 2018 but markets are clearly betting on the soft landing scenario, aka a free lunch.
This post was published at FinancialSense on 12/13/2017.
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