Small business organizations’ optimism bounced back in July after it suffered a setback in the previous month. Lingering trade conflict with China, concerns about slowing U.S. and global economy and several geopolitical concerns failed to dampen the confidence of small business owners.
Small Business Optimism Bounces Back in July
Last week, the National Federation of Independent Business (NFIB) reported that the NFIB Small Business Optimism Index rose to 104.7 in July from 103 in June. Notably, July’s reading was close to that of May’s index value of 105, the highest since October 2018. More importantly, the uncertainty index fell 10 points after it surged in June, which was the highest level since March 2017.
While optimism remains at historically high levels, the July figure reversed the loss posted in June, with seven of the total 10 survey components increasing, two components declining and one remaining unchanged. Both capital spending and plans to order new inventories advanced in July.
Why Small Business Is Important
Small corporates create a significant amount of jobs in the U.S. economy. More than 50% of the newly created jobs in the private sector originate here. These people constitute a large part of customers for big businesses.
Moreover, small companies are a major part of the supply chain management systems of large companies for innovative and technologically superior inputs. Additionally, small businesses often end up being an important part of corporate America's customer base.
U.S. Economy Remains Strong
On Aug 15, the Department of Commerce reported a 0.7% jump in retail sales in July compared with 0.3% in June. Moreover, core retail sales (excluding sales at auto dealers and gasoline stations) increased 1% in July, surpassing June’s rise of 0.3%.
On Jul 31, the Conference Board's measure of consumer confidence index for July skyrocketed to 135.7 compared with 124.3 in June. In addition, a healthy labor market with 164,000 job additions in July, and a 50-year low unemployment rate of 3.7% boosted consumer confidence.
Small Caps Are Important in a Volatile Market
Small-cap stocks carry some special features that make them very useful in a volatile market. They are mostly immune to any external shock since the United States is the primary market of their products. This is aiding this segment to outperform the broader market defying extreme volatility.
Owing to their domestic business strategy, small-cap stocks are immune to the movement of the U.S. dollar. A strong U.S. dollar will make exports of large companies uncompetitive. However, small-cap stocks remain unaffected by foreign exchange volatility.
Our Top Picks
At this stage, it will be prudent to invest in small-cap stocks with a favorable Zacks Rank and strong growth potential. We have narrowed down our search to five stocks with a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Hallmark Financial Services Inc. (HALL - Free Report) underwrites, markets, distributes and services property/casualty insurance products to businesses and individuals in the United States. The company operates in the Specialty Commercial, Standard Commercial, and Personal segments. The company has an expected earnings growth rate of 41.6% for the current year. The Zacks Consensus Estimate for the current year has improved 5.9% over the last 30 days.
Chuy's Holdings Inc. (CHUY - Free Report) owns and operates full-service restaurants under the Chuy's name in Texas and 19 states in the Southeast and Midwest United States. The company has an expected earnings growth rate of 8% for the current year. The Zacks Consensus Estimate for the current year has improved 3.3% over the last 30 days.
Boot Barn Holdings Inc. (BOOT - Free Report) is a lifestyle retail chain that operates specialty retail stores in the United States. Its specialty retail stores offer western and work-related footwear, apparel and accessories for men, women and kids. The company has an expected earnings growth rate of 20.7% for the current year. The Zacks Consensus Estimate for the current year has improved 7.2% over the last 30 days.
Exantas Capital Corp. (XAN - Free Report) is a real estate investment trust, which primarily focuses on the origination, holding and management of commercial mortgage loans and commercial real estate-related debt investments in the United States. The company has an expected earnings growth rate of 60.6% for the current year. The Zacks Consensus Estimate for the current year has improved 6.5% over the last 30 days.
Eagle Bancorp Montana Inc. provides various retail banking products and services in Montana. It accepts various deposit products, such as checking, savings, money market, and individual retirement accounts, as well as certificates of deposit accounts. The company has an expected earnings growth rate of 57.9% for the current year. The Zacks Consensus Estimate for the current year has improved 15% over the last 30 days.
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