The animal spirits are stirring.

Maybe you noticed. If not, have a look at inflows to US equity funds. Or, better yet, the latest read on US small business sentiment.

Remember, small businesses comprise a very large share of private sector hiring in America. According to one government estimate, small employers accounted for 62% of net new job creation since 1995. I’m not sure if that figure’s still accurate post-pandemic, but you get the point: Small businesses are indispensable, which is why Congress spent so much money trying to save them from overnight extinction during the spring of 2020.

I doubt anyone needs a reminder, but the NFIB’s gauge just staged its largest MoM increase in the half-century history of the series.

Prior to the November release, the headline spent three years below the long-term average. Now, all of a sudden, it sits in the 78%ile percentile versus its own history.

Suffice to say small business owners, God bless ’em, are buying Trump’s balderdash. I hope it’s not balderdash but remember that for Trump, overpromising is a largely riskless proposition because underdelivery’s always someone else’s fault, both in his mind and in the minds of his personality cult, which we learned last month has grown to include more than half of registered US voters.

If you ask Goldman’s David Kostin, the improvement in small business optimism, assuming it holds up, should manifest in greater capital outlays, which in turn could “boost the revenues and valuations of large- and mid-cap stocks with elevated revenue exposure to SMBs.”

In the same note, essentially just an editorial documenting various manifestations of animal spirits post-election, Kostin flagged the anomalous pace of inflows to US equity-focused ETFs and mutual funds, which are of course on track for a record annual haul.

The figure above’s just another way to visualize this year’s inflows, which are approaching (but probably won’t quite reach) half a trillion. (As a quick aside, note that Elon Musk’s net worth matches the entirety of net inflows to US equities for 2024.)

“Investor excitement about animal spirits has driven investors to sharply increase exposure to US equities,” Kostin wrote, adding that Goldman’s Sentiment Indicator (figure on the left, below) hit a record high post-election. “This pattern mirrors the experience of the 2016 election, when the [indicator] peaked soon after Election Day,” he said.

It’s worth mentioning (and Kostin did mention it) that Goldman’s sentiment gauge is a contrarian indicator, but it’s more reliable as a “buy” signal than a “sell” signal. In other words, although stretched readings do tend to portend subpar returns in the near-term, the indicator’s only statistically significant in the opposite direction: When it’s very low, suggesting market participants might consider re-allocating to risk because investor depression has overshot.

The figure on the right, above, gives you a sense of market pricing for growth (here proxied by a simple Cyclicals to Defensives ratio). It’s way out ahead of GDP tracking.

All of this as the Fed’s still cutting rates. “Financial conditions have eased and, if unchanged, could provide a modest tailwind to economic growth in the coming quarters,” Kostin remarked.

Writing late last week, JonesTrading’s Mike O’Rourke — who recently (and correctly) assessed that there’s “no defensible reason” for the Fed to cut again in December — wrote that “although Trump’s policies are yet to be enacted, individuals and markets are acting in anticipation of them.”

The Fed, O’Rourke went on, “doesn’t have to forecast policies that are yet to be enacted, but it needs to acknowledge the economic switch was flipped on November 6.”