In September 2024, I wrote about the “vibecession” felt by American households. Today, companies are experiencing something similar. A “vibecession” is a period when the public perceives the economy negatively, even if it is doing well. The term combines the words “vibes” and “recession.” Last year, people lamented about the economy despite it firing on most cylinders. Many pointed to the scourge of inflation as a sign of a failing economy, but real wages (the pay workers receive, adjusted for inflation) were rising, which meant that the standard of living was improving.
Corporations are currently experiencing their own vibecession: They are incredibly unsure of what will happen in the economy and how that will affect their future decisions. Still, at least for now, they are investing in human capital, inventory, and infrastructure. But will vibes change that? And what happens to the stock market if they do?
The National Federation of Independent Business (NFBI) Uncertainty Index for January 2025 came in at 100. For context, that is the index’s third-highest reading of uncertainty going back to its inception in 1986. (The index was higher in 2016, the year President Trump was first elected, and in 2021, as the global economy reopened following the COVID-19 pandemic).
The index measures small businesses’ uncertainty about the future (the NFIB defines “uncertainty” as the inability to predict outcomes of future events). The index is based on six questions considering the following:
- Expected business conditions in six months.
- Is the current period a good time to expand?
- Expected credit conditions—easier or harder?
- Expected real sales direction.
- Expected size of workforce.
- Capital spending plans.
Much of the uncertainty from companies is likely related to the unknowns regarding immigration and tariff policies to be implemented by the White House. No matter the genesis, a spike in uncertainty is a drag on corporate willingness to invest and hire.
The uncertainty surrounding tariffs and immigration policies makes long-term investment planning difficult for businesses. A lack of clarity can result in delayed capital expenditure, hiring freezes, and reduced economic growth projections, all of which can weigh on stock prices.
Slowing spending and investment plans by corporations tend to affect financial markets, including the stock market, in two key ways:
- Short-term pressure on asset prices: In the immediate term, heightened uncertainty and lower confidence suppress stock valuations. Investors, wary of geopolitical risks, supply chain disruptions, and Federal Reserve policy, price in potential downside risk. This uncertainty leads to increased volatility, keeping equity markets under pressure.
- Long-term growth potential: Capital investment lays the groundwork for future earnings growth. If businesses successfully implement new technologies, streamline operations, and expand capacity, stock prices will likely benefit once uncertainty resolves—no matter how it resolves.
When new tariffs and a reduction in the workforce are proposed, markets react by adjusting expectations for corporate profits, economic growth, and inflation.
Tariffs raise the cost of imported goods, which can squeeze corporate profit margins, particularly for industries reliant on global supply chains. Fewer workers mean higher labor costs, which disrupt domestic supply chains and reduce profit margins through higher wages. If investors perceive policies as threatening economic stability, they may demand higher rewards, meaning asset prices must be lower. The key determinant for future valuation growth is not whether the resolution is positive or negative but whether uncertainty recedes at all.
So what makes this a corporate vibecession?
The Uncertainty Index is a possible predictor, not a correlative measure of actual actions.
The surge in the NFIB Uncertainty Index is due to the answers to those six “soft” questions pertaining to feelings and expectations. The Uncertainty Index contrasts with what companies are currently doing. The “hard” data is measurable, and other indices show that companies are still moving ahead with capital expenditure plans. The worry, of course, is that the index may be an indicator of things to come!
Businesses across the U.S. are navigating a complex economic landscape defined by heightened uncertainty, yet they continue to push forward with capital expenditures and expansion plans. In the face of these headwinds, 58 percent of small business owners reported making capital outlays over the past six months, a two-point increase from December 2024. This persistence in capital spending suggests that businesses, while cautious, recognize the necessity of investing in technology, infrastructure, and workforce expansion to remain competitive in an evolving economy.
The NFIB report provides insights into where businesses are focusing their capital outlays:
- 41 percent spent on new equipment (a four-point increase from December);
- 24 percent invested in vehicle acquisitions (unchanged);
- 16 percent expanded or improved facilities;
- 12 percent upgraded fixtures and furniture; and
- Five percent acquired new buildings or land.
These figures show commitment to expansion. A clearer path from the White House could be the economic equivalent of throwing gasoline on a fire, in a good way. However, continued uncertainty could stifle these plans. In particular, businesses express that the lack of clarity is affecting them in three significant areas:
- Labor market constraints: 35 percent of small businesses report unfilled job openings, particularly in the transportation, construction, and manufacturing industries. A lack of skilled workers could delay the full benefits of capital expenditures.
- Inflationary pressures: While inflation has moderated since its 2022 peak, small businesses fear that rising input costs due to tariffs could erode the profitability of new investments.
- Credit conditions: Interest rates remain elevated, with the average short-term loan rate at 9.4 percent, a 0.7-point increase from December. The Federal Reserve and credit providers may be unwilling to lower interest rates in the face of heightened uncertainty. Higher borrowing costs may deter further capital expansion in the months ahead.
What this means for investors
The current market environment reflects a classic risk premium scenario from an investment perspective. The stock market has been treading water for a few months, perhaps struggling to build on gains as investors gauge the long-term implications of ongoing business investment. However, once macro uncertainties such as fiscal policy direction, Federal Reserve interest rate decisions, and global trade dynamics become clearer, asset prices are likely to experience a rally—even if the resolution is not entirely favorable to businesses.
If the uncertainty continues, there isn’t much of an argument for stock prices to stay at or above their current levels.
However, I am betting on more clarity throughout 2025, not less. Companies investing heavily in infrastructure, artificial intelligence, and workforce development today may yield outsized returns once macroeconomic conditions become more certain.
Uncertainty is a weight on the stock market, but there is room for higher prices once lifted.
A rally in the stock market may depend on businesses receiving clarification from the Whtie House. Still, keep in mind that the stock market’s movements are based on hundreds, if not thousands, of variables. Even if uncertainty recedes, investors must contend with other questions. For example, considering that the S&P 500 stock market index is trading at a forward 12-month price-to-earnings (P/E) ratio of 22.2 (compared to its 10-year average of 18.3), can it make significant gains from current levels without a catalyst? The stock market may need that clarification to prevent crashing; higher stock prices may be the function of other variables.
Allen Harris is an owner of Berkshire Money Management in Great Barrington and Dalton, managing more than $700 million of investments. Unless specifically identified as original research or data gathering, some or all of the data cited is attributable to third-party sources. Unless stated otherwise, any mention of specific securities or investments is for illustrative purposes only. Advisor’s clients may or may not hold the securities discussed in their portfolios. Advisor makes no representations that any of the securities discussed have been or will be profitable. Full disclosures here. Direct inquiries to Allen at AHarris@BerkshireMM.com.
