Will record levels of optimism among U.S. small-business owners keep the fire burning beneath a small-cap rally that itself has reached new highs? Not if history is a guide.

While the number of respondents saying it’s a good time to expand reached a record 34 percent last month, according to a National Federation of Independent Business survey released Tuesday, previous peaks have actually led to short-term stock declines.

Since 1979, the Russell 2000 Index has declined on average 2.9 percent in the six months following a peak in the NFIB “Good Time to Expand” gauge, according to a study from Jason Goepfert, president of Sundial Capital Research Inc. The average decline over a three-month period was 0.4 percent, he said.

“Overall, it’s a mild warning sign that things have gotten about as good as they can get for the small guys out there,” Goepfert said in a note to clients Tuesday. “The highest levels of optimism have led to mixed returns.”

Small-business sentiment has remained high since President Donald Trump’s election in late 2016, with tax cuts, reduced regulations and solid economic growth supporting the optimistic outlook. The NFIB survey suggests little negative impact from this year’s trade disputes, alongside freight bottlenecks that have pushed up costs for some businesses.

The Russell 2000 rose to a fresh record Tuesday, extending its year-to-date gain to almost 10 percent. The gauge has risen about 46 percent over the last two years, outperforming the 34 percent gain in its larger-capitalized counterpart, the S&P 500.


To contact the reporter on this story: Cormac Mullen in Tokyo at cmullen9@bloomberg.net

To contact the editor responsible for this story: Christopher Anstey at canstey@bloomberg.net

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