Rising interest rates, rising corporate profits, and company specific news, were the three main drivers in the market, which finished modestly positive as the S&P 500 posted a 0.52% gain. The Ten-Year Treasury yield jumped 12 basis points to 2.95%, its highest level in four years. We are not short-term traders at North Star, but I think we are in the danger zone, since much of the volume comes from trading firms, and it would seem likely that all the algorithms would respond negatively if the yield pushed through the 3% level for the first time since 2011.
Corporate profits were very strong, with over 80% of the companies reporting results that exceeded expectations. As of today, all eleven sectors are reporting or are expected to report both earnings and revenue growth for the second straight quarter. With the usual number of positive surprises, the blended earnings growth rate could exceed 20% for the quarter.
There were a few high-profile companies whose shares were under pressure for specific reasons during the week. Phillip Morris International suffered a 15% decline, as its sales missed estimates. International Business Machines lost 7.5% after taking big charges for restructuring actions and posting disappointing margins for the quarter. Apple shares sold-off 5% on concerns over global Iphone demand. Apple’s stock is now down modestly for 2018.
It will be the busiest week of the earnings season, with 179 S&P 500 companies (including 12 Dow 30 components) scheduled to report results for the first quarter. The economic calendar is also very active, with data on housing, durables goods, and consumer confidence all being released.
The tweets continue. They seem to move the market for a few minutes, sometimes a few hours. So far, none of these policy tweets have had a sustained impact.
Stocks on the Move:
A.H. Belo Corporation (AHC) +9.5%: Announced that Jim Moroney, chairman, president, and Chief Executive Officer, will retire in May, and will be succeeded by Robert W. Decherd. Decherd said, “It’s exciting to serve again as A.H. Belo’s Chief Executive Officer. We are in the enviable position of being able to conceive and implement initiatives that reinforce shareholder value while upholding the Company’s long-standing commitment to local journalism, editorial leadership, and far reaching news projects.” A.H. Belo is a leading local news publishing company with additional expertise in emerging media and digital marketing. The North Star Dividend Fund holds a 3.6% position and the North Star Micro Cap Fund holds a 3.6% position in AHC.
Escalade, Inc. (ESCA) -8.2%: Net sales grew 0.9% for the first quarter of 2018, but net income declined to $1.2 million from $1.4 million in the year earlier period. “Driven by product mix and signs of stability within the archery category, our first quarter resulted in continued margin improvement of 200 basis points,” stated David Fetherman, President and Chief Executive Officer. “Our SG&A increased over prior year due to expenses associated with our Q1 2017 acquisition of Lifeline Products, LLC, start-up costs from our new Vuly trampoline distribution agreement, and our ongoing investment in the e-commerce channel.” Escalade is a leading manufacturer and distributer of niche sporting goods, such as archery, table tennis, darts, billiards, and pickle ball supplies. The North Star Dividend Fund holds a 3% position and the North Star Micro Cap Fund holds a 2.5% position in ESCA.
U.S. Auto Parts Network, Inc. (PRTS) +11.7%: Launched a Progressive Web App (PWA) as its new mobile website for car parts.com. Through the PWA, U.S. Auto Parts is making its more than one million vehicle parts and accessories more easily accessible to do-it-yourself customers. Established in 1995, U.S. Auto Parts is a leading online provider of automotive aftermarket products. The North Star Micro Cap fund holds at 2.4% position in PRTS.