Last Week
The stock market weathered the crosscurrents of escalating tension in the Middle East, a potential disruptive labor dispute, and rising interest rates to post modest gains. The Oil & Gas sector was the only big winner, rising 6.7%, while the S&P 500 and Nasdaq Composite added 0.2% and 0.1%, respectively. There were more declining than advancing issues, with the Russell 2000 slipping 0.5% into the red.
On Tuesday, Iran launched about 200 missiles at Israel, raising expectations for further escalation, and leading to a 9% surge in WTI crude oil futures. Oil & Gas stocks rallied, but still seem very inexpensive compared to other equity sectors. There are a number of small-cap companies that offer attractive dividend yields that we have recently added to our small-cap dividend-focused fund, such as Granite Ridge Resources Inc (GRNT), Evolution Petroleum Corp (EPM), and Vitesse Energy Inc (VTS).
On the domestic front, a strike of dockworkers at U.S. ports in the East and Gulf coasts raised serious concerns. Fortunately, after three days the International Longshoremen’s Association, the union representing the port workers, reached a tentative agreement to end the strike. The North Star research team had started conversations with the CEOs of some of our portfolio companies and were impressed by their sense of the risk to the U.S. economy this strike presented.
Traders’ primary focus throughout the week was on the September nonfarm payrolls report, which, when released on Friday, showed the addition of 254K jobs in the U.S. in September, significantly higher than consensus. The data pointed to strong hiring in the labor market and led to an 18-basis point increase in the yield on the 10-year Treasury to 3.98%. It also substantially reduced the odds of another 50-basis point interest rate cut by the Federal Reserve in November. Nevertheless, the market embraced the economic strength with all the gains for the week coming following the release of that report, suggesting that good news is now being interpreted as good news!
Speaking of good news, the Chicago Bears looked fantastic on Sunday at Soldier Field, defeating the Carolina Panthers 36-10. Bear down!
This Week
The 10Y Treasury yield crossed over 4% and the 10-2 spread re-inverted on Monday morning for the first time since August, possibly indicating a bumpy week ahead.
The minutes from the September FOMC meeting will be released on Wednesday. They could make an interesting read, as this was the first time since 2005 that a Fed governor dissented on an interest rate cut.
On Thursday, the CPI report for September will be in focus, with the expectations of a 2.3% year-over-year increase, the lowest level since February 2021. Any surprises will certainly move the markets.
The University of Michigan releases its Consumer Sentiment index for October on Friday. The September report showed improvement to the highest level in five months, albeit at still a historically relatively low level. However, Michigan football fans’ sentiment is sinking following a 27-17 loss in Washington to the Huskies on Saturday. I guess you cannot be a national champion every year.
Earnings reports from some of the biggest banks, including Citigroup Inc (C), J.P. Morgan Chase & Co (JPM), and Wells Fargo & Co (WFC), will also be released at the end of the week. Of particular interest will be how these companies characterize credit trends in consumer lending and commercial real estate.
September Small-Cap Stocks on the Move
+24.7% Boot Barn Holdings Inc (BOOT) rallied during the month after CEO Jim Conroy highlighted at the Piper Sandler Growth Frontiers Conference strong sequential sales improvement in every geographic region and merchandise category.
+22.6% Signet Jewelers Inc (SIG) shares rose after reporting Q2FY2025 earnings per share of $1.25, which beat estimates by $0.04, and sales of $1.49B, which missed the $1.5B estimate. The Company raised its full-year guidance and announced on Oct 1st that JK Symancyk (formerly of PetSmart) would be replacing CEO Virginia Drosos, who is planning to retire on November 4th.
+19.5% United States Lime & Minerals Inc (USLM) shares were up on no significant company news and outperformed all industry peers during the month.
-11.1% VSE Corp (VSEC) shares were down slightly in September, likely due to sustained Boeing and Airbus supply chain/production quality issues.
-16.6% Lakeland Industries Inc (LAKE) shares sank during the month after reporting negative Q2FY2025 earnings per share due to organic sales declines and shipment delays.
-19.9% Movado Group Inc (MOV) shares dropped after reporting mixed Q2FY2025 results and lowering full-year guidance. The North Star Research Team conducted a post-earnings call with management and feels comfortable with the near and long-term prospects of the business given the well-managed inventory levels, fortress balance sheet with $200M in cash and no debt, and safe dividend.
The stocks mentioned above may be holdings in our mutual funds. For more information, please visit www.nsinvestfunds.com.