Last Week
Investors could not get any satisfaction as a slew of earnings reports, economic data, and election anxiety combined to send stocks on a 2-week losing streak.
Earnings from Microsoft and Meta were somewhat less than magnificent, and the declines in their shares led to a rout in markets on Thursday, moving October into the red and ending a run of five months of gains. Fellow “Magnificent” Apple missed quarterly revenue consensus estimates in key markets in China and in its services segment. On the other hand, Alphabet and Amazon reported strong results.
The earnings news amongst the less magnificent companies was favorable, with the third-quarter earnings growth rate advancing to 5.1% today, compared to 3.6% last week and 4.3% at the end of the third quarter (September 30). Positive EPS surprises reported by companies in the Communication Services, Health Care, Consumer Discretionary, and Industrials sectors were partially offset by negative EPS surprises reported by companies in the Information Technology sector.
The upcoming election not only increased trading volatility, but was also mentioned on numerous earnings conference calls, specifically with companies citing a slowdown or pause in economic, business, or customer activity due at least in part to the election. Many of these companies expect business conditions to improve after the election. The government policy cited most often in conjunction with the election was tariffs and trade, with concern expressed about the possibility of negative effects that might result from unreasonable tariffs.
The economic data included inline reports on the advance estimate of U.S. Q3 GDP growth and the PCE, the Federal Reserve’s preferred inflation gauge. The October employment report surprisingly showed only 14,000 new jobs created, overall data suggesting a continued deterioration in the labor market.
The S&P 500 slid -1.4%, while the Nasdaq Composite sank -1.5%. Small caps outperformed as the Russell 2000 was able to squeak out a small gain after jumping 1.6% on Monday and then reversing those gains for the rest of the week. Declining issues nearly doubled advancing issues, and 8 of the 10 industry sectors finished in the red, with only the Consumer Service sector rising more than 1% (thanks to Amazon). Crude oil prices dipped, while the U.S. Dollar and Gold both were unchanged. The yield on the 10-year Treasury jumped 13 basis points to 4.36%, its highest level since July 4th.
On the Chicago Sports Scene, the Bears are also on a losing streak, and their schedule gets much tougher for the rest of the season. The Bulls are mired in mediocrity, and the Blackhawks are once again in last place in their division. It could be a long winter.
This Week
All eyes will be on Tuesday’s outcome of the U.S. presidential election. The following day, the Federal Reserve monetary policy committee will meet and announce its decision on interest rates on Thursday. All signs point to a 25-basis point decrease, with traders focused on the outlook for future rate cuts. The earnings season will reach its final innings, with 103 S&P 500 companies reporting results.
October Small-Cap Stocks on the Move
-35.8% Rocky Brands Inc (RCKY) shares declined due to a weak third-quarter earnings report; net sales decreased 8.8% y/y to $114.6M, and earnings of $0.77 missed analyst estimates by $0.21. The company cited abnormally dry weather and inventory mismatches as contributing to the soft period.
-25.0% Boot Barn Holdings Inc (BOOT) shares sunk after the announcement that CEO Jim Conroy would be departing to become the CEO of Ross Stores (ROST). The Company also announced in-line earnings and reiterated improved same-store-sales trends.
-21.8% Shoe Carnival Inc (SCVL) shares were down in October on no significant company news.
-18.0% Green Brick Partners Inc (GRBK) stock fell after reporting both a revenue (+25% y/y; $523.6M vs. $550.0M est.) and EPS ($1.98 vs. $2.07 est.) miss for the third quarter. The quarter was marked by very strong gross margins offset by lower average home prices.
-18.0% Resources Connection Inc (RGP) saw declines after reporting a Q1FY25 loss of $0.17 per share and revenue down 19.5% to $136.9M for the period. The North Star Research team met with management and feels confident in term prospects as the deal pipeline grows and the company’s business mix improves from higher margin projects and services.
-16.8% Ennis Inc (EBF) was down in October on no significant company news.
+27.0% Flexsteel Industries Inc (FLXS) reported another quarter of major improvement with EPS of $0.74 beating estimates by $0.12 and revenue of $104M beating by $2.4M. Operating margin of 5.8% was up from 2.0% in the prior year quarter. The strong earnings report came after the company raised its quarterly dividend in September to $0.17/share from $0.15/share.
+24.9% VSE Corp (VSEC) had a news-heavy month with the announcement it would be acquiring Kellstrom Aerospace Group for $200M and a related underwritten public offering of shares of common stock at $87/share totaling $142M in proceeds.
+21.5% Cantaloupe Inc (CTLP) shares rose in October as SEC filings revealed both the Chairman and CEO have recently increased their positions in the company via open market stock purchases.
The stocks mentioned above may be holdings in our mutual funds. For more information, please visit www.nsinvestfunds.com.
The stocks mentioned above may be holdings in our mutual funds. For more information, please visit www.nsinvestfunds.com.