In the NFL, the Chicago Bears had a bye on Sunday, which means they didn’t get to play. Apparently, the Wall Street Bears followed suit, as the S&P 500 staged an impressive 4.85% rally without meeting much resistance. It was the S&P 500’s best weekly performance since 2011. Consumers were feeling bullish, as Cyber Monday sales topped $7.9 Billion, a 19.7% increase from last year according to Adobe Analytics, making it the single largest shopping day in U.S. history.
Following in the holiday spirit, on Monday the “He tweeted, Xi said” exchange had a more friendly tone, particularly as the Chinese expressed interest in making a deal at the G20. As the week progressed the odds of a “ceasefire”, in other words a delay in imposing the 25% tariff while negotiations take place, seem to improve further.
The big move came on Wednesday with the “Jay Powell isn’t loco” 600-point rally in the Dow Jones Industrial Average. In early October the Fed Chair said that the central bank was a long way from getting rates to neutral, after removing accommodative from the policy statement the previous week. It’s not clear what he meant by a “long way”, but speculation grew that the Fed would be overly aggressive in raising rates, even if the economy showed signs of slowing. President Trump branded the Federal Reserve’s policy as crazy and loco. Turn the clock forward a couple of months, and Powell’s speech at the Economic Club of New York seemed much more dovish, “Interest rates are still low by historical standards, and they remain just below the broad range of estimates of the level that would be neutral for the economy that is, neither speeding up nor slowing down growth.”
Whereas it is comforting to confirm that the Fed will respond to conditions in the economy when making policy, one should take note that those conditions have worsened enough in the last 2 months to engender this change in language.
The Dollar, Gold, and Oil were all little changed for the week, while the yield on the Ten-Year Treasury dropped another 4 basis points to finish at 3.01%.
Last Thursday on CNBC Power Lunch I suggested that there are reasons to be cautiously optimistic about the market going into the typically bullish “Santa Claus Rally” time of the year. Over the weekend, that optimism was further validated as the U.S. and China agreed to pause the introduction of new tariffs and intensify their trade talks.
It’s a busy calendar for data releases. The market would probably respond most favorably to “goldilocks” reports that shows a not too hot or too cold economy. Most notably, on Friday the Bureau of Labor Statistics will release its employment report for November. Nonfarm payrolls are forecast to increase 200,000. A much stronger reading, particularly if it was accompanied by a jump in wages, would put the pressure back on the Fed to keep raising rates in front of its December 19th meeting. A significantly weaker reading, on the other hand, would further stoke the fire for those in the camp calling for an impending recession.
Stocks on the Move:
Build-A-Bear Workshop, Inc. (BBW) -21.3%: Sharon Price John, President and Chief Executive Officer, commented, “In a seasonably small third quarter in which we had forecasted a loss, we ultimately delivered sales and profitability below expectations. The majority of the shortfall was driven by three circumstances. First, we chose to strategically deemphasize our historically successful National Teddy Bear Day promotion to avoid the potential of long lines and frustrated guests on the heels of the Pay Your Age Day events. Second, our U.K. business continued to decline beyond expectations due to a challenging retail environment brought on by Brexit and the implementation of new privacy laws that have significantly inhibited our ability to build our contact database and market directly to our guests. And finally, organic family traffic to traditional malls continued to struggle which we believe was exacerbated by the comparative lack of high impact animated films that tend to bring our target demographic to malls with co-located theaters. Historically, we have seen increased traffic and sales associated with child-friendly film releases. Build-A-Bear Workshop is a specialty retailer which offers “make your own stuffed animal” interactive entertainment experience in which guests visit a variety of stations to make and customize a stuffed animal. BBW is a 2.38% holding in the North Star Micro Cap Fund.
Boot Barn Holdings, Inc. BOOT) +10.2%: The Company’s shares recouped some of their curious decline following solid quarterly results in late October. Boot Barn Holdings operates specialty retail stores that sell western and work boots and related apparel and accessories. The Company operates retail locations throughout the U.S. and sells its merchandise via the Internet. BOOT is a 2.90% holding in the North Star Micro Cap Fund.
Brooks Automation, Inc. (BRKS) +18.3%: The Company’s shares rebounded from their curious decline the previous week after posting excellent results. Brooks Automation Inc is a provider of automation and cryogenic solutions for multiple applications and markets. The company serves the semiconductor capital equipment market and sample management market for life sciences. BRKS is a 1.87% holding in the North Star Dividend Fund.
Heritage-Crystal Clean, Inc. (HCCI) + 11.1%: The Company’s shares reached an all-time high, as the upward momentum triggered after their solid third-quarter results released on October 17th continued. Heritage-Crystal Clean provides parts cleaning, used oil re-refining and hazardous and non-hazardous waste services to small and mid-sized customers in both the manufacturing and vehicle service sectors. HCCI is a 1.87% holding in the North Star Micro Cap Fund.
NTN Buzztime, Inc. (NTN) -19.2%: In a recent SEC filing, major shareholder North Star Investment Management Corporation (that’s us) said NTN Buzztime board members should buy additional shares in the open market to demonstrate their faith in the interactive entertainment and innovative technology company. “If a Board member is not willing to purchase additional shares, then the member should resign,” the mutual fund group holding 10.33% stake in NTN said in a letter to the company, adding it was disappointed with the board performance. “If a Board member fails to purchase additional shares or fails to resign, North Star will vote against that members future nominations.” NTN Buzztime provides interactive entertainment and dining technology to bars and restaurants in North America. Its main products are Buzztime, Playmaker, Mobile Playmaker, BEOND Powered by Buzztime and Play Along.
It’s unusual for North Star to put this type of pressure on a company, but with the market cap now under $7 million, and the recent results seemingly validating the strategic direction the Board has authorized, we believe the action we called for is warranted. NTN is a 0.42% holding in the North Star Micro Cap Fund.
U.S. Auto Parts Network, Inc. (PRTS) +10.8%: The Company appointed Lev Peker as director and chief executive officer, succeeding Aaron Coleman effective January 2, 2019. Peker brings considerable marketing and operational expertise to U.S. Auto Parts, having previously served as chief marketing officer of Adorama, a leading online destination for photography, imaging, audio and consumer electronics, as well as senior director and general manager of e-commerce strategy and operations at Sears. U.S. Auto Parts Chairman Barry Phelps commented: “Lev has a strong track record of driving growth through both traditional and digital marketing channels. During his time at Adorama, he was instrumental in improving the company’s visibility across retail, online, mobile and social media channels, while also serving as the architect behind the company’s content strategy and marketing campaigns to boost traffic and conversion. Given his previous tenure with U.S. Auto Parts, his familiarity of our business and competitive dynamics will enable him to hit the ground running.” Peker commented on his appointment: “U.S. Auto Parts has been serving customers for more than 20 years and has established itself as one of the premier online providers of aftermarket auto parts. We have a strong foundation to build on with millions of orders every year across a diversified range of sales channels, including several owned and operated e-commerce sites and multiple online marketplaces like eBay, Amazon and Wal-Mart. I look forward to leveraging my e-commerce and marketing experience to return U.S. Auto Parts to growth and maximize shareholder value.” U.S. Auto Parts Network is an online provider of automotive aftermarket parts and repair information. Its products are classified into three subcategories: collision parts, engine parts, and performance parts and accessories. PRTS is a 1.99% holding in the North Star Micro Cap Fund.