Wild Rush
The 2023 bull stampede on Wall Street continued as the economic data and corporate earnings reports declawed those grumpy bears. All the major market averages finished higher, with the Nasdaq Composite climbing 4.3% to rack up a fourth straight week of gains, while both the S&P 500 and the Russell 2000 gained 2.4%. Consumer and technology stocks were the top performing sectors, while the safe havens of healthcare and utilities were modestly negative.
The Commerce Department reported a better than expected 2.9% gain in gross domestic product on Thursday, reinforcing the resiliency of the economy. Data on Friday showed that the personal consumption expenditures (PCE) price index edged up 0.1% last month after rising by the same margin in November. Excluding the volatile food and energy components, the PCE price index gained 0.3% after climbing 0.2% in November. The so-called core PCE price index rose 4.4% on a year-on-year basis in December, the smallest advance since October 2021, after increasing 4.7% in November. Hopefully the policy makers can overcome their embarrassment over misjudging the mounting inflation pressures in the early summer of 2021 and recognize the current landscape of a softening economy and decelerating inflationary pressures.
Corporate earnings came in largely as expected, with the negative earnings surprises reported by companies in the Financials and Industrials sectors mostly offset by positive earnings surprises reported by companies in multiple sectors. The S&P 500 is on track to report an earnings decline of 5.0% for the quarter, marking the first time the index has reported a year-over-year decrease in earnings since Q3 2020. The Energy sector is also the largest positive contributor to year-over-year earnings for the S&P 500 for the fourth quarter. If this sector were excluded, the blended earnings decline for the index would increase to -9.0% from -5.0%. Corporate earnings are forecasted to decline for the first half of 2023, and then return to growth in the back half.
Another reason for the recent bull stampede has been China relaxing its zero-Covid policies, which improves both the picture for global demand and supply chains. The MSCI China Index has posted an 17.2% gain in 2023, although it has still suffered a 26% decline over the last five years.
The yield on the 10-year Treasury inched up 3 basis points to 3.52%, while the dollar and gold were both largely unchanged. The 10-2 spread remained at an inverted 67 basis points reflecting the consensus opinion of an impending recession and representing the longest and deepest inversion since the early 1980s. The bull stampede reflects the growing confidence by market participants in the “softish” landing scenario. We would love to see a Bulls stampede at the United Center, but our confidence that the Chicago Bulls could be contenders this year is not growing.
Speaking of the Chicago sports scene, the Sky lost superstar Candace Parker as she opted to take her talents to Las Vegas to play for the Aces. Candace led the Sky to the 2021 WNBA championship.
Full Plate
Traders will have a full plate of news to digest, with the FOMC, a hefty schedule of earnings reports, and significant economic data all on the menu.
The Federal Reserve is largely anticipated to hike the target federal funds rate to a range of 4.50% to 4.75% on Wednesday and to continue with its relentless unnecessary tightening jawboning in the press conferences that follow.
On the earnings front, 109 S&P 500 companies will be reporting results for the fourth quarter, including many of the highest profile companies such as Amazon, Apple, and Exxon.
Finally, the unemployment report on Friday is expected to show a rise in January nonfarm payrolls of 190,000 down from the 223,000 reported in December, and a slight uptick in the unemployment rate. Whereas the labor market remains strong, we think the recent data and layoff announcements suggests softening in that area as well.
Stocks on the Move
Companies with news…
+33.3% Tesla Inc (TSLA) designs, manufactures, and sells high-performance electric vehicles and electric vehicle powertrain components. The Company’s portfolio includes solar generation and storage products, more than five fully electric cars, and a growing global network of industrial-grade vehicle chargers called “Superchargers.” Tesla rallied on Wednesday after reporting earnings of $1.19 per share and in-line revenue of $24.32B. The company announced record deliveries were made in Q4 and gave upbeat commentary regarding strong production and sales trends.
+18.1% Boot Barn Holdings Inc (BOOT) sells western and work gear for individuals and families. The Company sells boots, jeans, shirts, hats, belts, jewelry, and other accessories. Last week, BOOT reported Q3 earnings of $2.23 per share which beat estimates by $0.48 per share. FY2023 margin and earnings guidance was lowered due to higher freight-related costs, but demand remains strong, and the Company believes there will be some margin expansion opportunity in FY2024.
+14.2% NVDIA Corporation (NVDA) provides graphics, and compute and networking solutions in the United States, Taiwan, China, and Internationally. The company’s products are used in infrastructure for gaming platforms, robotics, automobiles, software, and other networking and similar ecosystems. NVIDIA fended off losses following Intel Corp’s (INTC) earnings release earlier in the week which showed significant weakness for the business and industry.
+12.7% The Blackstone Group Inc (BX) operates as an investment company. The Company focuses on real estate, hedge funds, private equity, leveraged lending, senior debts, and rescue financing. Blackstone’s fourth quarter earnings were better than expected with EPS of $1.07 beating the $0.95 estimate. The big headline from the news release was assets under management reached a record level of $975B.
+12.6% LSI Industries Inc (LYTS) designs, manufactures, and markets a variety of lighting fixtures, menu board systems, and graphic products. The Company sells its products to the petroleum and convenience store market, the multi-site retail market such as restaurants and automobile dealerships, and the commercial and industrial lighting market. LSI reported another strong quarter with Q2 earnings of $0.26 beating estimates by $0.09 and revenue of $128.8M beating estimates by $10.31M. Management commentary regarding long-term prospects was upbeat and signaled the continuation of this period of profitable growth.
Companies with no news…
+15.5% PetMed Express Inc (PETS), doing business as 1-800-PetMeds, operates as a pet pharmaceutical company. The Company provides prescription and non-prescription pet medications, as well as health and nutritional supplements.
+13.4% Central Garden & Pet Company (CENT) supplies consumer lawn and garden and pet supply products. The Company’s products are sold under brands names such as Pennington Seed, Zodiac, Four Paws, Island, and Grant’s. Central also offers value-added services, including inventory management, advertising and promotional programs, in-store service, and sales program development.
+13.1% DallasNews Corporation (DALN) is the Dallas-based holding company of The Dallas Morning News and Medium Giant. The Dallas Morning News is Texas’ leading daily newspaper with a strong journalistic reputation, intense regional focus, and close community ties. Medium Giant is a media and marketing agency of divergent thinkers who devise strategies that deepen connections, expand influence, and scale success for clients nationwide.
+13.6% Paramount Global (PARA) operates as a multimedia company. The Company provides television and radio stations, produces and syndicates television programs, broadcasting, publishes books, and online content, as well as provides outdoor advertising.
The stocks mentioned above may be holdings in our mutual funds. For more information, please visit www.nsinvestfunds.com.