Objective? Reach the “Winner” Square
The stock market over the last few months parallels Hasbro’s Chutes and Ladders: “an exciting up and down game for little children.” On Monday the market slid down with energy prices spiking, festering fears of a U.S. default, and Facebook leading a sell-off in the Nasdaq following a negative “60 Minutes” story on Sunday night. A deal in Washington to extend the federal government debt ceiling to December on Wednesday was a ladder that led to a powerful two-day rally, but an unlucky roll of the dice landed on another chute in the form of a disappointing employment report on Friday. That report showed that September was the slowest month for job growth this year, with just 194,000 jobs added compared to consensus estimates for a half-million, signaling a slowing of the labor market recovery. The monthly employment report has been very volatile, with mixed messages about the health of the economy. On the positive side, the unemployment rate fell sharply to 4.8 percent, wages again rose strongly, August job growth was revised upward, and economists said the September figures would have looked stronger had it not been for statistical quirks in measuring public-school hiring. On the other hand, the labor participation rate fell, particularly among women, a sign that the hiring challenges won’t be quickly resolved.
The surge in energy prices stoked inflation concerns and pushed long-term interest rates higher, with the benchmark 10-year yield rising to 1.61% after adding 15 basis points on the week. The dollar and gold both held steady, while the S&P 500 gained 0.79%, the Nasdaq inched forward 0.09%, and the Russell 2000 slipped 0.38%.
It was a good weekend for Chicago’s sports teams. The Chicago Bears were surprise victors in Las Vegas against the Raiders, the White Sox bats came alive to beat the Astros 12-6 in ALDS action, and the Chicago Sky took a 1-0 lead in the WNBA finals after dominating the Mercury in Phoenix. We encourage sports fans to watch the WNBA finals, as it is the highest quality women’s basketball ever played!
Pains and Gains
The bond market will be closed in observance of Columbus Day on Monday, but the stock market will be open for trading.
Earnings season kicks off, with the high-profile Financials sector companies reporting results for the third quarter. We continue to suggest overweighting Financials, as they seem well-positioned in a rising interest rate environment. The KBW Bank Index has already rallied 39% this year as Treasury yields have risen. Consensus estimates call for another quarter of solid earnings growth of 27.6% for the S&P 500, but the forward-looking comments will probably have the biggest impact on share prices. Investors will be particularly interested in how companies are handling labor shortages, supply chain disruptions, and rising input costs.
It is a very busy week of economic reports, with CPI on Wednesday and PPI on Thursday providing additional information on the inflationary pressures. Friday will focus on the consumer, with Consumer spending expected to show a fractional month-over-month decline, and Consumer Sentiment forecasted to show a small bounce from the previous month.
Stocks on the Move
-13.0% CarParts.Com Inc (PRTS) retails automobile parts online. The Company offers mirrors, engines, headlights, brakes, interior and exterior accessories, tools, wheels, lighting, bumpers, and other aftermarket autobody parts in its network of over 1.2 million SKUs. There was no significant company news last week.
PRTS is a 3.5% position in the North Star Micro Cap Fund.
+13.4% Evolution Petroleum Corporation (EPM) explores for and produces oil and gas. The Company focuses on acquiring established oil and gas fields and applying specialized technology to increase production rates. The stock is continuing to rally after an optimistic Q4 earnings call the previous week, as well as an updated Buy rating and $7.80 price target by ROTH Capital Partners.
EPM is a 1.7% position in the North Star Micro Cap Fund and a 4.3% position in the North Star Dividend Fund.
+11.1% Resources Connection Inc (RGP) is a professional services firm. The Company provides accounting and finance, human resources management, and information technology professionals to clients on a project-by-project basis. Resources assists its clients with discrete projects requiring specialized expertise, compensation program designs, and transitions of management information systems. Resources Connection jumped last week following a FQ1 revenue beat of $183.1M, an increase of 24.3% y/y, and $0.43/share in non-GAAP earnings. The Company attributed the strong quarterly performance to growth in digital transformation work and favorable macro-opportunities within its largest verticals including healthcare, financial services, and technology. Following the results, management commented, “We remain optimistic about our ability to compete and win as our business model attracts in-demand talent who desire more choice, transparency, and diversity of experience.”
RGP is a 0.6% position in the North Star Dividend Fund.