The headline in “The Trader” section of Barron’s was “The Market Did Nearly Nothing This Week”, as the S&P 500 dipped 0.1% in holiday-shortened trading. What little action there was in the market was focused on the IPOs of “Unicorns” (companies with private market valuations over a $1 billion). It seems like an incredible leap of faith to assign multi-billion-dollar valuations on those high-growth money-losing companies. I must have missed the class in the Business School when they taught us how to value money-losing companies (depending on your assumptions you can create pretty much any value you want including $0). As for the boring companies that make money, earnings season is off to a ho-hum start. Modest positive earnings surprises reported by companies in the Financials sector were mainly responsible for a decrease in the overall expected decline for the first quarter to -3.9% from -4.3% last week. The yield on the Ten-Year Treasury was unchanged at 2.56%.
The Health Care sector was under pressure, as politicians promote Medicare For All. I feel like we have seen this movie before.
Earnings season will be in full swing, with 150 S&P 500 companies reporting results. The forward guidance will be the most important factor, particularly if EPS estimates for 2019 and 2020 can reverse the recent trend and start inching higher. On the economic front, the Commerce Department’s release of GDP data for the first quarter on Friday will be closely watched. The Federal Reserve recently lowered its growth estimate to 2.1% which is a full percentage point below the Trump administration’s forecast.
It’s possible that there could be an announcement of a U.S.-China trade deal. An immediate removal of all current tariffs would provide a nice upside surprise. The economic momentum continues to improve in China, which has helped quell fears over a global recession. On the other hand, it may also strengthen China’s hand in the current trade negotiations.
Japan might be in focus, with the BOJ policy decision Thursday morning, and Prime Minister Shinzo Abe visiting the White House on Friday.
Stocks on the Move:
Consolidated Communications Holdings, Inc. (CNSL) -19.2%: Consolidated Communications provides communication services for business and residential customers across 11 states in the U.S. through its network with more than 14,000 fiber route miles. Its residential products include broadband Internet access, digital TV and over-the-top video, and phone services. The Company will be reporting quarterly results on Thursday. Speculators have relentlessly battered the shares based on the assumption that the current dividend pay-out is unsustainable. CNSL is a 1.81% holding in the North Star Dividend Fund and a 1.56% holding in the North Star Opportunity Fund. CNSL corporate bonds are a 2.94% holding in the North Star Bond Fund and a 1.06% holding in the North Star Opportunity Fund.
LSI Industries, Inc. (LYTS) +16.2%: LSI Industries provides corporate visual image solutions to the petroleum and convenience store industry. Its products and services include digital signage, printed and structural graphics, and electrical signage capabilities, indoor and outdoor lighting products, lighting control systems, and related professional services. LSI also reports earnings on Thursday. LYTS is a 1.18% holding in the North Star Dividend Fund and a 1.06% holding in the North Star Micro Cap Fund.
Salem Media Group, Inc. (SALM) -12.0%: Salem Media Group is a domestic multimedia company with integrated operations including radio broadcasting, digital media, and publishing. There has been no company specific news to account for the recent decline. SALM is a 0.99% holding in the North Star Dividend Fund. SALM corporate bonds are a 2.42% holding in the North Star Bond Fund.
Portfolio holdings are subject to change and should not be considered investment advice.
North Star Investment Management Corp. is the Advisor for the North Star Family Mutual Funds.