The short story is that the S&P 500 gained 1.99%, as easing trade tensions with China, strength in the Energy sector, and the outset of a very strong earnings season provided the backdrop. The long story is that each day exhibited volatile swings, with the market gapping up on the opening Monday, Tuesday, and Thursday, and gapping down on the opening Wednesday and Friday. The pockets of turbulence came from the horrific developments in Syria (on a related note the Russian Ruble posted one of its biggest weekly declines on record), the FBI raid and seizure of documents from President Trump’s lawyer Michael Cohen’s office, ongoing developments in the Mueller investigation, the release of Comey’s tell-all book, and Facebook’s CEO Mark Zuckerberg’s testimony in front of Congress to defend the Company’s business practices (FB shares actually rallied, and the tech sector was the 2nd best performing sector behind energy during the week). Additionally, earnings from the Wells Fargo, Citigroup and J.P. Morgan added to the uncertainty about the health of the economy, as profits were strong, but lending was flat for the quarter.
The yield on the Ten-Year Treasury inched up 5 basis points to 2.82%, which is pretty much in the middle of the narrow 20 basis point range it has traded in over the last 2 months.
The NBA and NHL playoffs have commenced, with no Chicago teams making the cut. I think it is the first winter ever that the Bulls, Blackhawks, and Bears all finished in last place in their divisions. We are believers in reversion to the mean, so it should get better from here.
Retail Sales for March will be released on Monday. The consensus is for a 0.4% increase month on month, which would snap a 3-month streak of modest declines. Earnings season will kick into full gear, with 60 S&P 500 companies reporting first quarter results. If companies “beat” the estimates by the normal margin, then composite earnings could post a 20% increase for the quarter!
All the pockets of turbulence from last week are still in the atmosphere, so I would anticipate a continuation of daily (hourly?) volatility.
Stocks in the News:
Simulations Plus, Inc. (SLP) +10.1%: Revenues for the second quarter were up 29%, and income from operations were up 35%. John Kneisel, Chief Financial Officer, said “We saw another strong quarterly revenue growth in our core divisions in Lancaster and Buffalo coupled with new revenues and profits from DILIsym Services acquired in the last quarter of our prior fiscal year.” Simulations engages in the licensing and conducting drug research by pharmaceutical and biotechnology companies. The North Star Dividend Fund holds a 2.2% position in SLP.
Alaska Communications Systems Group, Inc. (ALSK) -9.7%: The Company’s shares declined without any specific news. There are two large shareholders who have expressed their dissatisfaction with the executive compensation structure, and the Company adopted a Rights Agreement that has restricted those holders from acquiring additional shares. Alaska Communications engages in the provision of telecommunications and network services in Alaska. The North Star Opportunity Fund holds a 1.7% position in ALSK.
American Airlines Group, Inc. (AAL) -8.8%: Fuel costs jumped 20% in the first quarter, creating a headwind for the Company’s financial results, which will be released on April 26. American Airlines is a holding company whose main operating subsidiary provides transportation for passengers and cargo. The North Star Opportunity Fund holds a 2.5% position in AAL.