Last Week
To the casual observer, it was a slightly down week on Wall Street with the S&P 500 drifting 0.4% lower and the Nasdaq Composite shedding 0.7%. Beneath the surface, it was a much brighter story, as advancing issues outnumbered declining issues by 80%. Small caps were particularly strong, with the Russell 2000 gaining over 2%. There are green shoots in small caps as they have now outperformed large caps for eleven straight trading sessions, the longest such streak since 2008. We believe this trend will continue. Please get in touch with us if you are interested in information on North Star’s small-cap dedicated mutual funds, which have a multi-decade history with the same portfolio managers.
Earnings season got off to a mixed start with 7% of S&P 500 companies reporting results. The major banks posted solid results, offset by some misses from energy and health care companies. The blended earnings estimate for the S&P 500 for the quarter slipped from 8.3% to 8.2%, but actual earnings typically exceed estimates, suggesting we could have another quarter of 10%+ growth.
Inflation dominated the economic data as the Core CPI edged slightly below expectations, suggesting modest moderation in consumer inflation, while PPI met forecasts. Whereas that inflation data was benign, the odds of a rate cut at the FOMC meeting at the end of the month remained very slim.
The yield on the 10-year Treasury rose 6 basis points during the week to close at 4.23%, while Crude Oil was unchanged at a very depressed level, the Dollar continued its recent bounce, and the precious metals surged to new record highs. Most traditional correlations between asset classes have been absent recently. A reversion to those norms would suggest either a substantial rise in bond yields or a dramatic decrease in metals prices. The Dollar’s recent strength is also a mystery, given all the other factors. Caveat emptor, we are in uncharted waters.
The Bears are also in uncharted waters, advancing in the playoffs for the first time in 15 years, only to suffer a heartbreaking overtime loss to the Los Angeles Rams. We turn our attention to basketball and the Chicago……Maroons, as the University of Chicago stretched its winning streak to 10 with a road win against the Tartans of Case Western. The Maroons are now the #2 ranked team in Division 3 basketball.
This Week
The markets were closed on Monday in observance of the Martin Luther King holiday (fortunately not renamed or cancelled so far).
Trading was off to a rocky start following President Trump’s threat to impose new tariffs on European nations if they do not support a U.S. takeover of Greenland. The spike in long-dated Japanese bond yields added to the rocky start.
Earnings season will pick up, highlighted by reports from companies across diverse industries, including Netflix, Johnson & Johnson, Procter & Gamble, and Intel.
On Thursday, the Bureau of Economic Analysis will release the personal consumption expenditures price index for October and November. The consensus estimate for November is a 2.8% year-over-year gain. The November core PCE, which excludes volatile food and energy prices, is also expected to rise 2.8%.
The stocks mentioned above may be holdings in our mutual funds. For more information, please visit www.nsinvest.com.