531,000 Jobs
In 1929, just prior to the Great Crash of the New York Stock Market, Milton Ager, and Jack Yellen recorded, “Happy Days Are Here Again.”
Happy days are here again
The skies above are clear again
So let’s sing a song of cheer again
Happy days are here again
The recent news flow has been the most uniformly positive in recent memory, as the jobs report, earnings releases, an infrastructure bill, Fed policies, and even COVID-19 developments all paint a rosy picture.
The employment report on Friday showed that 531,000 jobs were added in October and revised upward the gain in September. These actual numbers were substantially better than the forecasts, which have been wildly inaccurate recently. Job growth was widespread, with notable job gains in leisure and hospitality, in professional and business services, in manufacturing, and in transportation and warehousing. Employment in public education declined over the month. Although these trends are excellent, there are still 1.7 million more unemployed people than prior to the pandemic. Wage growth was modest following six months of large increases, while the number of job openings continues to equal the number of unemployed.
Earnings reports were also dramatically better than estimates, as 89% of the companies in the S&P 500 have now reported actual results for the third quarter. Of these companies, 81% have reported actual EPS in aggregate 10.3% above estimates. The earnings growth rate improved to 39.1% today. Positive earnings surprises reported by companies in multiple sectors, led by the Health Care sector, were mainly responsible for the improvement in overall earnings for the index during the past week. Revenue growth has been equally strong, with the blended revenue growth rate for the third quarter rising to 17.3%.
There were even happy days on the hill as the House passed a more than $1 trillion bipartisan infrastructure bill late Friday, sending it to President Joe Biden’s desk in a critical step toward enacting sprawling Democratic economic plans.
The Federal Reserve did exactly what everyone thought by announcing plans to start winding down its bond-buying program but insisting that it would leave interest rates unchanged, signaling its belief that inflation is “transitory” and likely would not require a fast rise in interest rates. Across the pond, the Bank of England, surprisingly, left rates unchanged.
The downward trend for COVID-19 deaths and cases remained encouraging. In terms of therapeutics, Pfizer said interim data showed its COVID-19 pill reduced the risk of hospitalization or death by 89%. Additionally, the Centers for Disease Control and Prevention recommended that children ages 5 to 11 get vaccinated.
The song of happy cheer was loudest on Wall Street, as the S&P 500 extended its winning streak to 7 consecutive days while posting a 2% weekly gain pushing its year-to-date gains to 25%, the Dow added 1.4%, and the Nasdaq rallied 3.1% for its best weekly showing since April. Small caps investors (think North Star Micro Cap Fund and North Star Dividend Fund) were the happiest of the happy as the Russell 2000 surged 6.1%! The yield on the Ten-Year Treasury dropped 11 basis points to 1.45%, its lowest level since late September.
Imminent Tapering
Following last week’s Federal Reserve announcement that it will wind down its bond-buying efforts, talks by Federal Reserve Chairman Jerome Powell, Boston Federal Reserve Bank President Kenneth Montgomery, Philadelphia Federal Reserve Bank President Patrick Harker, and Chicago Federal Reserve Bank President Charles Evans will be closely monitored for additional hints on monetary policy.
Earnings season will wind down with only 13 S&P 500 companies reporting results for the third quarter.
Inflation data and consumer confidence numbers headline the economic data calendar. The Producer Price Index is expected to show a steep 0.6% month-over-month increase, while the Consumer Price is forecasted to have increased 6% year-over-year, substantially higher than the Fed’s 2.5% target inflation rate. Those higher costs probably negatively impacted the Consumer Sentiment Index for October which will be released on Friday.
Stocks on the Move
Dear Reader: To keep the blog brief, we will be excluding Company Descriptions from this week’s post. If you have any questions on a specific holding, please feel free to write to your advisor or our general address, info@nsinvest.com.
+11.1% Pfizer Inc (PFE) rose last week due to a variety of news including Q3 earnings results with revenue up 130% y/y and a subsequent raise in full-year guidance; vaccinations in children ages 5-11 being authorized; and news of its promising new COVID-19 antiviral pill.
PFE is a 3.2% position in the North Star Opportunity Fund.
+22.5% Qualcomm Incorporated (QCOM) reported FQ4 EPS of $2.55 (beat by $0.29), revenue of $9.34B (+43.7% y/y; beat by $500.0M), and an upbeat outlook for the rest of the calendar year.
QCOM is a 2.0% position in the North Star Opportunity Fund.
+11.0% The Scotts Miracle-Gro Company (SMG) reported FQ4 EPS of -$0.82 (beat by $0.04), revenue of $737.8M (-17.1% y/y; beat by $42.4M), and the intent to repurchase $300.0M in shares in FY2022.
SMG is a 0.4% position in the North Star Opportunity Fund.
+10.5% Starbucks Corporation (SBUX) gained last week as Stephens Analyst James Rutherford deemed the Company’s tactics of spending more on employee wages as a “smart move” for FY2023 positioning amid the nationwide labor shortage.
SBUX is a 0.4% position in the North Star Opportunity Fund.
+12.0% Monmouth Real Estate Investment Corporation (MNR) agreed to be acquired by Industrial Logistics Properties Trust (ILPT) for an all-cash deal at $21.00/share.
MNR is a 4.3% position in the North Star Dividend Fund.
-23.2% Rocky Brands Inc (RCKY) slipped last week after it reported Q3 earnings of $0.34/share (missed by $0.09) and revenue of $125.51M (+61.3% y/y; missed by $24.8M) after citing robust demand which caused unanticipated fulfillment challenges as the Company is still in the process of integrating an acquisition from earlier this year.
RCKY is a 3.1% position in the North Star Micro Cap Fund.
+22.2% Allied Motion Technologies Inc (AMOT) rose last week after a series of announcements: 1) Q3 earnings of $0.41/share (beat by $0.10) and revenue of $103.5M (+9.4% y/y); 2) the acquisition of electromechanical automation company ORMEC Systems for an undisclosed amount; and 3) the news of a second acquisition of ALIO Industries, a rotary motion company, for $20.0M.
AMOT is a 1.1% position in the North Star Micro Cap Fund.
+29.4% Hamilton Beach Brands Holding Company (HBB) released Q3 results with earnings of $0.41/share (in-line) and revenue of $156.7M (+41.7% y/y).
HBB is a 0.9% position in the North Star Micro Cap Fund.
Movers with no significant company news…
+13.8% ACCO Brands Corporation (ACCO) is a 2.2% position in the North Star Micro Cap Fund and a 3.2% position in the North Star Dividend Fund.
+14.5% Apogee Enterprises Inc (APOG) is a 1.1% position in the North Star Micro Cap Fund and a 1.5% position in the North Star Dividend Fund.
+13.4% Advanced Micro Devices Inc (AMD) is a 4.2% position in the North Star Opportunity Fund.
+12.9% Boot Barn Holdings Inc (BOOT) is a 6.3% position in the North Star Micro Cap Fund.
+13.4% Consolidated Communications Holdings Inc (CNSL) is a 1.3% position in the North Star Micro Cap Fund.
+10.0% GATX Corporation (GATX) is a 1.5% position in the North Star Dividend Fund.
-41.0% The Marketing Alliance Inc (MAAL) is a 1.0% position in the North Star Dividend Fund. Please see last week’s note regarding the stock’s illiquidity.
+12.7% Madison Square Garden Entertainment Corp (MSGE) is a 0.5% position in the North Star Opportunity Fund.
-13.0% Q.E.P. Co Inc (QEPC) is a 1.7% position in the North Star Micro Cap Fund.
+14.7% Value Line Inc (VALU) is a 0.9% position in the North Star Dividend Fund.
On the Chicago sports scene, the Blackhawks fired their coach after a 1-9 start to the season. The Bulls are off to a solid start with an exciting new roster. The Bears play Monday evening at Pittsburgh. Even more locally, a group of sixteen high-level tennis players from my Club in Highland Park journeyed to Jacksonville Florida to compete in the inaugural “Kallish Kup.” The frigid temperatures, torrential rain, and 40 mph winds resulted in the tournament being suspended in the early rounds without a champion being crowned. Meanwhile, it was 65 degrees and sunny back in Chicago.