The stock market reached a new record high on Thursday, fueled by optimism over the Biden administration’s priorities of coordinating a national response to the COVID-19 pandemic, increasing payments to struggling individuals and businesses, and continuing expansive monetary policies. As was the case of most of 2020, the market remained more of a beauty contest than a valuation examination with the alluring tech stocks and the most speculative segment of small caps capturing most of the trading volume. The Nasdaq gained 4.2%, the Russell 2000 was +2.1% the S&P 500 +1.9%, while the DJIA gained +0.6%. Fear remained on vacation with the CBOE Volatility Index -10%. The yield on the Ten-Year Treasury remained essentially unchanged, while gold gained 1.4% and the dollar drifted lower.
On the economic front, the unfortunate elevated number of initial claims for unemployment continued, with 900,000 new claims last week. By way of a reminder, that number is approximately 4x the weekly average pre-pandemic.
The news on the COVID-19 pandemic remained grim, with active cases at an all-time high and daily deaths averaging over 4000 for Wednesday through Friday. On a positive note, an average of over 1 million doses of the vaccine per day were administered during the week.
Earnings season is off to a good start, with 86% of companies reporting results that have exceeded forecasts. As a result, the earnings decline for the fourth quarter is smaller now relative to the end of last week and relative to the end of the quarter. As of today, the S&P 500 is reporting a year-over-year decline in earnings of -4.7%, compared to a year-over-year decline in earnings of -6.7% last week and a year-over-year decline in earnings of -9.2% at the end of the fourth quarter. Positive earnings surprises reported by companies in the Financials and Information Technology sectors were mainly responsible for the decrease in the overall earnings decline during the past week. It would still mark the 7th out of the last 8 quarters with declining earnings.
The Green Bay Packers won the Super Bowl. I am writing this before their NFC championship game against the Tampa Bay Buccaneers, and obviously before they play the Super Bowl. If we had leadership in the business world and in government that could match Aaron Rogers ability to read defenses and situations, then peace and prosperity would rule the day. My admiration and affection for #12 in the Green and Gold will remain unchecked until next season when he takes the field versus the Chicago Bears.
Looks like I picked the wrong #12 to praise in that last paragraph. That’s why I buy stocks rather than bet on football games. The concept about great leadership remains appropriate, just substitute Tom Brady for Aaron Rogers.
Earnings season will ramp up, with 118 S&P 500 companies scheduled to report results for the fourth quarter. Wednesday will be of particular interest with Apple, Facebook, and Tesla all releasing results after the market close.
The economic calendar is also busy, with January Consumer Confidence on Tuesday expected to show a small bounce from December’s reading. On Wednesday the FOMC is expected to keep Funds near zero percent but might also pare back its monthly bond-buying targets, thus potentially steepening the yield curve. On Friday the BEA will report on personal income and spending for December. Any increase in the latter would be a welcome sign.
The partisan bickering in the Nation’s Capitol will also likely ramp up. The lead story in Monday’s Wall Street Journal is “Virus-Relief Bill Meets Resistance”. The words may be different, but the tune in Washington remains the same.
Stocks on the Move:
+15.3% Turtle Beach Corporation (HEAR) operates as a sound technology company. The Company designs and markets audio peripherals for video game consoles, personal computers, and mobile devices. Turtle Beach serves customers in the United States and the United Kingdom. Last week, Turtle Beach announced its acquisition of Neat Microphones for an undisclosed amount. Neat Microphones creates, manufactures, and sells high-quality digital USB and analog microphones. HEAR is a 5.5% holding in the North Star Micro Cap Fund.
-13.0% PetMed Express Inc (PETS) operates as a pet pharmaceutical company. The Company provides prescription and non-prescription pet medications, as well as health and nutritional supplements. PetMed Express offers its products via telephone, fax, mail, and online. Last week, PetMed Express released FQ3 results with EPS Of $0.38 in-line and revenue of $65.9 million up 10.0% Y/Y. The Company attributed its results to strong reorder sales. PETS is a 3.0% holding in the North Star Dividend Fund.
+18.2% Graham Corporation (GHM) designs and builds vacuum and heat transfer equipment for process industries around the world. The Company markets to chemical, petrochemical, petroleum refining, and electric power generating industries, including cogeneration and geothermal plants. Graham’s products include ejectors, liquid ring vacuum pumps, condensers, and heat exchangers. There was no significant company news last week. GHM is a 0.9% holding of the North Star Dividend Fund.
+10.8% LSI Industries Inc (LYTS) designs, manufactures, and markets a variety of lighting fixtures, menu board systems, and graphic products. The Company sells its products to the petroleum and convenience store market, the multi-site retail market such as restaurants and automobile dealerships, and the commercial and industrial lighting market. Last week, LSI Industries announced strong Q2 FY2021 results with net income up 27% above the prior year, free cash flow of $5.3 million and no long-term debt, and EPS of $0.08 which beat estimates by $0.02. Company management emphasized a record number of products set to be released, as well as continued investments in commercial initiatives. LYTS is a 2.3% holding of the North Star Dividend Fund.
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