This Market Does Not Spook Easily
October 2021 is shaping up to have more treats than tricks, following a scary September.
After a rough start to the week, the market mounted a powerful rally on Thursday and Friday, with the S&P 500 posting a 1.82% gain to reach its highest level in a month and representing its best week since July. All the other equity indexes enjoyed similar returns, with the tech-heavy Nasdaq leading the parade with an advance of 2.18%. A series of upside earnings reports from Wall Street’s biggest banks, coordinated plans to unclog the supply chain, better than expected economic data, and improvement in the COVID-19 trends, all contributed to the bullish tone. Financial heavyweights Goldman Sachs, J.P. Morgan, and Bank of America were among the firms topping consensus estimates. U.S. retail sales data came in stronger than expected and initial jobless claims posted their lowest numbers since the pandemic began. The CPI ran slightly hotter than expected, but the PPI posted its smallest advance of the year. Perhaps the best news was that the daily average of new COVID-19 cases dropped to less than half its level from a month ago.
Energy prices continued to soar, with Crude Oil closing at $82.28 up another 3.7%. The Dollar inched down while Gold gained fractionally, and the yield on the Ten-Year Treasury retreated from recent highs to finish down 4 basis points to 1.57%, but the two-year yield climbed to its highest since February 2020 at 0.36%.
On the Chicago sports scene, the Sky staged a thrilling fourth-quarter rally at the Wintrust arena to secure an 80-74 victory over the Phoenix Mercury and capture the WNBA title! Our other teams were less fortunate, as the White Sox season ended with a 10-1 loss to the Houston Astros, while Aaron Rogers and the Green Bay Packers ruined a beautiful day at Soldier Field beating the Bears 24-14.
Earnings season kicks into gear with 80 S&P companies reporting results for the third quarter. Profit growth is expected to be very strong, with consensus estimates now indicating an increase of 30% this quarter, up from 27.5% last week. Once again, companies are crushing earnings estimates, so far by an average of 16% vs. the long-term average of 4%.
On the economic calendar, there are reports on building permits, housing starts, the Philadelphia Fed manufacturing index, existing home sales, and leading economic indicators. Traders will be paying attention to the Federal Reserve’s beige book report for any new clues on the health of the economy and the related implications for monetary policy.
The House of Representatives will continue to search for a satisfactory compromise on the reconciliation bill as a condition to approving the infrastructure bill that was passed on August 10th in the Senate. Any progress on that currently stalled infrastructure bill could propel select equity sectors, such as Basic Materials and Financials, higher. Unfortunately, the current tone suggests that such a compromise is not imminent.
Stocks on the Move
-21.4% CatchMark Timber Trust (CTT) operates as a real estate investment trust. The Company engages in timberland ownership and management, which includes about 435,000 acres of such property, without ownership of any forest products and other manufacturing operations (logging/wood products). Last week, CatchMark cut its dividend in half and announced it had exited the joint venture in TexMark Timber Treasury.
CTT is a 0.9% position in the North Star Dividend Fund.
+10.6% Acme United Corporation (ACU) supplies cutting, measuring, and safety products for the school, home, office, and industrial markets. The Company produces shears, scissors, rulers, first aid kits, utility knives, manicure products, medical cutting instruments, guillotine paper trimmers, and pencil sharpeners. There was no significant company news last week.
ACU is a 3.0% position in the North Star Micro Cap Fund and a 0.8% position in the North Star Dividend Fund.
+10.2% AstroNova Inc (ALOT) designs, develops, manufactures, and distributes a broad range of specialty printers and data acquisition and analysis systems, including both hardware and software. Its target markets are apparel, automotive, avionics, chemicals, computer peripherals, and communications. There was no significant company news last week.
ALOT is a 1.1% position in the North Star Micro Cap Fund.