Leading the Charge
The good news continued to roll in from corporate earnings and U.S. economic data, somewhat offset by another dose of modestly hawkish jawboning from Chairman Powell and his merry band of Federal Reserve Governors.
On the earnings front, strong earnings from the Health Care, Information Technology, Energy, Consumer Discretionary, and Communication sectors contributed to an increase in S&P 500 composite earnings from -1.5% to +1.6%. Leading the charge were several “Magnificent” companies: Meta Platforms Inc (META), which announced its first-ever quarterly dividend; Apple Inc (AAPL), Microsoft Corp (MSFT), and Amazon.com Inc (AMZN). All posted positive earnings. There were also solid results from companies that don’t rely on people spending their lives on their mobile devices, such as Pfizer Inc (PFE), Chevron Corp (CVX), and Boot Barn Holdings Inc (BOOT).
As expected, the Federal Reserve left interest rates unchanged for the fourth consecutive meeting and acknowledged the continued progress made in bringing inflation down but also stated it was unlikely to start the interest rate cuts at the March meeting. Chairman Powell saw his shadow, and the winter of elevated short-term rates will continue. This darn economy just refuses to collapse, so we are stuck with Fed policy to keep rates almost double the current inflation rate until the May 1st FOMC meeting. According to the Chairman, a rate cut at the March meeting is “probably not the most likely case.” The stock market swooned on Wednesday afternoon following the Fed statement but rallied back Thursday and Friday, extending their record-setting run, with the S&P 500 setting fresh record closing highs. The robust earnings reports fueled a tech rally that offset concerns over higher interest rates following the dramatic jump in non-farm payrolls report on Friday morning, with 353,000 jobs added in January, double the consensus estimate. On the other hand, the bond market got hit hard on Friday, with the 10-year Treasury yield rising 17 basis points to 4.02%, although it was still lower by 12 basis points for the week. For the week, the S&P 500 gained 1.4%, the Nasdaq Composite rose 1.1%, while the Russell 2000 shed 0.8%. The performance of the small-cap index has proven to be extremely highly correlated to expectations over the timing and scope of Fed interest rate movements. We remained very bullish on the prospects for consistently lower rates and improving stock prices in small caps as 2024 progresses.
We are still bullish on the University of Chicago Maroons basketball team, who split their games on the road this weekend, losing to Case Western Reserve University on Friday night but bouncing back with a 30-point victory on Sunday afternoon at Carnegie Mellon University.
Corporate earnings will remain in focus, with 104 S&P 500 companies reporting results.
Friday’s BLS annual CPI revision might be in focus on the economic data calendar. Otherwise, there probably are not any market-moving releases scheduled.
The trading week got off to a rough start, primarily in reaction to Chairman Powell’s performance on “60 Minutes” aired on Sunday night. “We just want some more confidence before we take that very important step of beginning to cut interest rates,” he said. In our opinion, the Fed does not need to over-manage the economy by keeping rates too low or too high for prolonged periods to perform the role for which it was created. A steadier approach would be slowly lowering rates at 25 basis points per meeting until they reach the neutral level in line with the inflation rate.
January Stocks on the Move
+51.4% Flexsteel Industries Inc (FLXS) popped after reporting strong preliminary second-quarter results with a solid FY24/25 outlook. The Company also announced it had appointed Michael Ressler as CFO, effective January 10th. Mr. Ressler has been with Flexsteel for over 17 years.
+17.7% Orion Energy Systems Inc (OESX) jumped after announcing solid preliminary results that included improving third quarter and FY24 revenue trends.
+12.1% Acme United Corp (ACU) had no significant news in January.
+12.2% United States Lime & Minerals Inc (ULSM) had no significant news in January.
+11.8% Blue Bird Corp (BLBD) disclosed on January 16th that it had received the single largest order from the Los Angeles Unified School District. LAUSD ordered 180 electric buses and expects the first delivery to be in October of this year, with most of the order being fulfilled in early 2025.
-14.9% CarParts.com Inc (PRTS) announced on January 22nd the extension of the company’s $30 million stock repurchase plan.
-15.3% Douglas Dynamics Inc (PLOW) reported disappointing preliminary fourth-quarter results due to record low snowfall and low demand in the equipment retail season. To combat these challenges, PLOW also initiated a cost-savings program that reduces its workforce.
-19.4% Escalade Inc (ESCA) had no significant news in January.
-23.7% Bowlero Corp (BOWL) announced on January 16th the acquisition of Ten Pin in Hilliard, OH, the company’s 20th center acquisition in FY24.
-28.9% Century Casinos Inc (CNTY) had no significant news in January.
The stocks mentioned above may be holdings in our mutual funds. For more information, please visit www.nsinvestfunds.com.