Whereas most media outlets seem to subscribe to the commonly accepted principle that bad news sells, we would prefer to channel the 1974 hit song from Rufus and Chaka Khan, “Tell Me Something Good”. Case in point, the hotter than expected CPI and PPI reports for January, the cacophony of hawkish Fedspeak that followed, and the decline in the “market” dominated the headlines. We contend that the robust job market with moderating wage growth coupled with a rebound in retail sales are good things. Additionally, the Nasdaq Composite gained 0.6%, the Russell 2000 jumped 1.4%, and there were more advancing than declining issues, with 240 new 52-week highs, and just 32 new lows.
The yield on the 10-year Treasury moved up 9 basis points to 3.83%, while the dollar inched up and gold wiggled lower. Crude oil and the Oil and Gas sector in the stock market were the biggest losers, with the Consumer sector the best performer.
Earnings season continued to be subpar, although the numbers slightly improved from a 5% decline to 4.7% during the week with 82% of companies now having reported results for the fourth quarter. A similar decline in earnings is expected in the first quarter, and another decline in the second quarter. The good news is that earnings should recover by the third quarter, and the market tends to look out at least 6 months into the future.
The U.S. financial markets were closed on Monday in observance of the Presidents Day holiday.
Earnings season will enter its final inning with 62 S&P 500 companies reporting results, including the reports from retailers Home Depot (HD) and Walmart (WMT). Stock futures declined Tuesday morning following the results from those two companies, in which the bad news of cautious forecasts stole the headlines, despite earnings that exceeded expectations.
Geopolitics contributed to the negative tone Tuesday morning as Russian President Vladimir Putin delivered his state of the nation address that included suspending Russia’s participation in the nuclear arms treaty with the U.S., and other troubling bellicose statements.
On Wednesday, the minutes from the February FOMC meeting will be released. That meeting took place prior to the string of stronger than expected economic reports and hotter than expected inflation data.
On Friday the Bureau of Economic Analysis reports personal income and expenditures for January, as well as the Fed’s favored inflation gauge, the core PCE. The consensus calls for a 1% month-over-month rise in both income and spending, and a 0.1% decline in the PCE. Those data points would certainly qualify as “telling us something good”.
The interpretation of the PCE data could be nuanced as in recent weeks the Fed has brought up a new, key inflation measure that varies from its historical focus, which has been ‘core PCE.” Instead, the Fed has been mentioning ‘Core PCE Services Ex Housing’ which may be the Fed’s new key measure. Such a shift seems logical, given that approximately 2/3 of the U.S. economy is services rather than manufacturing and because housing price trends severely lag other general price trends; housing transactions are quite infrequent relative to other services transactions such as internet access, auto maintenance, cleaning services, and others.
Stocks on the Move
+11.3% Otter Tail Corporation (OTTR), through its utility business units, provides electricity and energy services to customers in Minnesota, North Dakota, and South Dakota. The Company expands its scope to include interest in manufacturing and plastics businesses. Last week, OTTR reported fourth quarter earnings that slightly missed with $1.00 per share and $301.4M for the period. The Company also initiated in-line guidance for FY23 as resin prices recede and the plastics industry normalizes. The stock’s rally is mainly attributed to the news that OTTR will be included in the S&P Small Cap 600 Index.
-12.5% APA Corporation (APA) explores for, develops, and produces oil and gas properties. Founded in 1954 and based in Houston, Texas, APA has operations in the United States, Egypt, and the United Kingdom. There was no specific company news last week.
+17.0% The Container Store Group, Inc. (TCS) operates as a retailer of storage and organization products and solutions in the United States. The Company also designs, manufactures, and sells custom closet solutions via its Elfa and Closet Works segments. There was no significant company news last week.
+11.6% Superior Group of Companies Inc (SGC) designs apparel products. The Company manufactures and sells a wide range of uniforms, corporate identification, career apparel, and accessories. Superior Group of Companies serves hospital and healthcare fields, hotels, fast food and other restaurants, public safety, industrial, transportation, and commercial markets. There was no significant company news last week.
+12.3% Orion Energy Systems Inc (OESX) manufactures, sells, installs, and implements energy management systems for commercial office and retail, exterior area lighting, and industrial applications in North America. It offers interior light emitting diode (LED) high bay fixtures; smart building control systems; and LED troffer door retrofit for use in office or retail grid ceilings. In addition, it provides lighting-related energy management services, such as site assessment, utility incentive and government subsidy management, engineering design, project management, and recycling. There was no significant company news last week.
The stocks mentioned above may be holdings in our mutual funds. For more information, please visit www.nsinvestfunds.com.