The market climbed to new highs early in the week as trade deal optimism grew after China indicated that it was taking steps to tighten intellectual property rules. The Bears took over later in the week (Chicago Bears 24, Detroit Lions 20 on Thanksgiving) after President Trump signed a bill from Congress in support of Hong Kong protestors. Nevertheless, the S&P still finished in the green with an advance of 0.99%, and small stocks fared better with the Russell 2000 gaining 2.24%. The Dollar, Gold, and the yield on the Ten-Year Treasury were all essentially unchanged. Strong economic data supported the gains. Durable goods orders rose 0.6% in October while economists expected a decline of 0.8%. Weekly jobless claims, meanwhile, fell to 213,000 from 227,000. Third-quarter GDP was revised to show growth of 2.1%. That’s up from a previous reading of 1.9%.
The impeachment inquiry dominated the headlines as the federal probe into Trump’s personal lawyer, Rudy Giuliani, expanded. So far, the market has ignored the impeachment proceedings, probably because of the widely held belief that it is unlikely that there would be enough votes in the Senate to convict.
Indications are that the holiday season is off to a good start for retailers, even though the lines at brick and mortar stores seemed thinner than in the past. Shoppers spent $4.2 billion online on Thanksgiving, a 14.5% increase from last year and a record high, and online spending for Black Friday is expected to have been a solid $7.4 billion this year, according to data released by Adobe Analytics. More than 165 million people are estimated to shop over the weekend, according to the National Retail Federation. Spend baby spend!
Speaking of Thanksgiving, I’m certainly grateful for the stock market reaching record highs. The S&P has now hit 25 and counting new all-time highs in 2019 alone. And that’s following 18 new all-time highs in 2018, 62 in 2017, 18 in 2016, 10 in 2015, 53 in 2014, and 45 in 2013. Because of the financial crisis, 2013 was the first time the S&P had reached new highs since peaking in 2007. On a personal note, I am extremely thankful for spending the holiday with 4 generations of healthy Kubys, with the ages spanning from my father, the ageless R.J. Kuby, down to Sweet Baby Jane at 5 months.
Monday the Institute of Supply Management releases its Manufacturing Index for November. If the reading is below 50 it will mark the fourth consecutive month indicating a contraction. For those in the glass is half full camp, manufacturing only represents 11.6% of U.S. economic output, and the sub-50 reading could be a rounding error as the Index has been hovering in the high 40s. Friday is a big day for economic releases with the November nonfarm payrolls and the University of Michigan Consumer Sentiment Index scheduled to be reported. The stock market party will probably rage on as long as people have jobs and are feeling optimistic.
Stocks on the Move:
CENT -15.1%: Central Garden & Pet Co is a marketer and producer of branded products in the United States. The company makes branded products and acts as a third-party distributor to the pet and lawn and garden supply industries. Net sales increased 7.7% to $540.7 million compared to $502.3 million in the fourth quarter a year ago, while organic sales grew 4.6%, driven by gains in both the Garden and Pet segments. Branded product sales of $415.0 million increased 4.9%, and sales of other manufacturers’ products of $125.7 million increased 17.7%. Gross margin decreased 180 basis points compared to the fourth quarter a year ago to 27.5%, with the inventory write-off in the Pet segment and unfavorable mix changes in the Garden segment the primary causes of the decline. Net income decreased to $2.4 million from $10.6 million in the fourth quarter a year ago, as lower operating income and a higher tax rate compared to the fourth quarter a year ago more than offset a decrease in other expense. Commenting on the results for fiscal 2019, Niko Lahanas, CFO of Central Garden & Pet said, “We continue to feel confident about the fundamentals of our underlying businesses. A number of factors unfavorably impacted our performance in fiscal 2019, some of which may continue into 2020. The timing of the 2018 acquisition of the highly-seasonal Bell Nursery business, the underperformance of our animal health businesses, impacted by unfavorable weather and other factors, a higher amount of receivables and inventory write-offs, and a higher number of shares outstanding, all negatively impacted results versus the prior year.” CENT is a 2.64% holding in the North Star Micro Cap Fund, and CENT corporate bonds are a 2.64% holding in the North Star Bond Fund.
MOV -19.1%: Movado Group Inc designs develop, sources, markets, and distributes fine watches in the United States and internationally. Net sales for the quarter decreased 1.6% to $205.6 million as compared to $208.9 million in the third quarter of fiscal 2019, and adjusted net income was $19.0 million, or $0.82 per diluted share, versus $27.9 million, or $1.18 per diluted share the year earlier. Efraim Grinberg, Chairman and Chief Executive Officer, stated, “This year we made the strategic decision to increase marketing investments to drive sales across our powerful portfolio of watch brands. While this effort led to market share gains, we fell short of our sales plan due to the category performing below our expectations as challenges intensified within the watch category and retail landscape, which combined with our increased marketing expenditures, impacted our results.” MOV is a 2.44% holding in the North Star Micro Cap Fund.
USLM +10.1%: United States Lime & Minerals Inc is engaged in the business of manufacturing lime and lime products with interests in natural gas. The Company announce that it will pay a special cash dividend of $5.35 per share, effective Dec. 20 to shareholders of record on Dec. 6. USLM is a 3.17% holding in the North Star Micro Cap Fund.