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Bulls and Bears in a China Shop

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All was quiet on the Wall Street front. The S&P 500 slipped 0.33% to break its six week winning streak, as reasonably good consumer reports offset modestly negative trade headlines. During that winning streak the market exhibited a remarkable absence of volatility, inching up approximately 1% a week, for a total gain of slightly less than 6%.

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On the consumer front, October retail sales bounced back 0.3% after declining a similar amount in September, and the University of Michigan Sentiment Survey also showed a nice increase. Interestingly it was the gauge of future expectations that climbed while current conditions decreased slightly. The latter indicator is worthy of attention as it is much more volatile, and a steep downturn can be a canary in the coal mine in predicting a recession. To be clear, this most recent reading is still very high and not alarming at all.

The outlook for a trade deal with China remained murky, as the 2019 Hong Kong Human Rights and Democracy Act reached President Trump’s desk. Should it become law, Washington could eventually withdraw Hong Kong’s special trade status if it finds that Beijing isn’t maintaining the city’s unique freedoms, an action which would infuriate China. Trump has been vague about whether he would sign or veto the legislation to back protesters in Hong Kong. December 15 is approaching quickly, at which time a new round of tariffs is scheduled to be implemented unless a “phase one” trade agreement can be reached. On Friday President Trump said he was “very close” to a trade pact, providing some optimism for traders to help them enjoy their weekend.

The yield on the Ten-Year Treasury edged down 6 basis points to 1.77%, while the dollar and gold were both steady.

The Chicago Bears eked by the lowly New York Giants. Our playoff hopes are still alive!

This Week:

Over the weekend China indicated that it would raise penalties on Intellectual Property violations, a move that would boost chances of a trade deal getting done, as the protection of those rights are central to the dispute.

On Monday Fed Chair Jerome Powell will be speaking. He has refined the art of staying on the message that current interest rates are appropriate given the relatively healthy state of the economy, but that if a global slowdown changes the outlook the Fed will reassess policy.

The Conference Board releases its Consumer Confidence Survey for November. As indicated earlier in the blog, we think this measure is important to monitor. Expectations are for another healthy reading.

The durable goods report for October will be out on Wednesday and is expected to show another modest decline. Most traders will have turned their focus to turkey, pumpkin pie and family (drama?) by then. In the Kuby household we will be particularly excited to have 4 generations celebrating with the addition of Sweet Baby Jane.

Stocks on the Move:

OESX -13.1%: Orion Energy Systems Inc is a developer, manufacturer, and seller of lighting and energy management systems. Profit-taking hit the shares which have advanced over 400% in 2019. OESX is a 2.55% holding in the North Star Micro Cap Fund and a 3.80% holding in the North Star Opportunity Fund.

TGT +12.2%: With 1,844 stores (as of the end of fiscal 2018), Target Corporation is a leading American general merchandise retailer, offering a variety of products across several categories. The company reported earnings per share (EPS) of $1.36, handily beating analyst estimates of $1.18 and blowing own guidance of $1.04 to $1.24 out of the water. Target reported EPS of $1.09 during the third quarter of 2018. TGT is a 2.59% holding in the North Star Opportunity Fund.

ETH -10.9%: Ethan Allen Interiors Inc. is a U.S.-based company that manufactures and retails home furnishings and accessories. There was no company specific news, but furniture industry shares in general have been vulnerable to trade war headlines due to the impact of the tariffs. ETH is a 2.29% holding in the North Star Dividend Fund.

ARC -11.0%: ARC Document Solutions distributes Documents and Information to facilitate communication for design, engineering and construction professionals, real estate managers and developers, facilities owners, and a variety of similar disciplines. Investors have lost patience as the company continues to face headwinds from the secular decline in printing services. ARC is a 0.38% holding in the North Star Micro Cap Fund.

Related: Have We Arrived at a “Tweet Forecast”?

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