Following up on the board game theme from two weeks ago (“Free Parking”), let’s draw an analogy between the current stock market and Chutes and Ladders. Equity prices keep moving higher, sometimes imperceptibly, sometimes climbing the ladder for more dramatic gains. Investors nervously examine the game board, and roll the dice, hoping not to land on the chutes out there that could cause swift declines. So far, so good. The S&P 500 set new record highs again, advancing 1.2% for the week, and has now gone 332 days without a 5% drop. If we don’t land on a chute next week, it will be the longest period without such a sell-off on record. The narrative supporting this calm remained in place, as the economic releases (ISM, jobless claims, durable goods) all pointed to steady expansion. Friday’s payrolls report showing an unexpected drop of 33,000 jobs in September, ending the longest stretch of job growth on record, contained signs of underlying strength if you adjust for the impact of the hurricanes. The Dollar Index and the yield on the Ten-Year Treasury both advanced for the fourth consecutive week.
The third quarter earnings season will get underway, with 12 S&P 500 companies (including 1 Dow 30 component) scheduled to report results. The estimated earnings growth rate for the S&P 500 is 2.8%. Seven sectors are expected to report earnings growth for the quarter, led by the Energy sector. Over the last month, the expected growth rate has been reduced significantly, primarily because of declines in the Insurance industry. If the Insurance industry were excluded, the estimated earnings growth rate for the S&P 500 for Q3 2017 would improve to 4.9% from 2.8%. The estimated revenue growth rate is 4.9%, with ten sectors expected to report growth in revenues, led by the Energy, Materials, and Information Technology sectors. The only sector that is expected to report a decline in revenues is the Telecom Services sector.
The Fed Presidents will be on the speaking circuit, with the minutes from the last meeting scheduled for release on Wednesday. A rate hike in December now seems almost certain, barring an unexpected shock between now and then. The economic releases on Friday, September CPI and Retail Sales, as well as October Michigan Sentiment, are forecasted to continue the slow and steady narrative.
The Mitch Trubisky era kicks off at Soldier Field Monday night versus the Minnesota Vikings. The draft day trade to secure his selection seemed ill-conceived (roster lacks depth, plus Deshaun Watson who looked terrific leading the Clemson Tigers to two consecutive national championship games, was clearly going to be available), but Trubisky did look great in moments in pre-season. Bear down Chicago Bears!
Stocks in the News:
Rocky Mountain Chocolate Factory, Inc. (RMCF): In the second quarter, total revenues decreased 3.9%. Adjusted EBITDA was $2,014,000 versus $2,019,000. Net income came in at $928,000 versus $975,000 last year. Diluted earnings per share were $0.16 in the current quarter and in the prior year quarter. The Company opened 5 stores during the 3 months ended in August, 3 Cold Stone co-branded stores, one domestic Rocky Mountain Chocolate Factory store and one international store. They finished the quarter with $5.7 million in cash, and paid, on September 15, the company’s 57th consecutive quarterly cash dividend to shareholders in the amount of $0.12 per share. Rocky Mountain Chocolate Factory is an international franchiser of gourmet chocolate, confection and self-serve frozen yogurt stores and a manufacturer of an extensive line of premium chocolates and other confectionery products.
Simulations Plus, Inc. (SLP): Total preliminary revenues for 4QFY17 increased 58.3% to $6.3 million, a new fourth quarter record, compared to $4.0 million reported for 4QFY16. Newly acquired DILIsym Services, Inc., accounted for approximately $1.2 million of the in revenue in the quarter. Mr. John R. Kneisel, chief financial officer of Simulations Plus, stated: “This quarter represents the first quarter where we’re reporting preliminary consolidated annual and fourth quarter revenues that include three divisions – Simulations Plus (Lancaster, CA), Cognigen (Buffalo, NY), and the newly acquired DILIsym Services, Inc. (Research Triangle Park, NC), which acquisition was completed on June 1, 2017. Net income will not be released until we complete our annual audit and review of our Annual Report on Form 10-K. We expect to file our 10-K with the U.S. Securities and Exchange Commission on or before the November 14, 2017, deadline.” Simulations Plus is a developer of drug discovery and development software for mechanistic modelling and simulation and machine learning based technologies. It also explores the application of machine learning technologies in other industries.Tagged: Chicago, Chicago Investment Management, Eric Kuby, finance, financial commentary, Fund Fact, Gold, Kuby's Commentary, Market Commentary, North Star, North Star Financial Services, North Star Investment Management, NSIMC, Oil, rmcf, Russell 2000, S&P 500, SLP, Stocks In the News, VIX, Wealth Management.
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