Just when it looked like the bears had finally devoured Goldilocks, she made a miraculous comeback with a new heat tolerance, and the nine-year bull market resumed. After dropping 10.16% from its all-time high, the S&P 500 gained 5.9%, including 4.3 % last week, its best weekly showing in more than five years. That rally came despite a hot bowl of porridge in the form of a 0.5% monthly gain in the CPI in January. Speaking of hot, corporate earnings continued to beat expectations, with the blended growth rate for the 4th quarter rising to 15.2% on 7.9% sales growth. Additionally, 2018 earnings estimates have increased 7%, the largest EPS estimate increase since FactSet began tracking the data in 1996. The forward P/E ratio for the S&P 500 is now 17.1, which is slightly higher than the historical average. The yield on the Ten-Tear treasury reached its highest level in 4 years, closing the week up 5 basis points to 2.88%.
In other words, the market now seems to be able to absorb slightly higher levels of inflation and interest rates without creating a selling panic. The St. Louis Fed Financial Stress Index did show a sizeable increase the previous week, although it remains comfortably below zero, indicating that market conditions are still less stressful than average.
The economic calendar is light, with Wednesday’s release of the February flash PMI report perhaps in focus. Earnings season will enter its final innings, with 53 S&P 500 companies scheduled to report.
Stocks on the Move:
Under Armour Inc. (UAA) +26.25%: Fourth quarter net sales were $1.37 billion, up 5% from the prior-year period and ahead of the consensus, while adjusted earnings per share were $0.00, in-line with estimates. “After years of rapid growth and building a globally recognized brand, the dynamic landscape of 2017 was a catalyst for us to begin strategically transforming Under Armour into an operationally excellent company” said Chairman and CEO Kevin Plank. “A year into this journey, our fourth quarter and full year results demonstrate that the tough decisions we’re making are generating the stability necessary to create a more consistent and predictable path to deliver long-term value to our shareholders.” Under Armour, Inc. is a developer, marketer and distributor of branded performance apparel, footwear and accessories. The North Star Opportunity Fund holds a 1.3% position in UAA and The North Star Bond Fund holds a 1.7% position in UAA corporate bonds.
Zoetis Inc. (ZTS) +12.16%: Fourth quarter revenues were $1.5 billion, up 14% from the prior-year period, and adjusted net income increased 47% to $341 million. “We finished off 2017 with strong revenue and income growth, while almost doubling our operating cash flow for the year” said Glenn David, Executive Vice President and Chief Financial Officer. “For full year 2018, we expect operational growth of 5-7% in revenue and 20-26% in adjusted net income, while we continue to improve our working capital and fund investments that will support our ability to create long-term value for our shareholders.” Zoetis is a developer and manufacturer of drugs providing medicines for animal health and vaccines for livestock and companion animals. The North Star Opportunity Fund holds a 2.4% position in ZTS.
Build-A-Bear Workshop, Inc. (BBW) +8.98%: Fourth quarter revenues were $107.6 million compared to $110.3 million in the prior-year period, while adjusted net income grew to $6.8 million from $5.0 million. Sharon Price John, President and CEO commented, “During fiscal 2017, we advanced our strategy as additional groundwork was laid to further leverage the power of the Build-A-Bear brand while we simultaneously improved the profitability of our retail channel highlighted by the expansion in retail gross margin, which contributed to pre-tax income that exceeded guidance.” Build-A Bear Workshop is a specialty retailer which offers “make your own stuffed animal” interactive entertainment experience. The North Star Micro Cap Fund holds a 2.7% position in BBW.Tagged: BBW, 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, Russell 2000, S&P 500, Stocks In the News, UAA, VIX, Wealth Management, ZTS.
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