Rising geopolitical tensions, soft economic data, and fading hopes for the passage of pro-business policies from Washington all contributed to a subdued mood on Wall Street despite a strong start to earnings season.
The geopolitical headlines remain quite troubling, with the mess in Syria, the elections in France, the bellicose statements from North Korea, as well as the U.S. dropping a monster bomb in Afghanistan topping the list.
As for the economy, both retail sales and consumer inflation came up short in March. Despite another uptick in the University of Michigan’s preliminary April reading, retail sales fell 0.2% in March. It was the second straight monthly decline after February’s revised drop of 0.3%, which originally was estimated as a 0.1% increase. The curious disconnect between consumer confidence and consumer spending might be partially explained by delayed tax refunds and a later Easter than last year (April rather than March). Lower gas prices also contributed to lower retail sales numbers, but should have spurred spending in other areas. Additionally, there was a 0.3% decline in the consumer price index for March, a huge miss compared with forecasts of a flat reading. Excluding food and energy prices, the so-called core CPI was down 0.1% last month, its first drop in seven years.
Meanwhile back in Washington, there is no evidence of any progress on tax reform; instead, there seems to be an unexpected pivot back to addressing health reform. A government shutdown also looms, with just two weeks until the April 28 funding deadline lawmakers are locked in negotiations over a bill that would likely provide government budget funding until the end of September.
Earnings season got off to a strong start, with solid results from both JP Morgan and Citibank, but the Financial sector still led the market lower (down 1.7%) as the S&P 500 lost 1.1%, and the Russell 2000 shed 1.4%. The yield on the Ten-Year Treasury fell 11 basis points to 2.32%, the low end of its trading range since the election, while both gold and oil continued their recent advances.
There is a slew of March economic reports, including Housing Starts, Industrial Production, and Leading Indicators. First quarter earnings reports are scheduled for 64 S&P 500 companies, with blended growth of 9.2% now expected on 7.1% sales growth. If achieved, those would be the best readings in over 5 years, which would be the reason for optimism in face of all the uncertainties that have been highlighted.
Stocks in the News:
Health Care Services Group, Inc. (HCSG) reported that revenues for the three months ended March 31, 2017 increased approximately 5% to $404.5 million. Net income for the three months ended March 31, 2017 was $22.0 million, or $0.30 per basic and diluted common share, compared to the three months ended March 31, 2016 net income of $18.6 million, or $0.26 per basic and diluted common share. The Company also announced that it has entered into new service agreements with expected annualized revenues of over $160 million, to begin during the second quarter of 2017.
Jana Partners disclosed that it had taken an 8.8% stake in Whole Foods Market, Inc. (WFM) and wants the company to consider “strategic alternatives” or an exit strategy.
Simulations Plus, Inc. (SLP) reported that in its second quarter of fiscal year 2017, net income increased 4.4% to $1.20 million, or $0.07 per share, compared to $1.15 million, or $0.07 per share in 2QFY16 and revenues increased 10.5%, or $542,000, to a record $5.71 million from $5.16 million. John Kneisel, chief financial officer of Simulations Plus, said: “We continue our trend of consistent revenue and earnings growth. As of today, cash remains in excess of $8.5 million after our two quarterly dividend distributions totaling over $1.7 million this fiscal year.”Tagged: Chicago, Chicago Investment Management, Eric Kuby, financial commentary, Fund Fact, Gold, HCSG, Kuby's Commentary, Market Commentary, North Star, North Star Financial Services, North Star Investment Management, NSIMC, Oil, Russell 2000, S&P 500, SLP, Stocks In the News, VIX, Wealth Management, WFM.
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