A Blurry Start to the 2020 Market

The economic trends remained in place as 2019 wrapped up as the number of Americans who applied for unemployment benefits at the end of 2019 fell slightly, showing the pace of layoffs in the U.S. remains near a half-century low. Initial jobless claims slipped by 2,000 to 222,000 in the seven days ended Dec. 28. Meanwhile a slump of American manufacturers deepened in December as a survey of senior executives showed the weakest performance in more than 10 years.The Institute for Supply Management said its manufacturing index slid to 47.2% last month from 48.1% in November, marking the fifth straight contraction. One would think that in 2020 either the manufacturing sector will need to rebound or jobless claims will start to rise. The record level of the market suggests that investors expect the former, as the estimated earnings growth rate for 2020 is 9.6% with the Industrial and Materials sectors forecasted to report 14.8% and 13.4% earnings growth respectively. Much of that optimism is based on the hope of tariff relief and a resolution of Boeing’s 737 Max issues.The most significant development was that Qassem Soleimani, the head of Iran’s elite Quds military force and one of the most powerful figures in the Islamic Republic, was killed early Friday in an U.S. airstrike in Baghdad. The market reaction was surprisingly muted, although the sell-off in equities did erase earlier gains and left the S&P 500 with a 0.16% decline for the week. Oil prices and Gold jumped over 2% on the news, and the yield on the Ten-Tear Treasury dropped 8 basis points to 1.79%. The Dollar remained steady, which we believe is a sign that the rest of the world has not begun disinvesting in the United States in response to our various actions. We continue to monitor the Dollar as any material weakness could be a warning sign.

This Week:

All eyes will be on the Middle East as investors (and people in general) nervously await the response from Iran to the death of Soleimani. On the economic front, Friday’s jobs report will be in focus, with a consensus estimate of 157,000 gain and for unemployment to remain steady at 3.5%.Professional football, basketball, and hockey remain relevant in cities other than Chicago.

Biggest Percentage Weekly Movers:

For the first time that I can remember none of the companies in our portfolios moved more than 10% during the week. There was no news on our biggest gainer, U.S. Auto Parts Network, Inc. (PRTS), which was up 9%, a 0.97% holding in the North Star Micro Cap Fund. Or our biggest loser, Oil Dri Corp of America (ODC), which was down 5.7%, a 0.77% holding in the North Star Dividend Fund.