Stimulus Talks Take on a New Air of Urgency

Here is how we wrapped up our previous commentary:

“Politics will become an even more dominant verse, with the first presidential debate being held on Tuesday in Cleveland. The most important economic release will come on Friday when The Bureau of Labor Statistics will release the jobs report for September, with the consensus calling for the headline unemployment rate dropping down to 8.2% from 8.4%. Additionally, the Consumer Confidence Index for September is expected to show a rebound to 90 from a soft reading of 84.8 in August. We think the level of consumer confidence could be particularly important both for the economy and the election.”

We had the themes right, but once again the surprises kept coming in the economy and out of the Capital. To quote Gomer Pyle from 1960s sitcom the Andy Griffith Show, “Surprise, surprise, surprise”.

As far as politics are concerned, regardless of your party loyalties the debate on Tuesday had to mark a surprisingly low point in decorum. Then on Friday morning we woke up to learn that President Trump had tested positive for COVID-19 and was being admitted to Walter Reed National Military Medical Center for treatment.

The Unemployment rate dropped more than expected to 7.9%, however the U.S. economy added only 661,000 jobs in September, which was the smallest monthly job gain since May. Additionally, the decline in the September unemployment rate was partially driven by a drop in the labor force participation rate, meaning that the unemployment rate dropped partially because many unemployed people gave up looking for work.  The participation rate for men, at 67.6 percent, is the lowest it has been in recorded history, outside of months earlier in the pandemic. For women, at 55.6 percent, it’s the lowest it has been since the late 1980s. Also, during the week Disney announced that it was laying off 28,000 employees and the airlines another 30,000, essentially confirming that most families are not comfortable flying to Orlando to vacation in the Magic Kingdom.

The Consumer Confidence Index for September provided an upside surprise, as it jumped to 101.8, up from 86.3 in August and at its highest reading since March. The Present Situation Index increased from 85.8 to 98.5, while the Expectations Index – based on consumers’ outlook for income, business, and labor market conditions in 6 months– increased from 86.6 in August to 104.0 this month. This reading underscores the belief that by Spring 2021 the economy will be in full rebound mode. That optimism is likely built on the foundation that there will be a vaccine for COVID-19 and additional stimulus to keep the economy afloat in the meantime.

The S&P 500 finished +1.51% higher, while the more economically sensitive Russell 2000 (small caps) jumped 4.37%. Gold gained $43/ounce to reclaim $1900, while the Dollar soften about 1%. The yield on the Ten-Year Treasury remained depressed at 0.69%, up 4 basis points for the week.

This Week:

President Trump’s health will clearly dominate the headlines, but an agreement on a stimulus package would certainly share the spotlight.

Lost in all the noise, third quarter earnings season is about to kick off. The consensus is calling  for S&P 500 earnings to decline more than 20% compared to a year ago, which would be an improvement over the 30% plus decline in the second quarter. Whereas the earnings releases could impact individual company share prices, the overall market movement will likely continue to be driven by COVID-19 related news and the outcome of the stimulus negotiations. Over the weekend New York City locked certain areas back down to avert a second wave of COVID-19, while stimulus talks took on a new air of urgency.

Stocks on the Move:

Our regional bank holdings were our star performers, probably benefitting from the strong Consumer Confidence Index and the improved prospects for a stimulus compromise, both of which could boost the domestic economy.

BHB +12.1%: Bar Harbor Bankshares Inc is a bank holding company along with its subsidiaries offers a full range of financial services products, brokerage services through third party brokerage arrangement and also trust and investment management services to individuals, non-profit organizations, and municipalities. There was no significant company news this week. BHB is a 1.56% holding in the North Star Dividend Fund.

BHLB +13.1%: Berkshire Hills Bancorp Inc is a holding company. It offers deposit, lending, investment, wealth management, and insurance services. This week, there was no significant company news. BHLB is a 0.54% holding in the North Star Dividend Fund.

PPBI +10.7%: Pacific Premier Bancorp Inc through its subsidiaries provides banking products and services. It offers cash management, electronic banking services, credit facilities and retirement accounts. There was no significant company news this week. PPBI is a 0.97% holding in the North Star Dividend Fund.

WTFC +10.6%: Wintrust Financial Corp is a financial holding company operating in the Chicago metropolitan area and southern Wisconsin through its wholly owned banking subsidiaries. Wintrust conducts its business through three segments: community baking, specialty finance, and wealth management. Among other services, the company provides community-oriented, personal, and commercial banking, as well as the origination and purchase of residential mortgages for sale in the secondary market. This week, there was no significant company news. WTFC is a 0.98% holding in the North Star Dividend Fund.

SCS +18.3%: Steelcase Inc is a furniture company primarily based in the United States and has operations in Europe the Middle East, and Africa. The Americas segment offers architecture, furniture, and technology products to corporate, government, healthcare, education, and retail customers. The EMEA segment provides furniture systems, storage, and seating solutions. This week, the company went ex-dividend with $0.10/share, in line with previous estimates. SCS is a 1.71% holding in the North Star Dividend Fund.

LAKE +15.6%: Lakeland Industries Inc manufactures and sells safety garments and accessories for industrial protective clothing market. It offers limited use and disposable protective clothing, chemical protective suits, and firefighting and heat protective apparel. The company made its sales to more than 40 foreign countries but primarily China, Europe, Canada, Chile, Argentina, and Russia. There was no significant company news this week. LAKE is a 1.16% holding in the North Star Micro Cap Fund.

BOOT +12%: Boot Barn Holdings Inc operates specialty retail stores. The company sells western and work-related footwear, apparel, and accessories in the United States. This week, there was no significant company news. BOOT is a 3.28% holding in the North Star Micro Cap Fund.