September Jobs Report
Posted by Eddy Elfenbein on October 2nd, 2020 at 8:37 am

The September jobs report is out. The US economy added 661,000 net new jobs during the month of September. The unemployment rate dropped to 7.9%. Wall Street’s estimate was for 8.2%.

The bottom line is that the US economy is still adding jobs but at a slower rate than it had been before. The private sector added 877,000 net new jobs last month.

The labor force participation rate fell to 61.4% for September. Average hourly earnings rose by 0.1%.

Wall Street is also digesting the news of President Trump’s positive test for the coronavirus. Right now, the Dow futures looks to open down 414 points and the S&P 500 looks to open down by 53 points.

Here’s a chart of nonfarm payrolls:

CWS Market Review – October 2, 2020
Posted by Eddy Elfenbein on October 2nd, 2020 at 7:08 am

“Time is on your side when you own shares of superior companies.” – Peter Lynch

The bulls have apparently returned to Wall Street. The S&P 500 has closed higher in five of the last six sessions. The index has even closed above its 50-day moving average. So, is the coast clear? Frankly, I’m skeptical. Not a full-throated bear, but a skeptic.

Let me explain. The stock market got dinged for a quick loss in early September. The high-fliers were hit especially hard. In one week, Tesla lost one-third of its value. The recent rebound softened some of the damage from September. Still, the S&P 500 recorded its first monthly loss since March.

I have some concerns ahead. Q3 earnings season begins in two weeks, and the economy is still in rough shape. The labor market appears to be cresting. Much of the economy is still on lockdown. Disney just announced massive layoffs. Of course, the U.S. election is only a month away.

In this week’s issue, I’ll preview next week’s earnings report from RPM International. I expect the company to announce its 47th consecutive annual dividend increase. I’ll also cover Sherwin-Williams’s big boost to its full-year guidance. Plus, Eagle Bank said it’s resumed buying back its shares. In the last six sessions, Eagle is up 7.6%. But first, let’s take a closer look at the economy.

The Rebound in the Jobs Market Is Slowing Down

In last week’s issue, I discussed the upcoming Q3 earnings season. For the first time in a long time, earnings estimates have actually moved higher, but it will be a rough earnings season for many companies. The economy is far from its status quo ante.

I’m writing this to you a few hours ahead of Friday’s jobs report. We’ve seen growing evidence that the rebound in the jobs market has started to wane. That’s to be expected. On Thursday, the initial-jobless claims report fell to 837,000. That’s another post-lockdown low, but it’s fairly close to the numbers we’ve seen for the past few weeks. Contrast that with May and June, when we often saw weekly drops of 200,000 or 300,000.

On Wednesday, ADP said that the economy created 749,000 private-sector jobs last month. That’s pretty good, and it beat expectations. But the ADP report doesn’t always track well with the government’s numbers. Here is ADP’s jobs chart. You can see we’ve rebounded but we’re still well below the high:

This week, the government revised its Q2 GDP growth report up to -31.4%. It’s odd to think of that terrible number being an upward revision, but it was. Later this month, we’ll get the first report on Q3 GDP. The Atlanta Fed’s GDPNow estimates Q3 GDP growth of 34.6%. That would be great. (Bear in mind that a 30% gain after a 30% drop doesn’t bring you back to even.)

There are other areas of optimism. This week’s consumer-confidence report showed the largest gain in 17 years. While the gain was impressive, the absolute level of confidence is still quite low.

The housing market is doing well, and it’s no secret why. We’re currently seeing some of the lowest mortgage rates on record. This week’s pending home-sales report jumped 8.8% to reach an all-time high. Sales were up 24% over August last year. This is good for stocks like Trex (TREX) and Danaher (DHR).

On Wednesday, the ISM Manufacturing Index was 55.4. That’s pretty good, although it’s a decline from the previous reading of 56.0 for August. The Census Bureau said that construction spending fell 1.4% in August. Also in August, personal income fell by 2.7%, while spending rose by 1%.

I’m still concerned that the Value-Growth rotation hasn’t fully played itself out. In early August, the S&P 500 Growth Index fell much more than the Value Index. That reversed itself in the middle of the month, but I think it’s very likely that Growth will soon lag again.

With interest rates and bond yields so low, stocks with yields over 2% become much more attractive. In a bit I’ll mention that Eagle Bancorp has resumed its share-buyback program. The bank is making it clear that it has plenty of money to reinvest in itself. Going by Thursday’s close price, the bank yields close to 3.3%. That’s about five times the yield you can get with a 10-year Treasury.

Make sure your portfolio has plenty of dividend-payers. Most importantly, don’t let your concerns about the election scare you out of stocks. The third-quarter earnings season will begin soon, and I expect to see very strong results from our stocks. Now let’s look at our Buy List earnings report for next week.

Earnings Preview for RPM International

RPM International (RPM) is due to report its earnings on Wednesday, October 7. This will be for its fiscal Q1, which ended on August 31.

RPM had a difficult time during Q4. The good news is that the company managed to get a nice profit of $1.13 per share, which beat estimates by 12 cents per share. I’m not too worried about RPM’s survival. The company has a strong balance sheet and plenty of liquidity.

For the full year, RPM made $3.07 per share. That’s an increase of 13.3% over last year. The economic lockdown clearly took a toll. Before the virus hit, RPM had been expecting full-year earnings to range between $3.30 and $3.42 per share.

For fiscal Q1, RPM expects net sales growth “in low single digits and adjusted EBIT growth of 20% or more.” The consensus on Wall Street is for $1.19 per share. For last year’s Q1, RPM made 95 cents per share. RPM hasn’t provided any full-year guidance yet.

The stock has nearly doubled from its March low. Along with next week’s earnings report, I expect to see RPM hike its quarterly dividend. That’s not exactly a bold prediction on my part. RPM has raised its dividend every year since 1973.

Sherwin-Williams Raises Guidance

On Tuesday, Sherwin-Williams (SHW) raised its sales guidance for the third quarter, and its sales and earnings guidance for the full year.

Previously, the paint people said they expected Q3 sales growth to be “up or down a low-single-digit” over last year. Now, Sherwin expects an increase of 3% to 5%.

For all of 2020, Sherwin expects sales to be flat to up slightly over last year. The previous guidance was for flat sales growth.

Now for the really good news, which is earnings. For full-year earnings, Sherwin sees a range of $20.96 to $21.46 per share. That’s a hefty increase over the previous range which was $19.21 to $20.71 per share. That figure includes $2.54 per share in an acquisition-related amortization expense.

Sherwin’s business has three segments. The Americas Group expects Q3 sales to be up a little. Performance Coatings is expected to be flat to down a little. Consumer Brands is expected to be up in the low-20% range.

CEO John G. Morikis said:

“Demand for architectural coatings has been stronger than expected in the third quarter, led by our DIY, residential repaint and new residential segments. Demand on the industrial side of our business has also improved, led by continued strength in packaging and emerging momentum in other segments, most notably in automotive refinish and industrial wood. As a result, our sales expectations for the third quarter and full year 2020 have improved. We now expect our full-year 2020 adjusted diluted net income per share to increase 12.5% at the midpoint of the range compared to the prior year.”

Sherwin is up 18% for us this year. The earnings report is due out on October 27.

Eagle Bancorp Resumes Buying Back Shares

Eagle Bancorp (EGBN) said it’s reinstating its share-buyback program. During Q1, the bank halted all share buybacks. Eagle wasn’t alone. A lot of companies did this at the start of the pandemic.

Now that things have cooled off, I’m glad to see Eagle willing to spend its money on itself. As I’ve said, I’m not a big fan of share buybacks. However, I understand why companies do it. Also, it’s probably a good investment, considering how cheap Eagle is according to most conventional valuation metrics.

Through the end of this year, management has been authorized to buy as much as 5% of Eagle’s outstanding shares. As of Jun 30, Eagle had 460,000 shares remaining under the buyback authority.

All things being equal, I’d prefer that a company pay dividends. Eagle had paid a dividend but stopped during the financial crisis. Eagle eventually resumed its regular dividend in June 2019. The current quarterly dividend is 22 cents per share. That works out to a yield of 3.27%. The next earnings should be out around October 21.

Buy List Updates

This week, Becton, Dickinson (BDX) said that its rapid Covid-19 test has been approved for Europe. This is a great time for that news, because the region has had trouble keeping up with the need for tests.

Becton’s test doesn’t need a lab. Also, it can be done with a portable device. The FDA approved it this summer. Becton hopes to roll it out for Europe by the end of the month.

Becton hopes to be running eight million tests per month by the end of October and twelve million by the end of March.

Disney (DIS) has done an admirable job of keeping as many workers as it can, but the coronavirus has pushed it to the edge. This week, the entertainment giant announced 28,000 layoffs. Most of the layoffs will happen at U.S.-based theme parks.

About two-thirds of the layoffs will be part-time hourly employees. Disney World re-opened over the summer, but Disneyland has yet to re-open. Even so, attendance at Disney World has been pretty sluggish. (Hugs from Mickey are verboten.)

Gradually, the rest of Disney’s business is coming back online. We now have live sports, and movie production has returned. Actual movie releases are another matter. Of course, the Disney+ streaming service has been doing very well.

The next earnings report should be in early November.

That’s all for now. The September jobs report is due out later this morning. We’ll get a few more key economic reports next week. On Monday, the ISM Services Index is due out. On Wednesday, the Fed will release the minutes from the last meeting. There were two dissents at the meeting, so it will be interesting to hear more details. Then on Thursday we’ll get another initial-jobless-claims report. Be sure to keep checking the blog for daily updates. I’ll have more market analysis for you in the next issue of CWS Market Review!

– Eddy

Morning News: October 2, 2020
Posted by Eddy Elfenbein on October 2nd, 2020 at 7:02 am

How One Piece of Hardware Took Down a $6 Trillion Stock Market

Stocks Slide After Trump Diagnosed With Coronavirus

With The Feds Circling, Google Is Starting To Play Nice With Smaller Rivals

Wall Street’s Biggest Banks Are Muscling Into Small Deals

Despite Billions in Fees, Banks Predict Meager Profits on P.P.P. Loans

New Layoffs Add to Worries Over U.S. Economic Slowdown

U.S. Auto Sales Fall 9.7% In Q3, But The News Isn’t All Bad

Dough! Subway Sandwich Bread Isn’t Legally Bread, Irish Court Rules

Amazon Can’t Be Held Responsible For Teen’s Powdered Caffeine Death, Court Rules

He Thoroughly Changed How We Think: RIP George Melloan

The Climate Crisis is the Story of the Century

Joshua Brown: IPO Fever

Ben Carlson: Some Money & Investing Stuff I’ve Changed My Mind About

Michael Batnick: Luck and Success

Howard Lindzon: The Creator Economy and The API Economy

Be sure to follow me on Twitter.

Employment Gains Appear to Be Slowing
Posted by Eddy Elfenbein on October 1st, 2020 at 1:25 pm

The market is up again today. This could be the S&P 500’s fifth gain in the last six sessions. The S&P 500 is now back over its 50-day moving average.

The ISM Manufacturing Index usually comes out on the first day of each month. This morning’s report came in at 55.4. That’s pretty good although it’s a decline from the previous reading of 56.0 for August.

The initial claims report fell to 837,000. It seems that the gain in employment has either stopped or slowed down noticeably. It’s still the lowest report in six months.

The Census Bureau said that construction spending fell 1.4% in August. Also in August, personal income fell by 2.7% while spending rose by 1%.

Morning News: October 1, 2020
Posted by Eddy Elfenbein on October 1st, 2020 at 7:04 am

In U.S.-China Tech Feud, Taiwan Feels Heat From Both Sides

How The Year 2020 Confounded Wall Street Strategists

Stimulus Hopes Ease Markets Into Explosive Fourth Quarter

As the Election Looms, Investors See Uncertainty. They Don’t Like It.

Trump Signs Stopgap Funding Bill to Avert a Government Shutdown

The Secretive Committee Behind the S&P 500

Trump’s Tax Avoidance Is a Tax on the Rest of Us

To Restore Financial Stability, Bring Back Glass-Steagall

The First Blank-Check ETF Makes Its Trading Debut

Google To Pay Publishers $1 Billion Over Three Years For Their News

Nikola, GM Still Negotiating $2B Partnership As Target Date Looms

PepsiCo Quarterly Revenue Grows 5.3%, Fueled By Higher Snack Sales

Cullen Roche: Three Things I Think I Think – Muting Trump and Biden

Joshua Brown: Joe Biden Is Not Good At Debating & August Home Sales CRUSH Expectations

Michael Batnick: Worst Recession Ever

Be sure to follow me on Twitter.

The Morning After
Posted by Eddy Elfenbein on September 30th, 2020 at 11:07 am

The stock market is up nicely this morning after yesterday’s raucous debate. I don’t know if it’s a sign of where we are, but shares of Smith & Wesson were up as much as 2.3% today.

Some econ news this morning.

ADP’s payroll report said that 749,000 new private sector jobs were created last month. Wall Street had been expecting a gain of 600,000.

The government releases its stats on Friday, The ADP report isn’t a terribly good indicator of what the government will say, but it’s been especially bad lately.

However, during the coronavirus pandemic, ADP’s initial estimate has often trailed the official government count by a significant margin, indicating potential upside for the September count. The initial ADP estimate for August was just 428,000 but was revised upward to 481,000, still a good distance from the Labor Department tally.

For September, ADP found that manufacturing added 130,000 jobs. The only sector to grow more was trade, transportation and utilities, which grew by 186,000.

Leisure and hospitality, a sector especially hard hit during the pandemic, saw a gain of 92,000. Education and health services rose 90,000, though all the growth came on the health-care side as education lost 11,000.

Also this morning, the second-quarter GDP figure was revised upward to -31.4%. That’s an annualized number. It’s odd that a number like that is an upward revision but the previous report was for -31.7%. Bear in mind that Q2 began six months ago and ended three months ago. At the end of October, we’ll get the first report on Q3 GDP growth.

The Atlanta Fed’s GDPNow estimates Q3 GDP growth of 32%. Unfortunately, a 32% drop and a 32% gain doesn’t bring you back to even.

The pending home sales report jumped 8.8% last month to reach an all-time high. The data goes back about 20 years. It’s no secret what the cause is—very low mortgage rates. Sales were up 24% over August last year.

Buyers are running out of homes to buy. That’s putting the squeeze on inventory.

Prices are mostly being fueled by an incredibly short supply of homes for sale. The inventory of homes for sale at the end of August was down 18.6% annually, putting the market at a 3.0 month-supply.

“The increase in contract signings is shrinking the limited number of homes for sale to some of the lowest levels in recent history,” said George Ratiu, senior economist at realtor.com. “This is causing a massive imbalance to the market’s supply and demand, which is rewarding sellers with home price increases that more than double the pace of wages. Looking forward, with no signs of these dynamics shifting anytime soon, more price increases are likely on the way and affordability will likely continue to be a challenge for many buyers.”

Morning News: September 30, 2020
Posted by Eddy Elfenbein on September 30th, 2020 at 5:56 am

First U.S. Presidential Debate Fails To Move Investors

Here’s The Shocking Truth About Robinhood Investors Vs. Wall Street Stock Pros

‘Game Changing’ 15-Minute Covid-19 Test Cleared in Europe

Disney to Lay Off About 28,000 Parks Unit Employees Due To Coronavirus Hit

Seattle Passes Minimum Pay Rate for Uber and Lyft Drivers

Pandemic Convinces Airline Workers It’s Time for New Horizons

Banker Walks Free From Insider Trading Charge After Deleting WhatsApp

Caesars to Buy British Bookmaker for $3.7 Billion

Beyond Meat Plans To Triple Distribution At Walmart Amid Growing Demand

The Picture of a Broken Tax System

Nick Maggiulli: No, This Isn’t a Repeat of the Dot-Com Bubble

Ben Carlson: The Coming Psychological Revolution in the Housing Market

Michael Batnick: When Should I Use a Financial Advisor?

Joshua Brown: Build Something Great And The World Will Find It & How To Make A Hundred Million Dollars For No Reason

Howard Lindzon: Mulesoft Founder Ross Mason Joins Me On Panic With Friends And Explains The Software Revolution In Some Great New Ways

Be sure to follow me on Twitter.

Sherwin-Williams Raises Guidance
Posted by Eddy Elfenbein on September 29th, 2020 at 4:28 pm

Sherwin-Williams (SHW) raised its Q3 sales guidance, and it sales and income guidance for the full year. The company now sees Q3 sales rising by 3% to 5% over last year’s Q3. The previous guidance was for sales to be up or down by a “low-single-digit” percentage.

For all of 2020, Sherwin sees sales “flat to up slightly” over last year. The previous guidance was for flat. For full-year earnings, Sherwin sees a range of $20.96 to $21.46 per share. The previous guidance was $19.21 to $20.71 per share. That includes $2.54 per share in an acquisition-related amortization expense.

Earnings are due out on October 27.

Biggest Jump in Consumer Confidence in 17 Years
Posted by Eddy Elfenbein on September 29th, 2020 at 11:33 am

This morning’s consumer confidence report showed the biggest gain in 17 years.

The Conference Board’s index increased 15.5 points, the most since April 2003, to 101.8 from August’s upwardly revised 86.3, according to a report issued Tuesday. The median forecast in a Bloomberg survey of economists called for a reading of 90 in September, and the figure exceeded all estimates.

The group’s gauge of current conditions rose 12.7 points to 98.5, while a measure of the short-term outlook jumped 17.4 points to a three-month high. The gain in the expectations index was the largest since 2009. The S&P 500 turned positive after the report.

Despite the bullish report, it’s not carrying over into the stock market this morning. The S&P 500 is down a bit which halts a brief rally which started with last Thursday’s turnaround.

Once again, financial and energy stocks are down the most. This is an unusual day because Growth is beating Value on a down day even though Low Vol is beating High Beta. That’s the sign that banks or energy stocks are weighing down the market. Today, it’s both.

The month and quarter come to a close tomorrow. With that, we get the ADP jobs report tomorrow and the big jobs report on Friday.

Morning News: September 29, 2020
Posted by Eddy Elfenbein on September 29th, 2020 at 7:01 am

High Debt. Low Growth. Are We All Japanese Now?

Low Interest Rates Are Worsening Retirement Prospects Worldwide

How Coal-Loving Australia Became the Leader in Rooftop Solar

Japan’s NTT Launches $40 Billion Buyout Of Wireless Unit Docomo

Walmart In Talks For Up to $25 Billion Investment In Tata’s ‘Super App’

They’re Shorting Market Freedom at the SEC

Apple and Epic Games Spar Over Returning Fortnite to the App Store

Target Muscles In On Amazon’s Prime Day — Again

The Fall Was ‘Black Friday’ for America’s College Football Towns

Whole Foods CEO Says Amazon Merger Enabled Long-Term Thinking

Verizon Scrambling to Unload HuffPost As Losses Mount

Prosecutors Target Ex-Audi Chief in First VW Emissions Trial

Ben Carlson: Is Exxon the Next General Electric?

Michael Batnick: When Should I Use a Financial Advisor?

Howard Lindzon: Momentum Monday – The Sun Is Shining and Social Distance Themes Are Working

Be sure to follow me on Twitter.