Despite the uncertainties facing the economy, from snarled supply chains to the retooled labor market, Wall Street kept trending to record heights for our trading session, which ran from the end of August through November. COVID-19’s delta variant, then the omicron variant, crashed onto the scene, and as our trading session ended Nov. 30, 2021, inflation snuck its claws into the market’s growing optimism. Appearance of the omicron variant threatened the trend of record highs.
The Institute for Supply Management’s index of manufacturing activity posted a July reading of 59.5, from 60.6 in June and 61 in May. A reading above 50 indicates expansion. The Federal Reserve reported that factory production in July was the strongest in four months, with output up 1.4%, after a 0.3% drop in June. The Fed reported that industrial production slipped to just 0.4% gain in August, from July’s revised increase of 0.8%. Numerous issues were cited, including plant closures from Hurricane Ida, the tie-up in supply chains and a lack of labor.
Demand for housing conflicted with supply, high materials costs and supply chain issues. The Commerce Department said that housing construction tumbled 7% in July, with a seasonally adjusted annual rate of 1.53 million units. The National Association of Home Builders/Wells Fargo builder’s sentiment fell 5 points in July, to 75, with pressures from shortages, rising cost of materials and higher home prices. Another report from the Commerce Department said that sales of new homes rose just 1% in July as prices jumped to record highs. The median price of a new home was up 18.4% from last year at this time; the pace of new home sales is 27.2% below last year’s rate.
September was a turbulent month — the worst for the S&P 500 since the pandemic began. The Conference Board reported that its September consumer confidence index fell to 109.3, from August’s 115.2. In October, the reading was 113.8, and in November, it dropped to 109.5, the lowest since February’s reading of 95.2.
The labor market was also filled with contradictions. Unemployment claims mostly fell throughout the session, and as it ended, the Labor Department reported claims dropped in our last reporting week to the lowest point in 50 years, down 71,000 claims to 199,000. The less volatile four-week figure also declined. The average pre-pandemic level was about 220,000 claims per week. In a separate report, the department said that 4.4 million people quit their jobs in September, about 3% of all employees in the U.S., from 4.3 million in August. That figure continued to rise.
At the beginning of our session, Fed chief Jerome Powell said that because of supply chain snarls, he expects inflation to continue well into next year and suggested rate hikes might begin somewhere in 2022. However, notes released from the Federal Reserve’s October policy meeting show that attendees said that they “would not hesitate” to implement whatever actions are necessary to address inflation.
In late November, the omicron variant was announced by the World Health Organization, which called it “highly transmissible,” and that put the brakes on any upward momentum markets still had. The VIX, or the so-called “fear index,” soared 53.6%, the highest since January. “Omicron reinforces that the economy remains tethered to the pandemic,” Mark Zandi, chief economist at Moody’s Analytics, said on Twitter. “With each new wave of the pandemic, the economy will suffer slower growth and higher inflation.’’
The national indexes and the Business Alabama indexes ended mixed for our quarter. The Comprehensive Index fell 115.41 points, or 5.36%, and closed at 2039.04. Declining issues easily outpaced advancing issues by a 32 to 22 count. Earlier high-flyers Lockheed Martin and Teledyne tumbled, 38.35 points and 37.48 points, respectively. Home-grown stocks rose sharply, carried aloft by heavy-hitter Vulcan Materials, which soared 84.69 points, or 79.19%, and was the top dollar and percentage gainer in both indices. The Alabama Index jumped 317.94 points, or 14.35%, and closed at 2533.09. Alabama stocks finished neck and neck, with 8 companies each ending in the plus and minus columns.
The shining star in the Alabama firmament is Vulcan Materials, which was polished shiny following the passage of the infrastructure bill in Congress, though it was proceeding nicely before the Nov. 8 announcement. In October, brokerage DA Davidson upgraded VMC to “buy” from “neutral” and upped its price target to $210, from $195. In November, research firm Argus upgraded Vulcan to “buy” from “hold.” Its price target is $240. Even though VMC missed on third quarter earnings, it exceeded on revenues. VMC posted net income of $176.8 million, or $1.33 per share, versus net income of $199.8 million, or $1.52 per share in the same quarter a year ago. Adjusted for one-time items, Vulcan earned $.54 per share. Revenue was $1,516 million compared to last year’s $1.3 million. Analysts polled by Zacks expected earnings of $1.65 per share and $1,457 million in revenue. Vulcan cited energy costs and weather issues in its latest earnings report. Vulcan began at 106.95 and closed at 191.64.
Encompass Health missed on third quarter earnings, and shares plunged 25.63 points, or 30.79%, to close at 57.62. EHC posted revenue of $1.28 billion, compared to last year’s $1.17 billion, and earnings of $1.01 per share versus $0.78 per share in the year-ago quarter. Adjusted earnings per share was $1.03. Analysts polled by Zacks expected adjusted earnings per share of $1.07. Revenue was 2.38% below expectations. EHC was the top dollar and percentage loser.
ServisFirst Bancshares posted earnings for its third quarter ahead of earnings a year ago. SFBS posted net income of $52.5 million, or $0.96 per share, compared to net income of $43.4 million, or $0.80 per share, in the comparable year-ago quarter. Interest income was $96.1 million, versus $89.6 million last year. SFBS rose 9.31 points, or 13.10%, and was the second dollar gainer in the Alabama Index. ServisFirst closed at 80.39.
Margot Crabtree covers stocks for Business Alabama, under contract with her company, Trade Trends.