CWS Market Review – September 10, 2024

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“The idea that a bell rings to signal when to get into or out of the stock market is simply not credible. After nearly fifty years in this business, I don’t know anybody who has done it successfully and consistently. I don’t even know anybody who knows anybody who has.” – Jack Bogle

The Market Stumbles Into September

How things change after Labor Day! In last Tuesday’s issue, I told you that Labor Day has often marked a tone shift on Wall Street, Historically, September and October have been tough times for the market. Well, we certainly learned that lesson again this year.

Presidential election years have been especially difficult for the stock market. From September 7 to October 12 in presidential election years, the Dow has lost an average of 2.72%.

On the Friday before Labor Day, the S&P 500 closed very close to a new all-time high, but last week, the index had its worst week of the year. That’s even more impressive when you recall that last week only had four trading days. The S&P 500 fell lower on all four days, and it culminated in last Friday’s underwhelming jobs report (more on that in a bit).

The market rebounded nicely yesterday and today. The market’s thinking seems to have shifted from, “Good news! The Fed will soon be cutting rates,” to “Bad news, the economy is getting weak, and the Fed will soon be cutting rates.”

The next test for the market will be tomorrow’s CPI report. The inflation numbers have been getting better but at a very slow pace. The consensus on Wall Street is that the headline and core rate of inflation increased by 0.2% last month.

Weak Jobs Report Drags Down Stocks

On Friday, the government said that the U.S. economy created 142,000 net new jobs last month. That’s not that good. It missed consensus by 19,000. For July, the economy created 89,000 new jobs.

The unemployment rate dropped by 0.1% to 4.2%, but the broader U-6 rate increased to 7.9% which is close to a three-year high.

The government also revised previous jobs reports lower. The total for July was cut by 25,000, and the June number was lowered by 118,000. Here you can see the steady decline in non-farm payrolls gains.

One bright spot in the report was average hourly earnings. That increased by 0.4% last month while the estimate was for a gain of 0.3%. Over the last year, average hourly earnings are up by 3.8%. That’s good to see, but it’s nearly in line with inflation.

The labor force participation rate was unchanged at 62.7%. It seems that more workers are shifting from full-time work to part-time. The household survey said that part-time employment increased by 527,000 and full-time decreased by 438,000.

From a sector standpoint, construction led with 34,000 additional jobs. Other substantial gainers included health care, with 31,000, and social assistance, which saw growth of 13,000. Manufacturing lost 24,000 on the month.

The Federal Reserve meets again next week. The policy statement will be released on Wednesday, September 18. According to the futures market, there’s a 100% chance that the Fed will cut rates. The only question is by how much.

Currently, the market thinks there’s a 67% chance of a 0.25% cut and a 33% chance of a 0.50% cut. Going by what Jerome Powell has said, I think the Fed is leaning towards a 0.25% cut. The futures market thinks there will be a 50 basis-points cut at the November meeting which will be two days after the election.

Investors should understand that the market is becoming more conservative. Value stocks and low-volatility stocks has been leading the market while many of the growth names have been lagging. Several prominent stocks are more than 20% off their highs. This will probably continue as rates head lower. I’m pleased to see that our Buy List has outperformed by a wide margin over the last two months. (It hasn’t always been that way!)

Stock Focus: Cass Information Systems

This week, I want to tell you about Cass Information Systems (CASS). Cass is a business services company based in St. Louis, Missouri. You probably have not heard of them, but Cass is crucial to many companies. Cass processes and pays 50 million invoices each year.

Cass wants to pay your company’s bills. The information services firm provides freight payment and information processing services to large manufacturing, distribution, and retail companies across the U.S.

Its offerings include freight bill payment, audit, and rating services as well as outsourcing of utility bill processing and payments. Its telecommunications division manages telecom expenses for large companies. Cass grew out of Cass Commercial Bank (now a subsidiary), which provides banking services to private companies.

The company’s international reach is truly impressive. Cass pays invoices in 185 countries and in 114 different currencies. Cass lets companies have complete visibility into every detail of their transportation spending with total trust in the data.

Cass helps save millions in telecommunications costs thanks to an expense management partner who studies the data and recommends savings initiatives. Cass helps pay utility bills reliably on time. Cass can also leverage benchmarking data for waste removal costs to negotiate new contracts. This helps save time and money.

This is a superb company that is largely ignored by Wall Street. This is an especially good time to look at Cass because it’s operating in a difficult environment.

In July, Cass reported Q2 earnings of 32 cents per share. That’s down from 52 cents for last year’s Q2. According to the company, Cass lost over “$100 million of non-interest-bearing funding due to a cyber event at a client and incurring an aggregate of $3.4 million of one-time expenses.”

CEO Martin Resch said, “We successfully onboarded several large facility clients, increasing year over year facilities transactions by 25.1%, with a full queue of additional signed deals still to implement.”

Now here are some important details on why I like Cass. The dividend currently yields close to 3%. That’s not bad in a lower-rate environment. Cass has very little long-term debt, and it’s sitting on a mountain (well, small hill) of cash. At last count, Cass’s cash comes to $223 million. That works out to $16.41 per share. This is important because it tells us that Cass is more efficient than it initially appears to be.

The stock hasn’t performed very well recently which catches my attention. By conventional metrics, Cass is reasonably priced. However, if Cass can return to the kind of growth it used to have, then this could be a very profitable position.

Historically, Cass has favored doing several small stock splits every few years. That may lead people to think that Cass hasn’t done as well as it has. Cass currently has over 1,000 employees and a market cap of $550 million.

That’s all for now. I’ll have more for you in the next issue of CWS Market Review.

– Eddy

P.S. There will be no Tuesday issue next week. I’m going to be at the Future Proof Conference in Huntington Beach, CA. If you’re around, please come by and say hello. We’ll be at booth #702.

Posted by on September 10th, 2024 at 6:03 pm


The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.