Dollar General Corporation (DG)

The Bureau of Labor Statistics (BLS) has released the Employment Situation for September. The U.S. added 29,000 nonfarm jobs, helped by increases in healthcare and construction, while employment in financial activities declined. Private payrolls were up 46,000, while the government category lost 17,000 jobs, with federal down 1,000. Our forecast was for an increase of 115,000 new jobs in September, while the consensus was 90,000. August's payrolls were revised lower by 29,000 to 133,000 and July was reduced by 31,000 to a loss of 10,000 jobs. September's results and the revisions reduced the three-month average to 51,000 from 71,000. The unemployment rate rose to 4.2%, which was higher than our estimate of 4.0% and the consensus of 4.1%. The labor force participation rate increased by 0.02%, meaning more job growth would have been needed to hold unemployment steady. Average hourly earnings increased $0.05 month to month and are 3.0% higher year over year. The average workweek remained at 34.4 hours. Employment showed little change in mining, quarrying, and oil and gas extraction; wholesale trade; retail trade; transportation and warehousing; information; professional and business services; social assistance; leisure and hospitality; and other services. The manufacturing sector added 9,000 jobs and construction added 11,000. Stock futures rose after the report and the yield on the 10-year Treasury declined by five basis points to 5.18%. The yield on the two-year Treasury, which is closely tied to expectations for monetary policy, was down by five basis points to 4.73%. Based on futures, traders became more hawkish. The probability of a pre-election rate hike at the October 27-28 meeting decreased to 16.1% from 21.6%. There was no expectation that the Fed would reduce the 3.75%-4.0% target range before or after the report. The probability that the funds rate will be 4.0%-4.25% (25 basis points higher) at the end of the year rose to 63.8% from 61.4%, but the probability that rates will be higher by 50 basis points decreased to 11.3% from 19.2%.

Despite bursts of outperformance, small- and mid-cap stocks (SMID) have underperformed large-caps year to date -- as they have over the past five years. But they are edging closer to their large-cap rivals with a year-to-date return of 10%, just two percentage points below the S&P 500. As well, SMIDs may be in a better position to generate market-beating returns going forward. For one thing, SMID companies tend to focus on domestic markets, so their businesses could be less disrupted by trade and tariff issues, fallout from unrest in the Middle East, the Russian invasion of Ukraine, issues in China, or other geopolitical developments. As well, the prices of SMID stocks generally are lower than the prices of large-caps, with the P/E ratio on the Russell 2000 SmallCap Index at 17, compared to a trailing P/E of 25 for the S&P 500. Finally, there are long stretches in the record books when SMID stocks have outperformed large-caps. SMID risks do carry risk, but diversified investors look to have exposure to small- and mid-caps based on the long-term performance record.

Since its beginning in 1939, Dollar General has grown to become the largest dollar store operator in the United States, with more than 20,000 small-box discount stores across 48 states. The firm generated over $42 billion in fiscal 2025 sales. The retailer maintains a heavy concentration of stores in rural and low-income markets underserved by big-box retailers. Its 11,000 stock-keeping units, including 2,000 priced at $1 or less, span consumables (82% of sales), seasonal items (10%), home products (5%), and apparel (3%). More than 20% of sales are derived from private label.

The Bureau of Labor Statistics (BLS) released the Employment Situation for August. The U.S. added 162,000 nonfarm jobs, helped by increases in food services and drinking places and in local government education. Employment in the information industry declined. Private payrolls were up a solid 127,000. Government added 35,000 jobs, with federal down 5,000 and local education up 50,000, almost reversing last month's decline. Our forecast was for an increase of 50,000 new jobs in August, while the consensus was 58,000. August's results raised the three-month average to 71,000 from 20,000. July's payrolls were revised higher by 44,000 to 21,000 and June was increased by 11,000 to a gain of 31,000. The unemployment rate remained at 4.1%, which matched our estimate and the consensus. Average hourly earnings increased $0.10 month to month and are 3.1% higher year over year. The average workweek ticked up to 34.4 hours. Employment showed little change in mining, quarrying, and oil and gas extraction; wholesale trade; retail trade; transportation and warehousing; financial activities; professional and business services; social assistance; and other services. The manufacturing sector added 16,000 jobs. Construction added 22,000. Stock futures slipped after the report. The yield on the 10-year Treasury rose by four basis points to 4.4%. The yield on the 2-year Treasury, which is closely tied to expectations for monetary policy, was up by 3 basis points to 4.79%. Based on futures trading, traders became more hawkish. The probability that the fed funds rate will end the year at the current 3.5%-3.75% target range fell to 12.5% from 16.4%. There was no expectation of a rate cut before or after the report. The probability that the funds rate will be 25 basis points (bps) higher at the end of the year fell to 39.5% from 42.5%, but the probably that rates will be higher by 50 bps or more increased to 48% from 41.1%. The probability of a September rate hike jumped to 60% from 52% before the report.