Kuby's Commentary

A Stormy Week

2018-04-24T15:25:27+00:00March 26th, 2018|

Last Week:

It was quite stormy in Washington and on Wall Street, as it was the worst week for the stock market since January 2016, with the S&P 500 declining almost 6%. Early in the week it was the technology stocks that fared the worst, with the disclosure that Facebook had failed to protect customer data leading to a sharp decline in its shares, followed by earnings from Oracle that were viewed as disappointing. On Wednesday, the Federal Reserve raised rates by 25 basis points as expected, initially leading to a rally, but by the end of the day concerns had mounted that the Fed was preparing to be more aggressive with rate hikes in the near-term. The real damage came on Thursday, with the announcement that the Trump administration had decided to levy $60 billion of tariffs on Chinese goods. The selling continued Friday, as the Chinese responded with proposed tariffs on U.S. goods.

I think that both the rising interest rates and the trade issues are going to continue to be headwinds for the foreseeable future. Jerome Powell appears to be a free agent, not controlled by the political process. As such, expect more aggressive rate hikes if the data warrants it. The so-called “Yellen put” is gone. Additionally, President Trump will prioritize attacking the trade deficit as a key policy initiative. The good news is that the Fed policy will protect the economy from higher inflation, and the Chinese are unlikely to want to engage in a real trade war, as it would have serious consequences for their economy.

The yield on the Ten-Year Treasury ticked down 2 basis points to 2.83%, and the U.S. Dollar also weakened fractionally.

This Week:

The economic calendar is light, with Thursday’s release of February PCE probably in focus given the recent inflation concerns. It will be a 4-day trading week, as the markets will be closed on Good Friday. Sister Jean will be leading the prayers for the Loyola Ramblers to bring the NCAA Championship home to Chicago.

Stocks on the Move:

Alaska Communications Systems Group, Inc. (ALSK) -9.3%: Revenues were down 4.9% and adjusted EBITDA was down 9% for the fourth quarter 2017. According to President and CEO Anand Vadapalli, “the results for 2017 reflect year over year stability in our top line performance. Revenue stability combined with tight management of operating and capital expenditures enabled us to generate $8.1 million in free cash flow, which was above our guidance for the year.”  The North Star Opportunity Fund holds a 2.7% position in ALSK.

Unfortunately most of our portfolio holdings were swept up in the general decline, and were on the move down last week, but without any company specific news.

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