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Kuby’s Commentary

A Stormy Week

Mar 26, 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.

The information provided in this commentary is not an offer to sell or the solicitation of an offer to purchase any security, product, or brokerage service. The information is not intended to be used as the basis for investment decisions, nor should the information be construed as advice designed to meet the particular needs of any investor. This commentary is presented to illustrate examples of the securities that North Star Investment Management Corporation and/or its affiliates (“North Star”) may have bought for client accounts and the diversity of markets in which North Star Investments may invest, and may not be representative of current or future investments. You should not assume that the future performance of any specific investment, investment strategy, or product made reference to directly or indirectly in this commentary will be profitable or will be equal to any corresponding performance levels that might be indicated. Past performance is no guarantee of future results. Investments in securities involve risks including the possible loss of the principal invested. North Star and others associated with it, including employees, may have positions in and effect transactions in securities of companies mentioned or indirectly referenced in this commentary. North Star may buy, sell or hold these securities in proprietary or client accounts. North Star will not be providing regular updates or advising you of any changes in the views expressed herein. Investors should consider their investment objectives, risk tolerance, and financial situation and needs before investing in any security. Tax considerations, commissions, fees and other costs should be carefully evaluated with one’s investment and/or tax advisors. Information provided is obtained from sources deemed to be reliable, but North Star cannot guarantee the accuracy or completeness of the information. This material may not be reproduced, distributed or transmitted to any other person in whole or in part without the prior written consent of North Star. A copy of North Star Investment Management Corporation’s Form ADV Brochure, Privacy Notice and Business Continuity Plan summary can be obtained by calling 312-580-0900.

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