Chicago: 312-580-0900 | Suburban: 847-831-8831 | Family Office: 312-338-7788 | Financial Planning: 312-440-5028 | Benefits: 847-831-8831

Kuby’s Commentary


Jun 1, 2020

Last Week:

The S&P 500 gained another 3.01%, with the most beaten-up economically sensitive companies outperforming. The yield on the Ten-Year Treasury dropped one basis point to 0.65%, while the Dollar declined 1.5%. Most of the holiday -shortened week’s gains came Tuesday morning following good news that morning from multiple vaccine programs. Meanwhile the U.S. COVID-19 death toll crossed over 100,000. It is safe to say that the market will be very responsive to news relating to the coronavirus, with a second wave of infections on one end of the pendulum and a vaccine on the other.

The market is now trading at the same level as it did on Halloween 2019. Given how much has changed since then, the market’s recovery seems to be both a trick or a treat. As a result of the Coronavirus pandemic corporate earnings have plummeted and unemployment has surged. Another 2.1 million people filed initial claims for unemployment last week, which is (silver lining) the lowest reading since March 14, and the ninth consecutive week of lower (albeit still extraordinarily high) numbers.

The trick is that the Fed has been handing out as many treats as are needed to keep investors on a sugar high while the economy posts record bad numbers. Investors continued to turn to equities as the 0% risk-free interest rates foster the TINA (there is no alternative) dilemma. What remains to be seen is how bad the multi-trillion dollar indigestion will be when the economy recovers enough to take the candy bowl away.

One also has to wonder if a new Cold War is developing. For those with short memories, in the fall of 2018 the market tumbled 20% as the perception of the “trade war” with China evolved from a negotiating strategy to the reality of a costly implementation of tariffs that threatened to disrupt global commerce. Unfortunately, the bellicose rhetoric is heating up again in U.S.-China relations. Jitters were calmed somewhat on Friday when President Trump’s targeted measures did not spill over into financial markets trading or undo last year’s much hyped phase-one trade agreement. This storyline could very well be a dominant theme between now and the election in November.

The protests across the country in response to the in-custody death of George Floyd in Minneapolis devolved into rioting in dozens of American cities. Curfews were enacted in more than two dozen cities and the National Guard was summoned in over a dozen states. In Chicago, looters smashed windows on the Magnificent Mile and in the Loop, attacked the CPD and set fire to their squad cars.

The wall of worry is about as high as I can remember, so far the market is living up to the adage and climbing it.

This Week:

At the risk of being redundant, developments related to COVID-19, China, and the riots are the primary storylines that will influence the markets. On a positive note, the downward trend in the data for the coronavirus remains in place, so far without any significant surges as the States relaxed their restrictions. Stock futures moved marginally lower on Monday morning after the Chinese government halted some U.S. farm imports as it evaluates the escalation of tensions with the U.S. over Hong Kong. Finally, the riots are taking a toll on the reopening of the economy, as businesses across the country turn their attention to cleaning up the damage or protecting their property rather than welcoming back their customers. Chicago Mayor Lori Lightfoot said they city was considering postponing the reopening of businesses that was scheduled for Wednesday after being closed for 10 weeks.

There are a number of economic releases and a few quarterly earnings reports also on the calendar. Friday’s jobs report is expected to show an unemployment rate of 19.6% in May, the highest since the 1930s.

Final Thoughts:

My theme for the last few months has been to keep breathing, but not on anyone. Tragically George Floyd was not given that opportunity. Now more than ever Pink Floyd’s lyrics are worth embracing:

“Breathe, breathe in the air
Don’t be afraid to care
Leave but don’t leave me
Look around, choose your own ground
For long you live and high you fly
And smiles you’ll give and tears you’ll cry
And all your touch and all you see
Is all your life will ever be”

It seems appropriate that those words could be my final song from the quarantine.

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.

Sign up to receive a weekly email with Kuby’s Commentary.

    This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply.

    Recent Kuby’s Commentaries
    Kuby’s Commentary & Quarterly Update Archives