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Kuby’s Commentary

Don’t Fear the Taper

Nov 1, 2021

October is Over

October finished on a high note, with the stock market having recouped all of September’s losses and

reached record highs on Friday. Strong earnings reports from most companies overshadowed near-term weak economic data and disappointing quarterly results from Apple and Amazon. Whereas both of those mega caps missed revenue estimates for the latest quarter and issued cautious guidance due to persisting supply chain problems, earnings season otherwise has been spectacular, including stellar earnings from Microsoft and Alphabet. In fact, 82% of companies in the S&P 500 have reported results that have beaten estimates from Wall Street analysts by an average of 10.4%.

It was more sweet treats for investors as the S&P 500 gained 1.3%, the Nasdaq jumped 2.7%, while small caps rose a more modest 0.26%. The dollar strengthened 0.6%, and gold weakened a similar amount. The yield on the Ten-Year Treasury declined 9 basis points to 1.57%. The yield curve has flattened significantly lately with the short-end rising and the long-end stable. That flattening is consistent with expectations of a slowing economy which was evidenced by the 2% annualized pace of GDP reported in the third quarter.

Even the specter of another holiday – in this case, Halloween – coming and going without an agreement on further government spending programs to prop up the economy, was unable to spook the Wall Street Bulls. Perhaps there will be a deal by Thanksgiving?

Fear Factor

One of the most popular songs during Halloween is the Blue Öyster Cult 1976 classic “Don’t Fear the Reaper.” We suggest modifying the lyrics to “Don’t Fear the Taper,” as the Federal Reserve is expected to make an announcement of a reduction of its monthly purchases of Treasuries and mortgage-backed securities on Wednesday. Perhaps further clarity will also be offered on what “transitory” means to the Fed in terms of inflation. Monetary tightening could be on the horizon, as fed funds futures are pricing in at least two 25-basis-point increases in the target rate by the end of 2022.

Economic reports include updates on construction spending, factory orders, and the latest jobs report. Nonfarm payroll growth is expected to improve dramatically from the disappointing

Stocks on the Move

+22.5% Tesla Inc (TSLA) designs, manufactures, and sells high-performance electric vehicles and electric vehicle powertrain components. The Company’s portfolio includes solar generation and storage products, more than five fully electric cars, and a growing global network of industrial-grade vehicle chargers called “Superchargers.” Tesla dominated headlines last week following the announcement of Hertz Global (OTC: HTZZ) placing a 100,000-vehicle order from the Company. Following Monday’s news of the largest EV deal ever, Tesla reached a $1T market cap on Tuesday.

TSLA is a 0.9% position in the North Star Opportunity Fund.

+72.4% The Marketing Alliance Inc (MAAL) is a network of independent insurance general agencies dedicated to the distribution and administration of selected insurance related products. Last week, a series of trades in the last hour of the week and month pushed the share price higher. North Star believes MAAL to be a highly illiquid stock and the Research Team will continue to monitor its daily valuation.

MAAL is a 1.8% position in the North Star Dividend Fund.

+10.5% 1-800-Flowers.Com Inc (FLWS) is an e-commerce provider of floral products and gifts. The Company’s product offerings include fresh-cut and seasonal flowers, plants, floral arrangements, home and garden merchandise, and gift baskets. Last week, FLWS reported Q3 earnings of -$0.10/share and revenue of $309.37M, up 9.0% y/y. CEO Chris McCann commented that revenue growth was driven by increased brand recognition as well as expanded product offerings.

FLWS is a 3.0% position in the North Star Micro Cap Fund.

+12.2% ARC Document Solutions Inc (ARC) provides large format document reproduction and printing services, mainly to architectural, engineering, building operator, and construction firms. There was no significant company news last week.

ARC is a 1.4% position in the North Star Micro Cap Fund.

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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