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

End of Quarter Fireworks

Jul 6, 2020

Last Week:

Despite the general absence of fireworks (Mount Rushmore and other exceptions noted), the market enjoyed a festive pre-holiday rally with the S&P 500 gaining 4.02% and the Nasdaq Composite reaching a new record high. Three cheers for the Red, White, and Blue! For the quarter, the market posted its best performance in 33 years, parenthetically during one of the worst economic quarters on record.

The week got a good lift off on Monday with the announcement that the Federal Aviation Administration began key flights tests for Boeing’s 737 MAX. The grounding of the 737 MAX has been a major headwind for many companies that are suppliers to the aerospace giant. On Thursday Pfizer announced encouraging testing results on their coronavirus vaccine and “project lightspeed” timetable to manufacturer 100 million doses by the end of 2020, and 1.2 billion doses in 2021. Additionally, on Thursday there was more evidence that the economy is faring better than expected as the June payrolls report showed 4.8 million jobs were added. (I would be careful about reading too much into the monthly employment numbers as they have become wildly volatile and extremely difficult to accurately calculate.)

The yield on the Ten-Year Treasury moved up 3 basis points to 0.67% and the dollar remained stable. The strong currency, low interest rates, and rising consumer confidence are the foundation on which the economic recovery can be built.

Gold continued its recent climb. We still believe that King Midas’ metal offers a good hedge to the possible fall-out from the global trend of expansionary central bank policies and legislative expansionary fiscal policies.

This Week:

Global equity markets got off to a great start on Monday after China’s influential state media published a front-page article stressing the importance of a bull market to the economy following the coronavirus pandemic.

On the domestic front, economic reports of interest include July Purchasing Managers Index, Producer Price Index, and the weekly new jobless claims.

Earnings season is coming up for Q2 2020, with an estimated earnings decline for the S&P 500 of -43.8%. If -43.8% is the actual decline for the quarter, it will mark the largest year-over-year decline in earnings reported by the index since Q4 2008 (-69.1%). During the quarter analyst lowered estimates by a record 37%, while a record number of companies have withdrawn guidance. Through July 2, 185 S&P 500 companies had withdrawn or confirmed a previous withdrawal of annual EPS guidance for FY 2020 or FY 2021.

The ongoing Covid-19 news flow continues to overwhelm economic data reports and earnings reports many days. Depending on which media source you embrace the news is either encouraging (lowest number of deaths since the end of March) or alarming (record number of new cases and outbreaks in various hotspots).

Stocks on the Move:

LRN +18.6%: K12 Inc. is an American online educational company. The company offers alternative programs to traditional on-campus schooling. K12 also operates state-funded virtual charter schools around the United States. The likely continuation of schools needing to offer online education bolsters the prospects for LRN. LRN is a 2.79% holding in the North Star Micro Cap Fund and a 1.33% holding in the North Star Opportunity Fund.

ALOT +15%: AstroNova Inc. designs, develops, manufactures, and distributes a broad range of specialty printers and data acquisition and analysis systems, including both hardware and software. The company caters to aerospace, apparel, automotive, avionics, chemicals, computer peripherals, communications, distribution, food and beverage, general manufacturing, packaging, and transportation segments of the market. Shares rallied on the news that The FAA began 737 MAX testing. ALOT is a 1.81% holding in the North Star Dividend Fund

SII +12.3%: Sprott Inc. is an alternative asset manager focused on precious metals investments. Its largest revenue source is from its Exchange Listed Products segment. This segment provides management services to the company’s closed-end physical trusts and exchange traded funds, both of which are actively traded on public securities exchanges. The Company’s shares started trading on the NYSE giving it better exposure to U.S. investors. SII is 1.41% holding in the North Star Dividend Fund.

BHB -17.5%: Based in Maine, Bar Harbor Bankshares Inc. is a bank holding company that offers a full range of financial services products, brokerage services through a third party brokerage arrangement and also trust and investment management services to individuals, businesses, non-profit organizations and municipalities. We noted with curiosity in last week’s recap that the shares had rallied while the bank sector had been under enormous selling pressure. This week it was the exact opposite. BHB is a 1.58% holding in the North Star Dividend Fund.

Final Thoughts:

I was trying to think of uplifting Independence Day music, and it seems to be a pretty short list:
1) Born in the U.S.A. by Bruce Springsteen
2) The Star-Spangled Banner (Jimi Hendrix version of course)
3) God Bless America
4) U.S. Blues by the Grateful Dead
5) 1812 Overture
6) America by Neil Diamond
7) American Pie by Don McLean
8) America the Beautiful

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