Weathering the Storm

U.S. stocks snapped a three-week losing streak as the selling pressure abated and buyers, likely either bargain-hunting investors or short-covering traders, emerged. The market rose in three of the four sessions with only the oil and gas sector finishing in the red. The more aggressive indices fared the best with the Dow finishing the holiday-shortened week up 2.8%, the S&P 500 Index rising  3.6%, the Nasdaq shooting up 4.2%, and the Russell 2000 gaining 4.0%. The 10-year U.S. Treasury tacked on 12 basis points during the week to end with a yield of 3.32%, and the 2-year ticked up 15 basis points to 3.55%, with the 23 basis point inverted spread continuing to concern investors as a signal of a possible impending recession.

On the other hand, the national average for a gallon of gasoline continued to decline, reaching $3.71 over the weekend. Although still 15% higher than a year ago, this price level is the lowest since February and 28% lower than the peak that was reached in June. We are particularly encouraged by this downward trend because the North Star strategies tend to be overweighted to consumer stocks, and gas prices at the pump are strongly negatively correlated with consumer confidence. Our cautious optimism about the economy weathering the storm is built on the premise that consumer confidence will rebound from its recent plunge to a multi-decade nadir.

Another positive trend for the economy has been the sharp decline in shipping rates. Ocean shipping rates on major trade routes have fallen by more than half since the beginning of this year, a potential sign of easing inflation pressures and alleviated supply chain logjams. Although the rate remains elevated from pre-pandemic levels, data from Freightos shows the cost to ship a 40-feet container from China to the U.S. West Coast is around $4,300, down almost 72% from mid-January.

Across the pond, the E.C.B. acted hawkishly on Thursday by raising interest rates by 75 basis points, mirroring recent action from the U.S. Federal Reserve. The E.C.B. rate hike comes despite rising concerns of an energy-cost induced recession in Europe this winter. Given that it is a global economy, the trends in both Europe and China, where economic growth has recently slowed meaningfully, might influence the U.S. Federal Reserve’s interest rate increase trajectory. According to Bloomberg, “The [Chinese] economy is now projected to grow just 3.5% this year, down from a previous forecast of 3.9%” and certainly well below the mid- to high-single digits expectations for Chinese economy growth in recent years.

On the Chicago sports scene, we are also feeling cautiously optimistic following the Bears victory over the 49ers, while the White Sox are getting hot at the right time moving ever closer to the top of the AL Central. Unfortunately, the Sky was unable to repeat their title as they were defeated in the WNBA semifinals. The Cubs can enjoy a leisurely September, having already been mathematically eliminated from playoff contention.

Price, Hike, Strike

There are several important economic releases with the Consumer Price Index report for August on Tuesday to be of particular significance. The forecast calls for an 8.1% year over year increase, down from 8.5% in July, and 9.1% in June. The Producer Price Index Wednesday is also expected to show a slowing trend. The University of Michigan Consumer Sentiment Index for September on Friday is estimated to show a third straight month of improvement. The Federal Reserve officials will be watching consumer expectations for inflation in that report, which could influence the size of the interest rate hike at the next FOMC meeting set for September 20th-21st. A close eye will be kept on the rail industry with talks of a possible strike just one week before the contract negotiation deadline expires between major U.S. freight railroads and the unions representing more 115,000 workers.

Stocks on the Move

+13.20% Value Line Inc (VALU) produces investment related periodical publications. The Company also provides investment advisory services to mutual funds, institutions, and individual clients. All total, Value Line collects data and provides analysis on around 7,000 stocks, 18,000 mutual fund and 200,000 options. There was no significant company news last week.

+12.25% Rocky Brands Inc (RCKY) designs, develops, manufactures, and markets men’s and women’s footwear. Its footwear brands, which are sold in retail sporting goods and outdoor stores, include Rocky, Georgia Boot, Creative Recreation, Durango, Lehigh, Honeywell, XTRATUF and licensed brand Michelin. There was no significant company news last week.


The stocks mentioned above may be holdings in our mutual funds. For more information, please visit
www.nsinvestfunds.com.

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