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Kuby’s Commentary

Jam Tomorrow

Oct 19, 2020

For the next few weeks, we are going to format the Blog to cover the topics that seem to be of most interest, those being the markets, stimulus, economic reports, earnings reports, and COVID-19. We would appreciate any relevant feedback on this new layout.

The Markets:

The S&P 500 jumped nearly 2% Monday morning on iPhone 12 enthusiasm, but then slowly faded over the week to finish up a modest 0.2% by Friday’s close. Within the market tech stocks dominated on Monday and Tuesday, while more cyclical “value” sectors outperformed the last three days. Small cap stocks fared worse, with the Russell 2000 finishing fractionally lower. The yield on the Ten-Year Treasury slipped 4 basis points to 0.74%, while Gold declined 1.5% back to $1900, and the Dollar was unchanged slightly above its lowest level since early 2018.


To quote the White Queen in Lewis Carroll’s 1871 classic Through the Looking-Glass, and What Alice Found There:

“The rule is jam tomorrow and jam yesterday—but never jam today.”

The Democrats seem firm at a $2.2 trillion program, the White House is currently at $1.8 trillion, and the Senate is preparing a $500 billion stand-alone bill in support of the Payroll Protection Program.

Nancy Pelosi and Steven Mnuchin spoke at length Saturday night and a deadline was set to make additional progress by Tuesday night. It is beginning to seem likely that the tomorrow we are waiting for (to get our jam) won’t come until after the election.

Economic Reports:

Initial jobless claims for the week increased to 898k, up from 845k the previous week, and approximately triple the pre-pandemic average. Another negative data point was a surprise drop in U.S. industrial production in September.

The inflation data was mixed with a tame Consumer Price Index, but a 0.4% jump in the Producer Price Index. Producer price changes tend to forecast future consumer price movements.

Spend baby spend! Retail sales for September came in +1.9%, which comfortably exceeded forecasts, and the Michigan Consumer Sentiment Index in October rose with the Expectations Index increasing the most. There will be jam tomorrow!

Earnings Reports:

Third quarter earnings season is off to a good start, although there is still going to be a sharp year-over-year decline. Due to the number and magnitude of positive EPS surprises, the blended earnings decline for the third quarter is smaller now relative to the end of last week at -18.4%, compared to a year-over-year decline in earnings of -20.4% last week and a year-over-year decline in earnings of -21.0% at the end of the third quarter. Positive earnings surprises reported by companies in the Financials sector were mainly responsible for the decrease in the overall earnings decline during the past week. Curiously, the Financial sector stocks modestly underperformed during the week.


There were the highest number of new weekly cases since July. The seven-day average of new cases hit record highs in 20 states. While the initial surge of the virus was in densely populated urban areas, it is now hitting the rural regions, suburbs, and small cities hardest. The news is equally bad globally, with cases surging in Europe, India, Russia, and many other areas. Pfizer announced Friday there would be no coronavirus vaccine before the election. And a new study questioned the effectiveness of Remdesivir, a drug used to treat hospitalized COVID-19 patients. With so many brilliant scientists working feverishly to develop therapeutics and vaccines, we are confident that in the not too distant future this pandemic will be under control. For now, please exercise good judgement and stay safe. Fall is here and Winter is coming.

Next Week:

Will there be jam? Stimulus talks will dominate the headlines. Earnings season will pick up speed 96 S&P 500 companies (including eight Dow 30 components) are scheduled to report results for the third quarter.

The housing market dominates the economic calendar early in the week, with forecasts calling for continued strength. We think that the Initial Jobless Claims on Thursday is worth notice after last week’s disappointing reading.

Needless to say, COVID-19 news will remain of utmost importance.

Stocks on the Move:

PRTS Inc is an online provider of automotive aftermarket parts and repair information. The company principally sells its products to individual consumers through its network of websites and online marketplaces. The company’s products consist of collision parts serving the body repair market, engine parts to serve the replacement parts market, and performance parts and accessories. This week, online retailers in general saw some gains due to Amazon’s Prime Day. PRTS is a 6.31% holding in the North Star Micro Cap Fund and a 2.59% holding in the North Star Opportunity Fund.

OESX -10.8%: Orion Energy Systems Inc is a developer, manufacturer, and seller of lighting and energy management systems. Orion Engineered Systems segment, which is the key revenue driver, develops and sells lighting products, and provides construction and engineering services for commercial lighting and energy management systems. The company serves energy service companies, electrical contractors, national accounts, and electrical distributors. This week, the company got a new CFO after the planned retirement of William “Bill” Hull. Orion gave a welcome in a press release to J. Per Brodin who will start on October 19th.  OESX is a 5.57% holding in the North Star Micro Cap Fund and a 5.56% holding in the North Star Opportunity Fund.

HEAR -10.6%: Turtle Beach Corp is a gaming audio and accessory brand offering a broad selection of gaming headsets for Xbox, PlayStation, and Nintendo consoles, as well as for PC, Mac, and mobile/tablet devices. The company’s portfolio includes gaming headsets, PC gaming headsets, PC gaming keyboards, PC gaming mice and other accessories which are sold at thousands of storefronts, including retailers such as Amazon, Argos, Best Buy, GAME, GameStop, EB Games, Media Markt, Saturn, Target and Walmart. This week, concerns over more aggression into peripheral areas from Apple (AAPL) contributed to Turtle Beach’s downtick. HEAR is a 4.96% holding in the North Star Micro Cap Fund and a 1.41% holding in the North Star Opportunity Fund.

TACO -13.2%: Del Taco Restaurants Inc is a restaurant operator company. It is a franchisor of restaurants featuring fresh and fast made-to-order cuisine, including both Mexican inspired and American classic dishes. The company holds approximately 564 Del Taco restaurants, a majority of these in the Pacific Southwest. This week, the company released in-line earnings with Q3 revenues of $120.8 million. TACO is a 1.92% holding in the North Star Micro Cap Fund.

ETH +10.0%: Ethan Allen Interiors Inc. is a U.S.-based company that manufactures and retails home furnishings and accessories. The majority of revenue within Wholesale is generated by upholstered products, and the majority of revenue for the overall company is derived from the Retail segment. There was no significant company news this week, although investors may be starting to warm back up to consumer stocks. ETH is a 1.48% holding 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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