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Kuby’s Commentary

More Bad News Bears

Oct 3, 2022

Winter Is Coming

The selling deluge continued with the S&P 500 losing 2.9% to finish at its lowest level since Christmas 2020. The storyline remained the same as the PCE, the Fed’s preferred inflation measure, rose a whopping 0.1% more than forecasters expected. Meanwhile, Fed officials on the speaking circuit (can they stop?) maintained their hawkish stance. There was some good news about the economy, as new jobless claims fell below 200,000 for the first time since May. That good news about the labor market was treated as bad news, since it was seen as a sign that the Fed will have to keep raising rates to generate higher unemployment. If you are wondering if that goal makes sense, well, join the club. Additionally, consumer sentiment ticked up fractionally from the previous month, while still registering sharply below the level from a year ago. Reports from Apple (AAPL) and Nike (NKE) provided a more up to the minute gauge of the health of the consumer, as analysts cut estimates on both due to softening demand.

The yield on the 10-year Treasury increased 10 basis points to 3.8%, and the 10-2 spread was steady at an inverted 39 basis points suggesting recessionary concerns. The Dollar retreated modestly from its multi-decade high, while Crude Oil and Gold both advanced modestly. The Utility sector suffered the worst loss, while only the Oil and Gas sector finished in the green at +1.9%.

The rest of the world was even messier, with Russia annexing four regions in eastern Ukraine, conscripting 300,000 new troops, and threatening to use nuclear weapons. Additionally, the Nord Stream pipelines that transport gas to Europe from Russia have leaks that appear to have been caused by sabotage. Winter is coming, so to avoid even worse consequences, a resolution to the conflict needs to be reached.

Across the pond, the Bank of England announced its intention to buy British Government bonds to attempt to offset the pounding of the Pound, which has sunk to near parity with the Dollar following the new government’s huge debt-funded tax cuts.

On the Chicago sports scene the Bears lost to the Giants 20-12 to drop to 2 wins and 2 losses for the season. At the risk of sounding pessimistic, it might be the last time this year that they have as many wins as losses.

Earnings on Deck

Good riddance to September, in which seemingly every financial asset lost 10% of its value. October will kick off with another round of Federal Reserve Bank speakers likely reiterating the plan to maintain restrictive monetary policy until inflation is under control. At some point the market will become numb to that message, rather than selling off.

The economic calendar is busy, with the highlight being the September jobs report on Friday, which is expected to show an increase of 250,000 in nonfarm payrolls. Our conversations with the management teams from our portfolio companies suggests that job cuts are more likely going forward than hiring. We would be interested in hearing from any business owners ( regarding their hiring/firing plans, as well as their budgeting for wage increases.

Earnings season is on deck, with Q3 2022 estimated earnings growth rate for the S&P 500 of just 2.9%, which would mark the lowest earnings growth rate reported by the index since Q3 2020 (-5.7%). During the third quarter, analysts lowered EPS estimates for the quarter by 6.6%, which is a larger margin than average. Valuations have also come down, with the forward 12-month P/E ratio for the S&P 500 is 15.4, below the 5-year average (18.6) and the 10-year average (17.1). Of course, with the dramatic increase in interest rates the lower P/E multiple makes mathematical sense for value investors using discounted cash flow analysis to generate target prices for equity securities. Importantly, our analysis suggests that many individual securities are trading at significant discounts to those expected values.

Stocks on the Move:

-12.5% Acme United Corporation (ACU) supplies cutting, measuring, and safety products for the school, home, office, and industrial markets. The Company produces shears, scissors, rulers, first aid kits, utility knives, manicure products, medical cutting instruments, guillotine paper trimmers, and pencil sharpeners. There was no significant company news last week.

-11.7% 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.

-11.1% Steelcase Inc (SCS) designs and manufactures products used to create high performance work environments. The Company offers products such as office furniture, furniture systems, interior architectural products, technology equipment, seating, and related products and services. There was no significant company news last week.

-11.0% Madison Square Garden Entertainment Corp (MSGE) produces, presents, and hosts various live entertainment events, including concerts, family shows, and special events, as well as sporting events, in its venues including New York’s Madison Square Garden, Hulu Theater, Radio City Music Hall, the Beacon Theater, and The Chicago Theater. The Company also operates entertainment dining and nightlife venues in New York City, Las Vegas, Los Angeles, Chicago, Singapore, and Australia under the Tao, Marquee, Lavo, Avenue, Beauty & Essex, and Cathédrale brand names. There was no significant company news last week.

+26.3% Q.E.P. Co Inc (QEPC) manufactures, markets, and distributes tools and related products for the home improvement market. The Company’s brand names include QEP, O’Tool, and Roberts. Products include trowels, floats, tile cutters, wet saws, spacers, nippers, and pliers that are marketed for the use in surface preparation and installation of ceramic tile, carpet, marble, and drywall. QEPC has a low trading volume and is illiquid. There was no significant company news last week.

+26.7% DallasNews Corporation (DALN) is the Dallas-based holding company of The Dallas Morning News and Medium Giant. The Dallas Morning News is Texas’ leading daily newspaper with a strong journalistic reputation, intense regional focus, and close community ties. Medium Giant is a media and marketing agency of divergent thinkers who devise strategies that deepen connections, expand influence, and scale success for clients nationwide. DALN has a low trading volume and is illiquid. There was no significant company news last week.


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

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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