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Kuby’s Commentary

My Way or The Highway

Oct 26, 2020


The high for the week was set on the opening Monday morning, but those modest gains quickly evaporated by lunch time as the S&P went negative -0.5%, and basically stayed around that level the rest of the week. Small and Mid-Cap stocks fared slightly better, and advancing issues outpaced decliners 8-7. The tech-heavy Nasdaq lost 1.06% ending a four-week winning streak. Bank stocks were the biggest winners advancing 6.4% as the yield on the Ten-Year Treasury rose almost 10 basis points to its highest level since June at 0.84%. The steepening of the yield curve is viewed as a significant positive for the banking industry. The Dollar slipped 1% and Gold remained anchored at $1900.


The White Queen repeated her refrain that “the rule is jam to-morrow and jam yesterday, but never jam to-day”. The White House wants jam before the election but does not want aid for state and local governments to be included, and Senate Republicans want a skinny deal. House Democrats have been clear that aid to states and local governments need to be included, and that a skinny deal is unacceptable. Possible music tracks for this comedy (tragedy?) could be “You Can’t Always Get What You Want”, “My Way”, or a 1980s heavy metal tune from a band called Y&T “My Way or The Highway”.

In any event, at this point in the story the market has priced-in that there will be significant additional fiscal stimulus, but “to-morrow” is not going to be before the elections.


The jobs market continued to rebound from a very depressed base as weekly new claims for unemployment fell 55,000 to 787,000, the lowest level since the pandemic hit in March. The housing market remained strong as Single-family homebuilding, the largest share of the housing market, jumped 8.5% to a rate of 1.108 million units last month. But starts for the volatile multi-family housing segment fell 16.3% to a pace of 307,000 units. Overall, housing starts increased 1.9% to a seasonally adjusted annual rate of 1.415 million units last month. The record low mortgage rates and low levels of housing inventory have created a very positive backdrop for the housing market.


Corporations are comfortably clearing the very low bar of a year-over-year decline of -21% in earnings   that was set at the end of the third quarter. In fact, the percentage of S&P 500 companies beating EPS estimates for the third quarter and the magnitude of the earnings beats are at or near record levels. As a result, the index is reporting higher earnings for the third quarter today relative to the end of last week and relative to the end of the quarter. Despite the increase in earnings, the index is still on track to report a -16.5% decline, the second largest year-over-year decline in earnings since Q2 2009. Positive earnings surprises reported by companies in multiples sectors (led by the Financials, Health Care, and Consumer Staples sectors) were responsible for the decrease in the overall earnings decline during the past week.


The news is very bad with cases and deaths on the rise globally. In our home state of Illinois half of the counties have been placed on the warning list as the daily number of new infections shattered its previous record. U.S. cases have been exceeding the previous peaks reached in July with over 80,000 and deaths and hospitalizations are on the rise as well. Vaccine trials continue, perhaps not quite at warp speed, but certainly much faster than any other vaccine development in history. Nevertheless, the best-case timetable for widespread distribution of a vaccine would be March 2021. Therapeutics will be the bridge to the vaccine, and last week Gilead Sciences’ antiviral therapy Remdesivir became the first. COVID-19 treatment to obtain formal FDA clearance. The approval is based on a trial that found that hospitalized coronavirus patients recovered about five days faster when taking Remdesivir.

Next Week:

It will be the busiest week of earning season with 183 S&P 500 companies reporting results, with the Mega-Cap Tech stocks leading the parade.  Consumer confidence will be in focus on the economic calendar with economists calling for a strong reading on Tuesday for the October Consumer Confidence Index as well as the October Michigan sentiment on Friday. The Bureau of Economic Analysis reports its advance estimate for third-quarter gross domestic product.    A 33% surge in quarter-over quarter GDP is expected to be reported to follow on the 31.4% drop in Q2. Despite the strong bounce in Q3, the Fed’s official forecast for this year is for GDP to decline 3.7%, which would mark the biggest single year drop since World War II. On Friday, the BEA report on personal income and expenditures for September could also be of interest.

Stocks on the Move:

ACU +11%:
Acme United Corp. has been a supplier of innovative cutting, measuring, first aid and sharpening products to the school, home, office, hardware, sporting goods and industrial markets. Its top brands include First Aid Only, PhysiciansCare, Pac-Kit, Spill Magic, Westcott, Clauss, Camilius, Cuda, and DMT. Last week, the Company reported in-line earnings with Q3 GAAP EPS of $0.46 and revenue of $43.3 million, up 17% year-over-year. ACU is a 0.83% holding in the North Star Dividend Fund, a 2.28% holding in the North Star Opportunity Fund and a 3.40% holding in the North Star Micro Cap Fund.

BOH +12.6%:
Bank of Hawaii Corp. is one of the top two banks in Hawaii, with $14 billion in assets and over 30% of the state’s deposits. It has about 65 branches in its home state and nine in the west Pacific. This morning, the company reported Q3 earnings of $0.95 per share, beating consensus estimates of $0.84. The company also approved a quarterly. Cash dividend of $0.67 per share. BOH is a 2.21% holding in the North Star Dividend Fund.

FHB +13.8%:
First Hawaiian Inc. is a bank holding company. It provides a diversified range of banking services to consumer and commercial customers. Last week, First Hawaiian surpassed earnings and revenue estimates with NIM at 2.70%, an increase of 12 basis points, and noninterest income of $48.9 million. FHB is a 1.64% holding in the North Star Dividend Fund.

FLWS -12.6%: Inc. is a provider of gourmet food & gift baskets, consumer floral, and BloomNet wire service. Gourmet food and gift baskets and consumer floral jointly account for the majority of the company’s total revenue. The company offers products through multiple brands, such as Harry and David, The Popcorn Factory, Cheryl’s, Fannie May,, Wolferman’s, Fruit Bouquets by, and Stock Yards. Ahead of an earnings release scheduled for Thursday, 10/29, is expected to deliver a year-over-year increase on higher revenues. FLWS is a 3.53% holding in the North Star Micro Cap Fund.

SGC -13%:
Superior Group of Companies Inc. is engaged in designing, manufacturing, and distribution of uniforms to major domestic retailers, foodservice chains, transportation, and other service industries. It provides customer-specific uniform eStores, custom image apparel, corporate identity apparel, career apparel and accessories including remote staffing solution and call center operations. The company will announce its third quarter earnings on Thursday, 10/29, and estimates are projecting $0.30 EPS and revenues of $107.37 million, up 20% from Q32019. SGC is a 1.83% holding in the North Star Micro Cap Fund.

Personal Note:

Happy 65th anniversary to my wonderful parents R.J. And Alma Kuby. They have adjusted well to the pandemic by moving all their cultural activities (concerts, operas, plays, literature classes) to streaming services and by taking long walks in the very beautiful Jackson Park. Observing them enjoying life reinforces the lesson that we cannot change the cards we are dealt, just how we play the hand.

Well played Mom and Dad!

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