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Kuby’s Commentary

October Treats

Oct 18, 2021

This Market Does Not Spook Easily

October 2021 is shaping up to have more treats than tricks, following a scary September.

After a rough start to the week, the market mounted a powerful rally on Thursday and Friday, with the S&P 500 posting a 1.82% gain to reach its highest level in a month and representing its best week since July.  All the other equity indexes enjoyed similar returns, with the tech-heavy Nasdaq leading the parade with an advance of 2.18%. A series of upside earnings reports from Wall Street’s biggest banks, coordinated plans to unclog the supply chain, better than expected economic data, and improvement in the COVID-19 trends, all contributed to the bullish tone. Financial heavyweights Goldman Sachs, J.P. Morgan, and Bank of America were among the firms topping consensus estimates. U.S. retail sales data came in stronger than expected and initial jobless claims posted their lowest numbers since the pandemic began. The CPI ran slightly hotter than expected, but the PPI posted its smallest advance of the year. Perhaps the best news was that the daily average of new COVID-19 cases dropped to less than half its level from a month ago.

Energy prices continued to soar, with Crude Oil closing at $82.28 up another 3.7%. The Dollar inched down while Gold gained fractionally, and the yield on the Ten-Year Treasury retreated from recent highs to finish down 4 basis points to 1.57%, but the two-year yield climbed to its highest since February 2020 at 0.36%.

On the Chicago sports scene, the Sky staged a thrilling fourth-quarter rally at the Wintrust arena to secure an 80-74 victory over the Phoenix Mercury and capture the WNBA title! Our other teams were less fortunate, as the White Sox season ended with a 10-1 loss to the Houston Astros, while Aaron Rogers and the Green Bay Packers ruined a beautiful day at Soldier Field beating the Bears 24-14.

Beating Expectations

Earnings season kicks into gear with 80 S&P companies reporting results for the third quarter. Profit growth is expected to be very strong, with consensus estimates now indicating an increase of 30% this quarter, up from 27.5% last week. Once again, companies are crushing earnings estimates, so far by an average of 16% vs. the long-term average of 4%.

On the economic calendar, there are reports on building permits, housing starts, the Philadelphia Fed manufacturing index, existing home sales, and leading economic indicators. Traders will be paying attention to the Federal Reserve’s beige book report for any new clues on the health of the economy and the related implications for monetary policy.

The House of Representatives will continue to search for a satisfactory compromise on the reconciliation bill as a condition to approving the infrastructure bill that was passed on August 10th in the Senate. Any progress on that currently stalled infrastructure bill could propel select equity sectors, such as Basic Materials and Financials, higher. Unfortunately, the current tone suggests that such a compromise is not imminent.

Stocks on the Move

-21.4% CatchMark Timber Trust (CTT) operates as a real estate investment trust. The Company engages in timberland ownership and management, which includes about 435,000 acres of such property, without ownership of any forest products and other manufacturing operations (logging/wood products). Last week, CatchMark cut its dividend in half and announced it had exited the joint venture in TexMark Timber Treasury.

CTT is a 0.9% position in the North Star Dividend Fund.  

+10.6% 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.

ACU is a 3.0% position in the North Star Micro Cap Fund and a 0.8% position in the North Star Dividend Fund.

+10.2% AstroNova Inc (ALOT) designs, develops, manufactures, and distributes a broad range of specialty printers and data acquisition and analysis systems, including both hardware and software. Its target markets are apparel, automotive, avionics, chemicals, computer peripherals, and communications. There was no significant company news last week.

ALOT is a 1.1% position 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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