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Kuby’s Commentary

Rocking Around the S&P

Dec 27, 2021

How the Grinch Almost Stole the Stock Market

On Monday the stock market Grinches smelled the Omicron wave of Covid-19, and declared “Stink, Stank, Stunk” – by Thursday the Santa Claus rally had cleared the air leading to the S&P 500 closing at a record high for the 68th time in 2021. Every sector of the market finished in positive territory, with Consumer stocks leading the advances. Small caps surged 3.11%, the Nasdaq gained 3.19%, and the S&P 500 added 2.28%, as early data suggested that the variant was more infectious but less severe. In South Africa, where the Omicron variant was first reported last month, cases appear to have already peaked with relatively few deaths. Additionally, Pfizer’s Covid-19 pill was cleared by the U.S. Food and Drug Administration, after being shown to be 89% effective in preventing hospitalization and deaths. The Dollar weakened fractionally, Gold inched up a nugget, and the yield on the Ten-Year Treasury crept up 6 basis points to 1.49%.

The resilience of the U.S. consumer was highlighted on Wednesday as the Conference Board said its  U.S. consumer confidence index increased to a reading of 115.8 this month from an upwardly revised 111.9 in November. Meanwhile, back in the nation’s capital, the fate of the additional government spending included in the Build Back Better Act remained in doubt. Whereas the shares of the companies in the specific industries that would benefit from that Act have been whipsawed by the twists and turns of the political wrangling, the rest of the market seems to be unaffected.

Our resilience as Chicago Bears fans is being tested. The Monday night 17-9 loss to the Vikings was one of the most excruciatingly frustrating evenings of football in recent history. Sunday afternoon’s 25-24 win over the Seattle Seahawks, on the other hand, seemed like a step in the right direction. Build back the Bears better?

All Is Calm, All Is Bright

It should be quiet week for investors as the period between Christmas and the New Year typically sees stock price gains on about 30% lighter trading volume than normal amid window dressing moves from fund managers. The stock market has gained 1.7% on average in the final week of the trading year and first two days of the new year, but new information about COVID-19 could either sizzle or fizzle that Santa Claus Rally. On the economic front, updates on home prices, jobless claims and the Chicago PMI numbers are on the calendar, but unlikely to move the market.

China’s central bank pledged greater economic support over the weekend, contrasting with steps by the Federal Reserve and other central banks to fight inflation by tightening monetary policies. We believe that relations between the U.S. and China could be a major storyline in the upcoming year. The stock market in China delivered a lump of coal to investors in 2021, declining nearly 20%, and resulting in a single digit weighted average price earnings multiple.

Stocks on the Move

+72.2% Bluerock Residential Growth REIT Inc (BRG) owns interest in a portfolio of more than 50 apartment properties in Virginia, Tennessee, Georgia, Florida, Michigan, and Illinois. The REIT generally invests in joint ventures with local partners, while holding a controlling position. Last week, BRG agreed to be sold to private equity giant Blackstone (BX) in a $3.6B deal. Under the terms of the agreement, Blackstone will acquire 30 multifamily properties as well as a loan book secured by 24 multifamily assets.

BRG is a 1.2% position in the North Star Opportunity Fund.

+11.0% Apogee Enterprises Inc (APOG) designs and develops value-added glass products. The Company offers glass and aluminum windows, storefront and curtainwall systems, and glass for framed art and pictures. Customers include architects, general contractors, glazing subcontractors, and building owners. Last week, Apogee reported Q3 earnings of $0.63/share and revenue of $334.21M (+6.6% Y/Y) which beat estimates by $19.58M. Highlights from the company’s conference call include continued strong cash flow and solid balance sheet as well as sequential margin improvements.

APOG is a 1.2% position in the North Star Micro Cap Fund and a 0.8% position in the North Star Dividend Fund.

+14.2% 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. There was no significant company news last week; however, the North Star Research Team conducted a conference call with the management at QEPC and felt encouraged by the company’s dominant market share across each of its segments, the competitive advantage of being a domestic manufacturer, as well as the strong and flexible nature of its balance sheet.

QEPC is a 2.1% position in the North Star Micro Cap Fund.

+10.0% 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 3.1% position in the North Star Micro Cap Fund, a 0.8% position in the North Star Dividend Fund, and a 2.4% position in the North Star Opportunity Fund.

On behalf of North Star Investment Management, thank you for supporting Kuby’s Commentary in 2021. 

We hope you have a happy and healthy beginning to 2022. 

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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