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Kuby’s Commentary

Sideways

Jul 1, 2024

Last Week

It was primarily a sidewise stock market, despite a positive read on the global economy from FedEx Corp (FDX) and a benign inflation report, with the PCE registering a +2.6% year-over-year increase. That inflation reading was in line with expectations, supporting the seeming consensus view that at least one Fed interest rate cut is in the cards for 2024. We would take the over on that line as the results for Levi Strauss & Co (LEVI) and Nike Inc (NKE) provided further evidence of developing pockets of weakness in consumer discretionary spending. We don’t think this Fed will want to go down in history as both keeping rates too low for too long as inflationary pressures mounted in 2021 and keeping rates too high for too long as the economy slowed in 2024. The Fed is supposed to be independent and not influenced by politics. Nevertheless, the upcoming election is another factor that could contribute to the timing of future rate cuts.

Speaking of the election, while we generally avoid discussing politics, there was notable sector movement on Friday following Thursday night’s debate that can’t be ignored. Specifically, the Energy and Banking sectors outperformed, while Clean Energy and Cannabis companies declined.

Advancing issues modestly outnumbered decliners, while the dollar and gold were both steady. Small caps led the leaderboard for the second straight week, gaining 1.3%, as the rest of the indices were largely unchanged. The yield on the 10-year Treasury increased 8 basis points to 4.34%, with the 10-2 spread narrowing as the 2-year rate held steady.

On the Chicago Sports Scene, the White Sox and Cubs both remained in last place in their respective divisions.

This Week

The financial markets will close early on Wednesday and will remain closed in observance of the July 4th holiday on Thursday.

The employment outlook will be in focus with the ADP Monthly Private Sector Jobs report on Wednesday and the June Jobs report from the BLS on Friday. The latter is expected to show an increase of 195,000 in nonfarm payrolls, following the surprising 272,000 gain in May. Any significant deviation from that forecast could cause significant market volatility, as many traders will be extending their holidays, leading to less liquid markets.

June Stocks on the Move

The movement of our stocks in June, especially the declines, was influenced by the semi-annual rebalancing of indexes.

+26.4% Axcelis Technologies Inc (ACLS) was up during the month after B. Riley awarded higher price targets to semiconductor stocks. Additionally, the company announced it had expanded its services to Japan to serve the rapidly growing market.

+24.5% Lakeland Industries Inc (LAKE) announced strong first quarter results at the beginning of June and increased its revenue outlook for the full year. The earnings call highlighted several catalysts ranging from a global market expansion to a new strategic sales partnership with LineDrive.

+16.4% Bowlero Corp (BOWL) put a press release saying it had achieved $6 million in sales for its summer season pass, an all-time high, pointing to higher expected foot traffic and interest in the entertainment centers.

+13.9% Value Line Inc (VALU) was up in June without company-specific news.

-11.0% American Software Inc (AMSWA) released a solid fiscal fourth quarter and full year 2024 earnings report at the beginning of the month; however, cautious commentary and ongoing concerns about the consumer going into FY25 spooked investors.

-11.4% Central Garden & Pet Co (CENT) was down in June without company-specific news.

-13.2% Flexsteel Industries Inc (FLXS) was down in June without company-specific news.

-13.8% AstroNova Inc (ALOT) shares slid on dampened first-quarter earnings. The company cited supply chain issues and a large customer pushing out an order to Q2 as the headwinds during the period. However, these challenges are expected to be remedied in the coming periods and management reiterated full-year targets.

-18.2% Signet Jewelers Ltd (SIG) shares were under pressure after its first quarter earnings release reflected a near 10% drop in same-store sales. Below the surface, the company sees momentum going into the second half of the year and is rewarding shareholders through stock buybacks, preferred share redemptions, and debt repayments.

-23.3% Oil-Dri Corp of America (ODC) shares gave back most of its year-to-date gains due to a noisy third-quarter earnings report in early June. The Company incurred elevated costs from freight, strategic advertising initiatives, and acquisitions. Additionally, the company raised its quarterly dividend from $0.29/share to $0.31/share.

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

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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