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Kuby’s Commentary

Something is Rotten at Fitchmark

Aug 7, 2023


Wild Ride

It was a volatile week that finished with equity market index losses after Fitch downgraded its U.S. credit rating below the top AAA level; this launched U.S. Treasury yields on a wild ride that somewhat ironically narrowed the 10-year versus 2-year spread to a less economically-ominous 74 basis point inversion at the end of the week from 91 at the end of the prior week and much narrowed from the early July peak inversion of 103 basis points (see chart below). The 10-year Treasury yield ended the week at 4.06% up ten basis points after briefly climbing to about 4.20% earlier on Friday. These intra-week swings in the benchmark yield exceeded 2% at various times, which is somewhat hard to contextualize. Still, we would point to a theoretical equivalent 2% move of 700 points on the DJIA, almost 90 points on the S&P 500, and almost 280 points on the NASDAQ. Perhaps even more surprising, the new AA+ debt rating places the U.S. in the same category as New Zealand, one notch below ten other governments including Singapore and Denmark (where we learned in Hamlet that something is rotten). The resiliency and relative stability and diversity of the U.S. economy likely warrant at least some relative premium rating to these other strong, but more vulnerable economies; after all, while it would not be our preference, the U.S. economy is one of the few in the world that could be an autarky; an autarky is a self-sufficient, independent economic system that needs no external resources of goods and services – something very few countries could sustain. Therefore, we certainly agree with Jamie Dimon, the chief executive of JPMorgan Chase, who said the Fitch downgrade shouldn’t be too concerning, noting that the U.S. is home to the “best economy the world’s ever seen” and that the ratings agency’s decision won’t change that. Dimon added that “The credit is sound, it should be the highest-rated credit in the world.” We agree with that view and share the concerns about the politics in Washington D.C. that add uncertainty to the debt and support the view that the debt ceiling should be abolished.

It was the busiest week in the second quarter earnings season, highlighted on Friday with Amazon jumping more than 8% to its highest in nearly a year following a strong beat and raise, while Apple fell nearly 5% after reporting lower revenue than the year-earlier quarter. Overall, it was a solid week for earnings as the blended year-over-year earnings decline for the second quarter improved to -5.2%  compared to an earnings decline of -7.4% as of last week. If -5.2% is the actual decline for the quarter, it will mark the largest year-over-year earnings decline reported by the index since Q3 2020 (-5.7%). It will also mark the third straight quarter in which the index has reported a year-over-year decrease in earnings. Looking ahead, analysts are projecting the streak of declining quarterly earnings to be snapped at 3, with earnings growth of 0.2% and 7.6%, in the third and fourth quarters respectively.


The economic data releases once again suggested a slowing yet resilient economy. The gain in nonfarm payrolls for July came in below expectations at 187,000, and both May and June’s counts were revised lower by approximately 25,000 jobs. Average hourly earnings, a key figure as the Federal Reserve fights inflation, rose 0.4% for the month, and at a 4.4% annual pace, while hours worked nudged down to 34.3. We believe the wage growth trends are reasonable, although the inflation-obsessed monetary policy hawks would like to see further cooling in wages (excluding their own pay).


On Monday, longtime bearish strategists from Morgan Stanley and Bank of America finally recanted their recession forecasts; hopefully, that won’t be a contrary indicator as the market then declined for the following 4 straight days. The Nasdaq was the worst performer, dropping 2.8%, with the S&P 500 shedding 2.3%, and the Russell 2000 losing 1.1%.


The Cubs scored 36 combined runs in consecutive games against the Reds, marking the team’s highest 2-game run output since 1897. We are officially on the bandwagon now, which we also hope is not a contrary indicator for the rest of the Cubs’ season!

Winding Down

Inflation and consumer confidence releases dominate the economic calendar, with CPI on Thursday, PPI, and the University of Michigan Consumer Sentiment Index on Friday. We believe the recent trend of lower inflation and higher consumer confidence will again be evident.


Earnings season will wind down with just 34 S&P 500 companies reporting results for the second quarter, although many of the small-cap stocks we know well will be reporting results throughout August.

Stocks on the Move

Consistent with the overall rally, there were 53 double-digit advancers during July. Here are the top 10 movers:

+38.56% Bank of Hawaii Corp (BOH) released second-quarter 2023 earnings on July 24th. Despite NIM contraction for the period being more significant than anticipated, investors were encouraged by reassuring comments regarding a healthy, diversified deposit base.

+30.08% Helix Energy Solutions Group Inc (HLX) was an Energy sector winner last month with earnings that reflected higher rates for services, solid cash generation, and more efficient operations. The Company expects these trends to continue through the second half of 2023 and beyond.

+26.70% ProPetro Holding Corp (PUMP) got upgraded by Benchmark Company in July as analyst Kurt Hallead expects to see hedge funds flip their positions to favor U.S. drillers.

+24.86% QCR Holdings Inc (QCRH) reported extremely strong second-quarter earnings on July 26th. The bank holding company saw 12% and 23% growth in loans and deposits, respectively, while maintaining strong asset quality and significant fee income.

+23.34% Signet Jewelers Ltd (SIG) has been climbing since mid-June after a disappointing earnings report, with investors likely trading off the assumption that the stock will beat negative revisions for the rest of the year.

+22.17% Old National Bancorp (ONB) is another bank holding company that signaled a strong deposit base and stable liquidity in its second-quarter earnings release on July 25th.

+21.94% Acme United Corp (ACU) reported encouraging numbers across the board for its second-quarter earnings release on July 21st. Gross margin expanded by almost 5 percentage points, inventory has normalized, and retailer order trends are improving.

+21.91% Heritage-Crystal Clean Inc (HCCI) gained on news of a takeover offer from J.F. Lehman for $1.2B. At a modest 8.5% premium, shareholders are holding out for a competing bid.

+19.27% OceanFirst Financial Corp (OCFC) reported a relatively in-line quarter on July 20th showing improved deposit metrics and asset quality. Most of the gain in the stock is coming from investors interested in this conservatively run bank with almost a 4.3% dividend yield, and are buying in after the broader bank sell-off earlier this year.


We only had 2 stocks that declined double digits. They are:

-34.59% The Shyft Group Inc (SHYF) suffered losses all month, but most of the decline came after indicating deteriorating market conditions during its second-quarter earnings call on July 27th. As such, the company revised its full-year 2023 guidance dramatically.

-20.99% Delta Apparel Inc (DLA) continued its relatively sideways and downward trend during July. We believe the worst market conditions are behind the stock, and results will begin to reflect improvements related to prudent management decisions.

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

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