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Kuby’s Commentary

The Christmas Song on Wall Street

Dec 31, 2018

Last Week:


On Monday, the market suffered its worst Christmas Eve performance on record, with almost a 3% decline on all equity indices. That evening, Carolers sang an altered version of The Christmas Song:

Chestnuts roasting on an open fire
Jack Frost nipping at your nose
Waves of sellers and hardly a buyer
Those gosh darn traders with their momentum algos
Everybody knows a turkey and some mistletoe
Help to make the season bright
Still portfolio managers with their ulcers all aglow
Will find it hard to sleep tonight

They hope the Santa Claus rally is on the way
With a load of buy orders on the sleigh
And every nervous investor is gonna spy
To see if the S&P 500 can really fly

Wednesday and Thursday were miracles on Wall Street, with a record 5% surge on the former followed by the biggest single day point rebound in history on the latter. On Friday, the market changed direction 19 times before closing modestly lower. By the closing bell on Friday, the S&P 500 had posted a 2.9% gain for the week. There wasn’t any news to account for the wild ride, just traders making (or losing) money doing what they do……trading. The yield on the Ten-Year Treasury dropped 6 basis points to 2.73%, matching its lowest level since April Fools Day. The U.S. Government remained in a partial shutdown, as President Trump threatened to close the Southern Border entirely if the “Obstructionist Democrats” do not fund a wall between the U.S. and Mexico. White House officials are also trying to arrange a meeting between President Trump and Federal Reserve Chairman Jerome Powell. The market did respond positively to a story that President Trump was seeking advice from hedge fund managers over strategies to spur a stock market rally. The obvious response has been to settle the trade war with China, stop criticizing the Fed, and end the shutdown. Create a crisis, end the crisis, declare victory.

Meanwhile back on Main Street, U.S. consumer confidence slumped in December to the lowest level in five months as expectations deteriorated, the latest sign Americans are growing less optimistic as stock markets gyrate and the expansion moderates. The measure gauging consumer expectations fell to a two-year low while Americans’ views on present conditions fell slightly.

This Week:

Monday will be the last trading day of 2018, which could create additional company specific tax-related activity. Over the weekend President Trump tweeted that “big progress” was made toward cutting a trade deal with China. The market will likely respond positively if an agreement seems forthcoming. A U.S. trade delegation is heading to Beijing January 7. The Government shutdown will be in focus, as more U.S. agencies are running out of money and a substantial number of workers will be furloughed as the week progresses. News reports suggest that there is only about a $1 billion spread between what Trump is asking for, and what is being offered, although the semantics over whether that money is for a wall or border security remains unresolved.

Friday’s U.S. labor report is forecasted to show another strong month of nonfarm payroll growth in December. A “too hot” or “too cold” reading will induce volatility in the equity markets. Goldilocks would view 180,000 new jobs as “just right”.

Stocks on the Move:

Despite all the volatility, only three of our portfolio holdings displayed a double-digit price change. There was no specific news to account for the price changes.

Kewaunee Scientific, Corp. (KEQU) +19.1%: Kewaunee Scientific is engaged in designing, manufacturing, and installation of laboratory, healthcare, and technical furniture products. Its products include fume hoods, casework, safety cabinets, exhaust systems, and energy saving controls. KEQU is a 2.53% holding in the North Star Dividend Fund.

MGE Energy, Inc. (MGEE) -10.2%: MGE Energy is a public utility holding company. The company, through its subsidiaries, generates and distributes electricity and purchases and distributes natural gas. MGEE is a 1.18% holding in the North Star Dividend Fund.

Unique Fabricating Inc (UFAB) -10.1%: Unique Fabricating is a United States-based company, which is engaged in the engineering and manufacturing of components for customers in the automotive and industrial appliance market. UFAB is a 0.98% holding in the North Star Dividend 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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