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Kuby’s Commentary

Won’t Back Down

Jul 12, 2021

Last Week:

Early in the week, the market was singing “Mama Mia, here I go again!”, as COVID-19 resurfaced. Those fears were particularly apparent on Thursday when Japan declared a state of emergency and announced there would be no spectators at the Summer Olympics. On that news, the market sank over 2% and bond yields retreated to their lowest level since Valentine’s Day. Despite those headwinds, the major indexes managed to finish at record highs on Friday, with only the small caps finishing in the red, but with declining issues outnumbering advancing issues 4-3 following the July 4th holiday. At least for the Big Caps, it was another verse of Tom Petty’s “I Won’t Back Down”, as the S&P 500 gained 0.4%, the Nasdaq added 0.4%, while the Russell 2000 slid 1.1%. The Dollar was steady, Gold advanced 1.6%, and the yield on the Ten-Year Treasury dropped 7 basis points to 1.36%.

There was some evidence that the economy is cooling off, as the ISM services survey for June came in below expectations at 60.1 down from 64.0 in May. A reading over 50 is considered expansionary, so June’s number was still quite strong. There are also geopolitical storm clouds on the horizon, as the actions and rhetoric from China suggest a much less friendly environment for foreign investors and businesses. On the domestic front, we still have higher corporate taxes and anti-trust legislation being discussed.

This Week:

Earnings season kicks off with most of the major money-center banks reporting results for the second quarter. The banks, as well as the S&P 500 as a whole, are forecasted to post record year-over-year results lapping the pandemic devastated results from 2020, which was the worst earnings decrease in a century.

On the economic calendar, Tuesday’s consumer price index release for June from the BLS will be in focus. Economists predict a 4.9% year-over-year rise, consistent with the last two months, and clearly much hotter than the 2.5% target rate. Whereas we embrace the role the Federal Reserve has played using monetary policy to bolster the economy during the two recent crises, we still are concerned that the current verse of “Pretending” that this surge in inflation is transitory could result in a painful reckoning later this year or in 2022. As such, we continue to suggest an allocation to gold as a hedge, as well as short-term TIPS (Treasury Inflation Protected Securities) as a core fixed income holding. Companies that own real assets should fare well, in addition to companies that are able to pass their cost increases on to their customers. Holders of long-term bonds yielding under 2% are accepting a negative real return on their money – a strategy that we don’t think makes any sense.

Stocks on the Move:

+10.7% Pitney Bowes Inc (PBI) sells, finances, rents, and services integrated mail and document management systems. The Company offers a full suite of equipment, supplies, software, and services for end-to-end mail stream solutions. Last week, Pitney Bowes jumped after its competitor,, agreed to a $6.6B private equity sale to firm Thoma Bravo. Analysts are saying Pitney Bowes could potentially be a target for another buyer.

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

-12.9% Phibro Animal Health Corporation (PAHC) operates as an animal health and mineral nutrition company. The Company offers antibacterials, anticoccidials, anthelmintics, vaccines, and nutritional products for the treatment of animals. Phibro Animal Health serves the personal care, industrial chemical, and chemical catalyst industries worldwide. Last week, Phibro Animal Health was downgraded by Barclays on valuation as the Company has risen over 48% this year.

PAHC is a 1.0% 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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