Kuby's Commentary

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.

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.

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.

After moving sideways for the first 5 months of 2021 the Big Tech Boys are back in town, with Apple, Microsoft, Amazon, Alphabet, and Facebook dominating the leadership board for the last month. The S&P 500 closed Friday at a record level for the seventh consecutive day, its longest streak of record closes since 1997. Peeling back the onion, the broader market was less tasty, with the Russell 2000 slipping 1.23%, and declining and advancing issues about equal. The economic calendar is light, with Wednesday's release of the minutes from the FOMC's last meeting in focus. Earnings season is on deck with consensus estimates calling for a 65.4% increase versus last year's June quarter that was hit hard by the pandemic. During the second quarter, analysts increased earnings estimates for companies in the S&P 500 by 7.3%, which represents the largest increase in the bottom-up EPS estimate during a quarter since FactSet began tracking the quarterly bottom-up EPS estimate in Q2 2002.

The selling pressure from the previous Friday vanished into thin air, and a bounce-back rally kicked in on Monday morning that continued throughout the week. The S&P 500 rallied 2.7% for the week, the Dow gained 3.4%, the Nasdaq climbed 2.4%, and the Russell 2000 jumped 4.2%. The bond market weakened on Friday as core PCE inflation came in at the highest rate in nearly 30 years, but the damage was minimal with the Ten-Year Treasury finishing up just 10 basis points to 1.54%. Oil and Gas stocks fared the best with crude oil advancing 3.4%, and Financials also rallied after all 23 banks passed the Federal Reserve's stress test, paving the way for share buybacks and dividend increases. There was a notable and historic surge in consumer spending, the largest rate growth since 1946, with clothing spending from consumer 35% higher than it was 2 years ago. It is estimated that 25% of consumers will also have to purchase new clothing given they require new sizing than before the pandemic.

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Since the end of April when Fed Chair Jerome Powell dismissed inflation pressures as being temporary, "transitory" has become the new bullish buzzword for the stock and bond markets. The 5% year-over-year increase in the consumer price index reported on Thursday was the biggest jump since August 2008, but apparently not big enough to disrupt the transitory thesis, as both markets rallied on the news.

The bond market could be suggesting that an agreement on multi-trillion dollars of additional fiscal stimulus might not be achievable given the lack of bipartisan support.

The two-day FOMC meeting that will conclude with a policy statement on Wednesday will be in focus. Any talk of tapering will unnerve the market while sticking to the view that higher prices are transitory will comfort investors. The COVID-19 trends have been very favorable in the U.S. However, there is a reason for concern as the vaccination rates have slowed down.

"The heat is on, it's on (Wall and Main) street, the heat is on, on, on".

The economy has been rebounding sharply, and with that rebound, there has been a surge in inflationary pressures and related concerns over interest rate increases. As such, the market treaded water waiting for Friday's May jobs report for a heat check on employment and the implications for Fed policy.

Treasury Secretary Janet Yellen was busy over the weekend, first championing an agreement with G7 nations on a global minimum tax. Fresh off her return from the G7 meeting in London, Secretary Yellen went on Bloomberg News with a message that Biden should push ahead with his infrastructure plans valued at $4T, even if that pushes inflation into 2022.

On the economic calendar, all eyes will be on the CPI report, which will be a crucial data set for the Federal Reserve in front of the upcoming policy meeting.

All of that and more in this week's Kuby's Commentary.

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.

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.

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.

The employment report for April released on Friday indicated that there were 266,000 new jobs added, versus the approximately one million that were forecasted. Additionally, March's number was reduced by 246,000 jobs, suggesting that there are approximately one million less Americans with jobs than the consensus forecasted Thursday night.

Following another week of earnings beats, the S&P 500 is now reporting an earnings growth rate for the first quarter of 49.4%, compared to an earnings growth rate of 45.8% last week and an earnings growth rate of 23.8% at the end of the first quarter (March 31). Positive earnings surprises reported by companies in multiple sectors (led by the Financials, Consumer Discretionary, and Health Care sectors) were responsible for the improvement in overall earnings for the index during the past week.

The consumer is in focus on Friday with spending data from April as well as The University of Michigan Sentiment Index for May. Both of those readings were very strong last month.