Five Things You Need to Know: Why Does It Feel So Bad?
In the S&P 500, 173 stocks are down more than 10% just year-to-date.
Kevin Depew's daily Five Things You Need to Know to stay ahead of the pack on Wall Street:
1. Why Does It Feel So Bad?
Perhaps because it is so bad... at least for the "average" stock.
- According to data in USA Today, almost 1,000 stocks in the S&P 1500 are in a "bear market", down 20% from their highs, and nearly triple the number that fell 20% or more in 2006.
- Meanwhile, yesterday on the Buzz & Banter we took a look inside the S&P 500 and S&P 100 to get a sense for what those indices look like internally.
- Because they are capitalization-weighted, meaning the biggest stocks have the most say over the indices performance, the movement of the indices can be deceptive.
- What we found was that in the S&P 500, only 77 stocks are actually up year-to-date.
- Incredibly, 173 stocks are down more than 10% just year-to-date.
- In the S&P 100, the largest 100 stocks in the S&P 500, only 24 stocks have eked out a year-to-date gain, and 24 are down more than 10% year-to-date.
- Meanwhile, the bullish percent risk indicators we follow are now simultaneously all below the 30% level for the first time since October 2002.
- While they remain negative, for now, reversal up from these low levels have, historically, been among the best buying opportunities.
- Stay tuned.
For more on the bullish percent concept, check out the following article from Minyanvile's Education section: Bullish Percent Primer by Kevin Depew
2. Freddie Mac
Late yesterday while no one was really looking Moody's Investors Services said it may cut Freddie Mac's (FRE) financial strength rating on expectations of greater than expected credit losses.
- Moody's said it may lower Freddie's financial strength rating from A-, the second-highest grade.
- What exactly is this so-called "financial strength rating" anyway, and why do we care?
- A company's financial strength rating measures the likelihood a company will need financial assistance from a third party, such as the government or its shareholders.
- Freddie Mac owns or guarantees one in five U.S. home loans, so a downgrade in the company's financial strength rating could have a variety of ripple effects throughout the home mortgage industry, ultimately making it more expensive for Freddie Mac to operate.
- "In its review, Moody's will focus on Freddie Mac's asset quality and the potential that the company may experience an elevated level of credit charges over the near to medium term,'' analyst Brian Harris said, according to Bloomberg.
3. [Insert Own Christmas Retail Sales Pun Here]
Wherever one looks, from Wal-Mart (WMT) to Target (TGT), Limited (LTD), Gap (GPS) the story is pretty much the same: December sales declines for retailers were driven primarily by declines in traffic, or in the case of sales increases, were driven primarily by discounting.
- December, of course, is a crucial time for retailers, which is why the numbers are garnering so much attention.
- Stores typically count on November and December for about a fifth of their annual sales.
- While Wal-Mart said sales climbed 2.4%, the company was aggressive in pricing going all the way back to August and September.
- Otherwise, both Wal-Mart and Target noted a theme similar to the Family Dollar (FDO) story we highlighted yesterday, that consumer discretionary items were among the weakest merchandise categories, while healthcare and consumer perishables were among the strongest.
- Meanwhile, we saw this interesting statement from Sherif Mityas of the consulting firm, A.T. Kearney, in a Bloomberg story on retail sales:
"Retailers have created a bunch of procrastinators waiting for the markdowns they knew were going to come," Mityas said.
- That statement caught our interest because the psychological process of pushing back purchases in anticipation of price decreases is the hallmark of a deflationary spiral.
- The Federal Reserve has been able to "create" some inflationary pressures, but they are failing to decrease the purchasing power of money fast enough to counteract the underlying, secular deflationary psychology now becoming entrenched on the back of a collapse in housing prices.
For more retail sales analysis check out Minyanville's Retail Roundup by Jeff Macke.
4. Capital Zero Point Zero One?
Capital One Financial (COF), the largest independent U.S. credit-card issuer, reduced its full-year profit forecast by nearly 20% due to increasing loan losses.
- What a difference 30 days makes.
- Last time we heard from Capital One, the company was sticking to its assumptions about the pace of degradation in the housing market, and the "return to normalization" of credit performance.
- As expected, those assumptions are proving a little too rosy.
- The company had anticipated full-year charge-offs to stay in a range of $4.59 to $5.5 billion.
- The top end of that range has now expanded to $5.9 bln.
- The rate of loans at COF that were 30 days or more overdue in December rose to 3.87%, the company said, compared to 3.68% reported a month earlier.
- Charge-offs in the U.S. credit-card segment rose to 5.74% from 5.34%
a month earlier.
- The stock is now back down to April 2003 levels.
5. Consumer Credit
Speaking of credit cards, yesterday's consumer credit numbers showed consumer credit expanded at nearly double expectations, coming in at an increase of 7.4% year-over-year in November, far above October's 1% annual rate of increase.
- Revolving credit increased by a whopping 11.3% in November.
- Balances are now surging at an 11% annual rate, despite many retailers reporting weak traffic and declining transaction totals.
- So where is that credit expansion flowing, if not to consumer discretionary items?
- Probably staples and energy.
- And that kind of credit consumption is pretty much the definition of consumer balance sheet stress.
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