Market Watch : An Ugly Quarter in Stocks
Anyone who has even taken a passing glance at newspaper headlines in the past few months can’t be surprised at the stock market’s biggest winner during the third quarter: energy stocks.
A breakdown of the performance of the Standard & Poor’s 500-stock index by industry group underscores the point. Oil and oil services companies accounted for four of the six groups that posted a positive performance in an otherwise disastrous quarter.
The other two: gold, which was boosted by the prospect of war, and a category called “miscellaneous health care” consisting of only two small companies that didn’t appreciate much but didn’t do as poorly as the rest of the market, either.
Other than that, no matter how you played this game, you were sure to lose.
For example:
You said, “War is imminent. I’ll invest in defense stocks.”
BUZZZ. Nice try, but no prize. The defense/ aerospace group is down about 21%.
You said, “A recession is coming, but people have to eat. I’ll invest in food companies.”
Keep trying. The “foods” category, which includes companies such as General Mills and Ralston Purina, is down 11%. Retail food chains are down nearly 16% and food wholesalers are off 14.5%.
“Escapism is in. How about entertainment concerns?”
Bad answer. Entertainment is down about 22%. The price of restaurant companies slipped more than 26%, and other leisure-time companies are off a staggering 44% the past three months, according to an analysis of the S&P; 500 provided by Smith Barney, Harris Upham & Co. in New York.
“OK, how about the environment? Investors were into Earth Day. Let’s hear it for pollution-control stocks such as Browning-Ferris, Rollins Environmental, Waste Management and Zurn Industries.”
Thank you for playing. Pollution control: down 27.6%.
Buck up. You probably would have done better picking the losers. There was plenty of logic going into the downside.
The United States is facing a period of stagflation--rising inflation coupled with a stagnant economy. Who will be hardest hit? Anyone who lends money, because they are likely to be paid back with cheaper dollars--if they get paid back at all. Right?
The answer is . . . Yes! Financial companies account for four of the 10 worst-performing groups.
Major regional banks, such as Wells Fargo and First Interstate, have declined 35.8%. Savings and loan companies have seen their stock prices plunge 36.2%. The so-called “other major banks”--Security Pacific, BankAmerica, Bank of Boston and Mellon Bank--are down a staggering 39.1%. And the two companies that make up the personal loan category, Beneficial Corp. and Household International, are off a cumulative 38.5%. Just outside of the top 10: Money center banks are down nearly 35%.
So this wasn’t such a fun game in the third quarter.
How about the fourth?
A. Marshall Acuff Jr., portfolio strategist at Smith Barney, is betting on utilities. They’ve had strong performance the past month, and he expects that to continue. Otherwise, a wide variety of stocks are likely to stop falling--but few will do well, he said.
Dennis E. Jarrett, chief market analyst at Kidder Peabody, is keeping his money on oil and energy stocks.
“They have been outperforming very nicely but, on an absolute basis, they haven’t even begun to move,” Jarrett said. He’s also hot on electronic-related defense companies such as Loral Corp.
Hugh A. Johnson, chief investment officer at First Albany Corp., thinks some alternative-energy companies will take off. Companies such as Ashland Coal and California Energy, a geothermal concern, should benefit from today’s high oil prices, Johnson said. Meanwhile, he expects blue-chip stocks with household names such as Borden, Philip Morris and Corning to lead the market.
Personally, as the host of this fast-paced and difficult game, I’m beginning to think that those dull, old-fashioned--but federally insured--certificates of deposit are beginning to look mighty fine.
Stay tuned for the December edition of Stock Market Wingo, where the winners win big and the losers get no consolation prizes.
Market Beat’s regular columnist, Tom Petruno, is on vacation.
THIRD-QUARTER WINNERS
Stock industry groups that led the market for the period June 29 to Sept. 27: Group: Change Oil & Gas Drilling: +10.8% Gold: +9.4% Oil-Domestic Integrated Cos.: +4.5% Oil-Int’l Integrated Cos.: +4.1% Oil Well Equipment & Services: +2.0% Health Care Miscellaneous: +0.6% Natural Gas: -1.5% Aluminum: -2.9% Coal: -3.8% Tobacco: -4.1%
Source: Smith Barney, using S&P; indexes
THIRD-QUARTER LOSERS
Stock industry groups that performed worst for the period June 29 to Sept. 27: Group: Change Hotels & Motels: -52.3% Leisure Time: -44.1% Computer Software & Services: -43.0% Homebuilding: -41.4% Other Major Banks: -39.1% Machine Tools: -38.9% Personal Loans: -38.5% Retail: Specialty Apparel: -38.3% Savings & Loan Cos.: -36.2% Major Regional Banks: -35.8%
Source: Smith Barney, using S&P; indexes
