The benchmark S&P 500 Index has slumped 7.2% this year, as 465 member companies are in the red.
The rout has been led by energy and commodity companies, and it’s too early to say whether Friday’s strong rally for oil and natural gas prices signaled a sustained change of direction.
MarketWatch rounded up 10 interesting market facts, in light of this year’s broad decline for stocks.
1. Widespread carnage
According to FactSet, shares of 38 S&P 500 SPX, -0.74% companies have dropped at least 50% from their 12-month closing highs, and “only” 21 of those are in the energy or materials sectors.
Then again, all but one of the 10 S&P 500 companies declining the most from their 12-month highs are energy or commodity businesses:
|Company||Ticker||Industry||12-month closing high||Closing price – Jan. 22||Decline from 12-month closing high|
|Chesapeake Energy Corp.||CHK, -10.94%||Oil and Gas Production||$21.26||$3.51||-83%|
|Freeport-McMoRan Inc.||FCX, -0.61%||Precious Metals||$23.66||$3.94||-83%|
|Consol Energy Inc.||CNX, -6.33%||Coal||$35.04||$6.16||-82%|
|Marathon Oil Corp.||MRO, -6.65%||Oil and Gas Production||$31.19||$9.02||-71%|
|Ensco PLC||ESV, -6.53%||Contract Drilling||$31.93||$9.57||-70%|
|Southwestern Energy Corp.||SWN, -5.59%||Oil and Gas Production||$29.25||$8.77||-70%|
|Micron Technology Inc.||MU, -3.16%||Semiconductors||$35.53||$11.07||-69%|
|Williams Cos. Inc.||WMB, -4.33%||Oil and Gas Pipelines||$60.86||$19.74||-68%|
|Murphy Oil Corp.||MUR, -3.70%||Oil and Gas Production||$51.77||$17.59||-66%|
|Kinder Morgan Inc. Class P||KMI, -6.13%||Oil and Gas Pipelines||$44.57||$15.34||-66%|
When oil and gas prices stage a recovery (and if you don’t think they will, you have a short memory), big players with low levels of debt will be well-positioned to scoop up competitors or assets on the cheap. Here’s a list of major energy companies with low leverage.
Felix Zulauf: Global Stock Selloff Will Continue
The Barron’s Roundtable veteran says economic conditions — especially in China and emerging markets — are worse than most people realize, and he is shorting, or betting against, U.S. stocks.
2. It really isn’t just a story of oil and China
There have been many down days for U.S. stocks this year, following big declines for the Shanghai Composite Index SHCOMP, +0.75% But one can easily argue that if China’s imports slow, it won’t have any effect on the U.S. economy.
But the strong dollar has hurt sales for many U.S. companies. We’re right in the middle of fourth-quarter earnings season, and analysts polled by S&P Capital IQ expect six of 10 large-cap sectors to post year-over-year declines:
|S&P 500 sector||Estimated growth of fourth-quarter earnings per share||Actual EPS growth – Q4 2014|
If the energy sector were excluded, the S&P 500 would be expected to record an EPS growth rate of 0.5%.
3. Price charts point to positive indicators
This chart plots the movement of the S&P 500 against its 30-day, 50-day and 200-day moving averages:
As you can see, the S&P 500 is slightly above its 30-day moving average, which is a somewhat positive sign, but it is well below the 50-day moving average and far below the 200-day.
Sue Chang recently discussed how the rare move below the 50-day average could indicate that the market is “oversold,” and also shared several other chart-based positive indications for the market.
4. A bear market can occur outside a recession
With an unemployment rate of 5% and the addition of 292,000 full-time equivalent jobs to the economy during December, the U.S. does not appear to be headed for a recession. This might make you think that we cannot wind up in a bear market (defined as a decline of 20%) for stocks this year.
Ben Carlson, a portfolio manager for Ritholtz Wealth Management, pointed out last week that there have been 16 double-digit declines for the S&P 500 during non-recession periods going back to 1939-1940. And five of those turned out to be bear markets.
5. These sectors have resisted the stock market’s decline
When we looked at 2016 sector performance through Jan. 15, we saw that utilities was the only winner. Here are six sector stock picks from Jefferies.
Last week’s 1.4% “rally” for the S&P 500 changed the picture slightly, as there are now two sector winners this year:
|S&P 500 sector||2016 total return (with dividends reinvested) through Jan. 22||Total return – 2015|
The telecommunications sector is dominated by AT&T Corp. T, +0.20% and Verizon Communications Inc. VZ, +0.73% What makes these companies such strong defensive plays is their attractive dividend yields, as well as free cash flow to support increases in those dividends:
|Company||Ticker||Free cash flow yield – past 12 months||Dividend yield||‘Headroom’|
|AT&T Inc.||T, +0.20%||6.75%||5.46%||1.28%|
|Verizon Communications Inc.||VZ, +0.73%||9.80%||4.80%||4.99%|
Free cash flow is a company’s remaining cash flow after capital expenditures. This is the money a company can dedicate to paying out dividends, buying back shares or making acquisitions. The free cash flow yield is the past 12 months’ free cash flow per share, divided by the current share price. Comparing this to the current dividend yield gives an indication of how much “headroom” a company has to increase the dividend. And a good amount of headroom indicates a rather low likelihood of a dividend cut.
6. Guess what — Wall Street really loves stocks
According to FactSet, there are majority “buy” or “overweight” ratings among sell-side analysts for 51% of S&P 500 companies. There are 75 companies for which at least 75% of analysts have “buy” or “overweight” recommendations.
Here are the four S&P 500 stocks for which all analysts polled by FactSet have warm and fuzzy feelings, with “buy” or “overweight” ratings:
|Company||Ticker||Industry||Closing price – Jan 22||Consensus price target||Implied 12-month upside potential|
|Allergan PLC||AGN, -0.32%||Pharmaceuticals: Generic||$298.04||$366.43||23%|
|CBRE Group Inc. Class A||CBG, -3.55%||Real Estate Development||$28.75||$41.86||46%|
|Delta Air Lines Inc.||DAL, -0.64%||Airlines||$46.75||$67.29||44%|
|Harris Corp.||HRS, -0.10%||Telecomm. Equipment||$84.06||$99.11||18%|
7. Timing the market simply doesn’t work
Wouldn’t it be nice to have a crystal ball and know just which days to stay in or out of the market?
Yes, that’s impossible, but it may even be inadvisable to try to time the market over longer periods.
Michael Batnick, director of research at Ritholtz Wealth Management, shared some remarkable statistics about how much your stock portfolio performance would suffer if you had missed the 25 strongest days for the market since 1970:
Ritholtz Asset Management.
That is the best evidence of the importance of sticking with a long-term strategy that I can think of.
Batnick also delved into other scenarios, including what would have happened if you had missed the 25 worst days for the market.
8. McDonald’s is now a rock-star stock
Shares of McDonald’s Corp. MCD, +1.70% were up as much as 3% on Monday, hitting an all-time high after the world’s biggest restaurant company said fourth-quarter sales had grown 5.7% for U.S. stores open at least 13 months. That’s a remarkable number considering how many people had been giving up the company for dead only a year ago.
The stock was up slightly year-to-date through Friday, following a 30.4% return during 2015. A flat performance so far in 2016 is just fine, and shareholders also enjoy a dividend yield of 3.01% while they wait.
Here’s an amazing fact about McDonald’s: The company’s recent introduction of all-day breakfast is really paying off. According to a study by NPD Group Inc., a market-research company, one-third of McDonald’s customers ordering breakfast items in the afternoon or later in the day hadn’t visited one of the company’s restaurants over the previous month. This indicates a lot of new traffic in the stores, and sales numbers over the past two quarters have underlined just how good a move all-day breakfast was.
9. No, individual investors aren’t panicking
One might think, from all the headlines about market turmoil, that individual investors are heading for the hills. But that simply isn’t the case. A stock’s current price indicates how much the shares cost at a particular moment in time, when the vast majority of investors aren’t buying or selling that stock. It’s easy to say the market has “lopped off” a tremendous amount of value in one day, but it’s really not the case.
Jason Zweig shared some very interesting numbers, including a stat from a Fidelity Investments spokesman that through Jan. 19, the company’s retail clients had invested seven times as much money in equity funds or individual stocks as they did during the entire fourth quarter of 2015.
10. Large-caps have gotten cheaper, but they’re still pricey
Through most of last year, if we had looked at the ratio of weighted S&P 500 prices to 2015 earnings estimates, we would have seen that large-cap stocks were trading at their highest price-to-earnings ratios since 2004.
At Friday’s close, the S&P 500 was trading for 15.5 times consensus 2016 EPS estimates. A year ago it was trading for 16.7 times consensus 2015 earnings estimates.
That’s quite a drop, but the S&P 500 is still trading at a higher P/E at this time of the year than it has since 2005, when it traded for nearly 16 times that year’s estimates.
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