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U.S. Stocks' Issues, Circuit City's Slide, NYSE Exits?: Timshel By David Wilson Enlarge Image/Details (Bloomberg) -- Now that this year is heading into the home stretch, it's worth examining some of the issues that loom large for U.S. stock investors. Perhaps the most immediate concern is whether the Standard & Poor's 500 Index and the Dow Jones Industrial Average finally will close more than 10 percent below their peaks. There hasn't been a loss that big, known as a correction, since March 2003. Both benchmarks came within 1 percent of crossing this threshold before yesterday's commemoration of Thanksgiving Day. Financial companies, which have more weight in the S&P 500 than any other industry group, are in an outright bear market. The S&P 500 Financial Index has retreated 24 percent since June 1. Most of the decline has occurred since Oct. 9, when the S&P 500 and the Dow industrials set their highs for 2007. American International Group Inc., the world's largest insurer, and Citigroup Inc., the biggest U.S. bank, are two of the three worst performers in the Dow average since Oct. 9. The third is General Motors Corp., which rallied two days ago after saying it has ``no further obligation'' to provide capital to GMAC, its former finance unit. AIG, Citigroup and their peers aren't in GM's position. So it's no wonder that the S&P 500 has dropped more than 1 percent seven times this month, while the Dow average has done so five times. A full-blown correction would be equally unsurprising. Aside from the market's overall direction, there are some trends that bear watching. These include divergences between: Products and Services -- Industrial and financial companies. The so-called real economy has only been dinged by the subprime market's meltdown, at least so far. Faster growth outside the U.S. has been a boon for companies doing business globally, including Deere & Co., the world's largest maker of tractors and harvesters. Fourth-quarter profit at Deere jumped 52 percent, more than analysts forecast. At the same time, product makers aren't immune to subprime- related setbacks. Cisco Systems Inc., the world's largest maker of computer-networking equipment, said earlier this month that sales to financial companies have fallen dramatically. -- Utility stocks and other traditional interest-rate plays. Even as financial shares tumble, the S&P 500 Utilities Index is making this year's second attempt to beat its record. The index's pre-holiday close of 212.08 was 2.5 percent below its peak, reached in 2000, and 2.1 percent away from this year's high, reached on May 21. For the year, the utility gauge has climbed 14 percent. Only energy stocks have produced bigger gains among the S&P 500's 10 main industry groups. Retailers' Results -- High-end and low-end retailers. This week's earnings reports by Nordstrom Inc. and Saks Inc. showed chains that cater to the well-heeled are doing relatively well. Net income climbed 22 percent at Nordstrom and more than tripled at Saks. Target Corp., on the other hand, reported a 4.4 percent drop in third-quarter profit as customers curtailed spending. Falling earnings at the second-largest U.S. discounter showed why the biggest, Wal-Mart Stores Inc., began its holiday sales three weeks early this year. * * * For Circuit City Stores Inc., the second-largest U.S. chain of consumer-electronics stores, Black Friday -- the traditional start of the holiday shopping season -- follows what might be called Black Wednesday. The company's shares fell 5.6 percent that day and reached the lowest price since April 2003. First there was a forecast by Japan's Matsushita Electric Industrial Co., the maker of Panasonic products, that U.S. flat- panel television prices would drop as much as $400 this quarter. TV price cuts hurt earnings at Circuit City, based in Richmond, Virginia, during last year's season and again this year. Then came word that the retailer, which fired 3,400 of its highest-paid hourly workers in March to cut costs, is reversing course and trying to bring back some of them. The Wall Street Journal, citing a company spokesman, told that story. The final blow was JPMorgan Chase & Co.'s downgrade of Circuit City to ``neutral'' from ``overweight.'' Analyst Stephen C. Chick wrote in a report that the company may need help from a buyer or partner -- and can't expect one until after the season. * * * The lineup of companies that lost New York Stock Exchange listings this year because of the subprime-mortgage crisis and its fallout may soon have a few additions. ACA Capital Holdings Inc., a bond insurer that went public last November at $13 a share, just dropped below the $1 minimum that the exchange requires companies to maintain. New York-based ACA Capital closed at 85 cents two days ago after JPMorgan's Andrew Wessel said it may be ``thrown to the wolves'' by S&P, which is considering whether to reduce ACA's credit rating. Impac Mortgage Holdings Inc., a Newport Beach, California- based company that all but stopped making loans this year, has traded for pennies since Nov. 9. Luminent Mortgage Capital Inc., a San Francisco-based investor in mortgage loans, closed at a mere $1.08 before yesterday's holiday. New Century Financial Corp., once the second-biggest U.S. lender to homebuyers with less-than-ideal credit, lost its NYSE listing in March along with ECC Capital Corp., another mortgage company. NovaStar Financial Inc. is up for removal as well. (David Wilson is a Bloomberg News columnist. The opinions expressed are his own.) To contact the writer of this column: David Wilson in New York at dwilson@bloomberg.net |
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