Market slide continues, gently but consistent, who cares
The U.S. equity market has been tiring of late, tiring itself out and tiring for this equity holder. On May 31 the market was referred to here as "boring". On June 4 it was cited as "slowly leaking". This slow leak has the potential to turn into something meaningful if it continues.
Much of the attention has been on the transports, historically seen as a precursor of broader market declines. Most of the major airlines have dropped by almost 20% in the last two months. There is only one airline owned here, as sometime in the 1990's a belief was formed here that just breaking even in an airline stock was a victory. That, of course, could not be true for those who know how to trade that industry's ups and downs but there never seemed to be a skill for that industry here. To emphasize that point, no airline stocks were owned here until two months ago when I fell for American Airlines. Trading at a 6x forward earnings, well below its peers, recommended by some respected securities analysts, owned by some competent mutual fund complexes, especially what looks like an all-in by pm's T. Rowe Price, it looked compelling. On top of that, flights in the industry were flying near capacity, there are no brutal price wars underway, and businesses have loosened up on allowing business and first class flights for their executives. Sounds bulletproof, right. The stock started dropping days after it was purchased. Yesterday more was purchased at the now 20% discount, and that means now that it is possibly at least a medium term hold. That was not exactly what was intended at the outset.
Major holdings in transport here are rail support companies. Those have done well in the last six years but have been sliding of late, eating slightly into sizeable capital gains. Today the two major names in this category owned here both dropped by more that 3% each.
The more modest declines in the market are widespread, including technology broadly. Berkshire Hathaway is participating in the decline with its huge insurance holdings apparently not offsetting its rail and oil related investments. Pundits are now mumbling about a "summer swoon" and the topic of the moment on CNBC seems to be whether or even when a 10% market decline is in the works. The only thing that is known here is that when CNBC latches onto a theme, usually negative, it is wrong more often than not. Still, there is no comfort in that at the moment as this market needs some positive news to give it a boost. I wait patiently, and if the market does require some give back there have been adequate rewards along the way and it can be accepted if not enjoyed. If it snaps back, the pattern of recent years continues.
Much of the attention has been on the transports, historically seen as a precursor of broader market declines. Most of the major airlines have dropped by almost 20% in the last two months. There is only one airline owned here, as sometime in the 1990's a belief was formed here that just breaking even in an airline stock was a victory. That, of course, could not be true for those who know how to trade that industry's ups and downs but there never seemed to be a skill for that industry here. To emphasize that point, no airline stocks were owned here until two months ago when I fell for American Airlines. Trading at a 6x forward earnings, well below its peers, recommended by some respected securities analysts, owned by some competent mutual fund complexes, especially what looks like an all-in by pm's T. Rowe Price, it looked compelling. On top of that, flights in the industry were flying near capacity, there are no brutal price wars underway, and businesses have loosened up on allowing business and first class flights for their executives. Sounds bulletproof, right. The stock started dropping days after it was purchased. Yesterday more was purchased at the now 20% discount, and that means now that it is possibly at least a medium term hold. That was not exactly what was intended at the outset.
Major holdings in transport here are rail support companies. Those have done well in the last six years but have been sliding of late, eating slightly into sizeable capital gains. Today the two major names in this category owned here both dropped by more that 3% each.
The more modest declines in the market are widespread, including technology broadly. Berkshire Hathaway is participating in the decline with its huge insurance holdings apparently not offsetting its rail and oil related investments. Pundits are now mumbling about a "summer swoon" and the topic of the moment on CNBC seems to be whether or even when a 10% market decline is in the works. The only thing that is known here is that when CNBC latches onto a theme, usually negative, it is wrong more often than not. Still, there is no comfort in that at the moment as this market needs some positive news to give it a boost. I wait patiently, and if the market does require some give back there have been adequate rewards along the way and it can be accepted if not enjoyed. If it snaps back, the pattern of recent years continues.
posted by John Borden at 5:39 PM
0 Comments:
Post a Comment
<< Home