Ironically unlike the previous 4 corrective cycles (summer 07, November 07, January 08, March 08) there is little post correction bounce this time around - it's been segregated mostly in the financials. Perhaps because whomever bought those last 4 cycles promptly got their head handed to them for drinking red, cherry flavored liquids. I find that interesting. And telling. The Wall Street Journal asks if investors should be interested in these names...
- Investors trying to position their portfolios for an eventual rebound in the stock market face a difficult task: The stocks that usually lead a recovery -- financials and companies that make or sell goods and services directly to consumers -- are the ones with the riskiest outlook.
- With many investors believing that banks and brokerage firms are facing an extended period of struggles, a strategy of tilting toward beaten-down consumer-discretionary stocks may seem tempting.
- And while it may make sense for those with a long-term horizon of a year or two to start nibbling now, they should keep the Alka-Seltzer handy; those stocks could fall further before they begin a recovery.
- These companies deal in things that people don't necessarily need, and they often are on the pricey side: autos, entertainment and restaurants. (That is distinct from consumer staples, such as food from supermarkets, where stocks are down just 5.6%.)
- Now, there is a debate about whether it is finally time to move back into companies focused on U.S. consumers in preparation for an economic rebound. On the one hand, most consumer stocks are down sharply in price and are cheap by many measures. Many have trailing price/earnings ratios below that of the S&P 500's 16.7. But consumers could be only in the early stages of a historic pullback in spending, which would mean that the worst news for investors still could be on the way.
- But Robert Doll, chief investment officer for equities at money manager BlackRock Inc., is skeptical. "The further away from the U.S. consumer and those who lend to the U.S. consumer, the better," he said. (Blackrock has smart people)
- Brian Rauscher, stock strategist at Brown Brothers Harriman, said that while the valuations on consumer stocks look compelling, there still are many months of bad news ahead. He thinks Wall Street analysts are too optimistic about third-quarter and fourth-quarter earnings. (a view I've repeated countless times for not only this sector but the entire stock market) He notes that early in the year, stock analysts started to ratchet down expectations, only to reverse direction as it became clear that the federal government's fiscal-stimulus plan would support consumer spending. That needs to be reversed as the stimulus fades, he said.
- He expects consumer stocks to take a beating as it gets closer to the holiday season. "You're going to start hearing people say things like, 'this is the worst Christmas since Jimmy Carter was president,'" he said. (agree - except we should be full bore into the next round of stimulus plans)
- The wild card, he said, would be a significant drop in oil prices, perhaps down to $80 a barrel. (and food inflation reversing, and home heating this winter not causing a shock, and credit conditions to improve, and home prices to stop falling, and.... well ... it's gonna be a tough Christmas) ;)
