High Maintenance
AS WITH MANY HIGH-PRICED and intricate things, the stock market is proving expensive to maintain, let alone improve.
Companies, central banks, governments and individuals have all been doing what they believe is necessary to help the market run higher. Yet the stock indexes remain within a nervous whisper of where they started the year.
American businesses are showing historic levels of profit growth. Companies have even begun hiring in large numbers, as Friday's strong employment report showed. In an example of "be careful what you wish for," the bulls' call for new jobs to ratify the economic recovery jarred a stock market hooked on productivity gains, copious liquidity and low interest rates.
The Federal Reserve, of course, has kept money nearly free, despite fears they will bump up the price soon.
The government has obliged with highly stimulative deficits, in part the work of tax cuts. Congress has given companies tax incentives to buy new equipment this year, and even eased the bookkeeping burdens of corporate pensions.
And individual investors so far this year have poured $100 billion into stock mutual funds and untold amounts into brokerage firms' "model stock portfolios." But that cash has been sopped up by grateful sellers who got to the stocks first.
All in all, it represents a lot of effort and expense for the privilege of standing nearly still. Last week, like the year to date, saw stocks absorb plenty of news without moving much, though what movement there was leaned to the downside, thanks to the selloff that greeted the job numbers.
The Dow Jones Industrials slid 108 points to 10,117, which places the index at a 3.2% loss on the year. The Standard & Poor's 500 eased eight points to reach 1098, 1.1% below where it ended 2003. The Nasdaq gave up just two points last week to hit 1917, for a 4.2% loss year to date.
Of course, the exertions of all interested players to boost stocks aren't the only drivers of prices. Last week the efforts of the bulls were challenged by the upward creep in oil prices to $40 a barrel and increasingly unnerving news from Iraq. The harsh political rhetoric this election season probably will keep these issues crackling from speakers for months, but they stand to be a distraction at best and a bearish overlay at worst.
By some measures, the latest damage to the market exceeded the relatively benign look of the drifting indexes. The ratio of falling to rising issues on the New York Stock Exchange reached 12-to-1 Friday, a rare sight. This number is exaggerated by the hundreds of bond-related issues, such as closed-end funds and preferred stocks, that swooned as Treasuries were shelled. But the lopsided selling shouldn't be dismissed by stock investors, because equities and bonds are once more moving snugly in synch, and it's bonds that have helped lead stocks lower.
The bland and incurious attribution of stocks' stagnation to "interest-rate fears" hardly captures the whole picture, though. True, the indexes struggled from the moment a surge in new hiring was reported April 2, which also touched off the latest bond-market selloff.
But stock investors are also worried that the factors that helped stocks surge 40% from March 2003 are reversing.
Not only are rates poised to rise, as Fed officials have made clear, but the productivity theme -- in which companies reap all the benefits of economic growth at the expense of labor -- is waning. The dollar is on the rebound, removing another element of the "easy money" story: the weak dollar that sweetened corporate results.
Wall Street strategists, nonetheless, have fixated on rates and little else, with bulls busily explaining why stocks can still do well as rates rise. They will tell you higher rates hurt only when they are "unexpected" or occur "rapidly," or that stocks -- including financial stocks -- historically have done fine after the Fed's first rate hike.
Any bond trader probably would answer that the backup in Treasury yields from 3.90% to 4.76% in a month has been rather unexpected and, yes, sort of rapid.
The "don't worry" talk sounds a bit like the importuning of many bulls circa 2001, who insisted that stocks were a Buy because the market "always" finishes higher a year or 18 months after the Fed starts cutting rates. That proved to be painful advice for those who took it, because the last rate-cutting cycle was immune to historical analogy.
As the S&P 500 again settles back toward the low end of its year-long range, the high-stakes question is whether the market's sluggardly behavior represents resilience in the face of challenging circumstances, or a more worrisome fatigue.
Says Bruce Bittles, chief investment strategist at Robert W. Baird: "Given the news, it's surprising the damage to the market has not been more severe. This suggests the underlying fundamentals are playing a role and that once the technicals become more supportive the market will be in position to rally."
He adds, "This is likely to occur when crowd optimism turns to fear."
It is true that fear hasn't been a noteworthy feature of the market's latest pullback, according to various surveys and indicators. The market in recent months has managed to bounce even before selling reached extreme, panicky levels. This could, of course, happen again, but the subsequent rallies have so far been thwarted rather quickly.
Still, one minority opinion holds that rates and war and oil are just nearby culprits for the fizzling of a powerful rally that has so far followed the pattern of -- and lasted about as long as -- earlier post-bubble revivals before they tapped out.
Forecasting a Flop?
Market cheerleaders keep raving about the gilded earnings performance of big companies, while the market shrugs. It's like a movie the critics love that bombs at the multiplex.
This could be the market's clear-eyed way of expressing doubt that the sequel will be any good.
According to Michael Panzner, a Wall Street professional and author of the forthcoming Stock Market Jungle, the spread between the percentage of companies reporting upside and downside profit surprises is running at an all-time high.
First, some context: The tendency of companies to "beat" earnings forecasts has been climbing for years. In the early 1990s, it was common for the proportion of companies exceeding or falling short of forecasts to be about equal. That is exactly what one might expect if there were no embedded bias in the figures and all "mistakes" in forecasting were simple errors or merely a matter of raw statistical probability.
By the latter stage of the 'Nineties bull market, though, it became routine for half or more of all companies to surpass estimates, while fewer than one in three would miss the mark. These were the prime years of "earnings management," when the symbiosis of stock-massaging corporate executives and bullish analysts steered forecasts so they could be beaten by a small amount. This was Wall Street's form of grade inflation.
The previous peak in the gap between upside and downside surprises occurred -- no surprise -- at the ultimate market peak, the first quarter of 2000, says Panzner. In that period, 70.7% of S&P 500 companies beat estimates and only 11.4% failed to meet them, for a "spread" of 59.3 percentage points.
In the current period, with nearly 90% of companies having reported results, 74.3% have beaten their target and just 13.7% missed their numbers, for a spread of 60.6 points.
This could show that the earnings-management game is flourishing again. Rules on fair disclosure have spread "earnings guidance" far and wide, and companies have seen little value in putting out ambitious targets for fear of disappointing the Street. No doubt the bear market made analysts a bit more conservative, too.
Still, these dynamics can't last for long. Eventually, executives start to beat their chests and express confidence in hitting higher targets, and/or analysts will set their sights higher to justify bullish stock calls. The last time the number of earnings winners beat losers to this degree, the spread between the two groups fell over the subsequent three quarters.
Yes, we are in a different part of the earnings cycle and things probably won't repeat themselves in detail. But it is hard to believe that three-quarters of all companies will prove themselves overachievers in coming quarters, raising the odds of more disappointments as the year progresses.
Doughnut Diehards
This weekend is no time to go questioning motherly wisdom. Still, sometimes the world offers reason to doubt Mom's admonishment that stubbornness never pays.
Short-sellers have been nothing but stubborn in their disdain for Krispy Kreme. Shorts have targeted the stock almost since the day it went public in early 2000, in a flourish of cavity-inducing sweet talk about their addictive doughnuts and nation-conquering growth plans.
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Even as the stock quadrupled in the midst of a merciless bear market, the short-sellers pressed their bets, always assailing the chain's ballooning valuation and heralding an end to its effortless expansion. No doubt the huge short position-routinely more than 20% of the share float-helped lend an upward bias to the shares at times, as it represented latent buying interest in the stock.
Even as the shares jumped from around 30 last June to an ultimate peak just below 50 in August, the short position climbed by two million shares, or 21%, to 11.3 million shares.
It was in August of last year that Barron's -- in a second attempt at a skeptical take on the stock -- included Krispy Kreme in a cover story about expensive cult stocks. It was deemed the most vulnerable of the group, having exhausted its opportunities for splashy entries into untapped regions. Short interest continued to climb, to 13.7 million shares as of April 15, or 24% of all available shares.
Upending the idea that heavy short interest can reliably be viewed as a bullish contrary indicator, Krispy Kreme Friday surprised the Street and thrilled the shorts by lowering its earnings estimates. The company's outlook for the fiscal year ending in January was cut by 10%, to a range of $1.04 to $1.06 a share. The stock collapsed by 29% Friday to 22.51, a level not seen since early 2001.
The chain largely blamed the low-carbohydrate Atkins-style diets that have clipped some other sugar-peddling companies. Certainly, the protein craze can't have helped. Some skeptical analysts, however, continue to say the company's problem isn't diet trends.
Sluggish sales growth can be attributed to increased market penetration and reduced "fad appeal," according to J.P. Morgan's John Ivankoe. He would prefer to see the company acknowledge, and plan for, slower growth with less-aggressive store expansion and capital spending.
Krispy Kreme shares, though, probably still aren't valued for a much slower growth path, even after Friday's nasty drop. At 22.51, the stock is trading at more than 21 times the middle of the company's new range for current-year earnings.
No Joy in New Jobs: Upbeat jobs numbers drove worries about interest rates and profit margins, cutting the Dow by 107 points. Cyclicals like Alcoa and financials such as Citigroup helped lead the decline.
That's a good deal less expensive than other high-P/E growth restaurants such as Panera Bread (also an Atkins victim), P.F. Chang's China Bistro and Cheesecake Factory, which all carry 30-plus multiples.
But Krispy Kreme remains at a 20% premium to the broad market multiple and looks even more expensive than larger, more seasoned restaurant chains such as Brinker International and Darden Restaurants.
Krispy partisans like to argue that it is less like a regular old restaurant chain and more like a premium-branded retailer, enjoying an intense emotional connection with customers and tremendous loyalty. But the recent results could lead the market to view that proposition with deeper skepticism.
Horse Sense on Dividends
Wall Street is a place where much complicated analysis is used to prove that common sense is right. Often, the analysis is prompted by investors' inattention to the basics.
That applies to the notion that dividend-paying stocks produce better returns over time. There are only the most tentative signs that the market is taking this truth to heart again, after last year's flight from yield and embrace of risk. So the point can use reinforcement, especially given the likelihood that a long-term range-bound market won't lift all boats.
Morgan Stanley's Byron Wien last week took a fresh look at the issue and showed that an investment in dividend-paying stocks would have generated more than four times the return from nonpayers in the 30 years through last year.
More interesting was Wien's finding that companies that initiate and boost dividends deliver the best returns of all, even better than straight dividend-payers.
With that in mind, Wien scouted for companies whose free cash flow minus dividends per share amounts to at least 5% of the stock price. This high "surplus cash yield" is an indication that a company has the financial flexibility to increase dividend rates over time. The list was narrowed further to those companies now recommended by the firm, and ones its analysts think may boost dividends in the next year.
The resulting list came to a baker's dozen, with a slight tilt toward financials and energy: MetLife, Chubb, Edison International, Cendant, PPL Corp., AutoZone, Entergy, Devon Energy, National City, FirstEnergy, General Dynamics, US Steel and Wells Fargo.
股市现状难以为继
由于许多高价股及复杂难懂的股票充斥市场，股市现状都难以为继，更别说有所改善了。
公司、央行、政府和个人都在各尽所能竭力推助市场上扬。然而，股指仍围绕年初水平窄幅波动。
美国公司的利润增长趋势达到历史最高水平，上周五强劲的就业数据还显示，它们已经开始大量招聘员工。看涨人士企盼新增就业数据来证实经济复苏，却使得股市困在生产率增长、充裕资金和低利率等种种因素当中欲动不能。正如那句谚语所说，即便许愿也须三思。
诚然，联邦储备委员会(Federal Reserve, 简称Fed)将资金成本维持在极低水平，但人们担心拆借价格会很快上涨。
经济刺激举措使政府背负沉重的财政赤字，减税便是其中原因之一。国会(Congress)今年通过税收优惠鼓励企业购买新设备，甚至减轻了企业养老金方面的费用负担。
今年迄今为止，个人投资者已经向各类股票基金投入了1,000亿美元，还不包括数目不详的投资于经纪公司"模型股票投资组合"的资金。但是，这笔资金已经被先行入市的卖方吸收。
总而言之，多方的大量付出换来的只是市场的巍然不动。和今年的情形一样，上周的诸多消息也未能撼动股市，不过也算是顶住了就业数据带来的抛盘影响和由此产生的下跌趋势。
道琼斯工业股票平均价格指数上周下跌108点，至10117点，今年截至目前下跌3.2%。标准普尔500指数下跌8点，至1098点，较其2003年年底收盘点位下跌1.1%。那斯达克综合指数仅下跌2点，达到1917点，但今年累计跌幅达到了4.2%。
当然，所有各方推助价格的努力并非股市的唯一驱动力。上周，看涨人士的买盘遭遇油价攀升至每桶40美元和伊拉克局势越发动荡的消息打击。随著大选临近，美国政府采取强硬论调，这些消息将在数月内继续萦绕市场，但往最好处说，它们将是一个市场的不安定因素，如果严重的话会奠定市场的看跌基调。
从一些指标来看，与股指相比，市场上周遭受的损害要大得多。上周五纽约证交所下跌股与上涨股之比罕见地达到12:1。美国国债的下跌导致上百只和债券相关的股票受挫，从而加剧了市场的跌势。股票投资者对这种不均衡的抛盘不应该视而不见，因为股市和债市一旦更协同一致，债市往往会在一定程度上拖低股市。
但是，对利率的担忧几乎没有主导市场大势。实际上，从4月2日新增就业人口激增的数据发布那一刻起，股指一直在困境中挣扎，债市则当即应声而落。
但是，股票投资者还担心，曾推动股市由2003年3月攀升40%的有利因素正在发生逆转。
不仅正如Fed官员明确的那样，利率将要上调，而且生产率正在下降。美元也展开反弹行情，使美元疲软提振企业收益的现象不复存在。
然而，华尔街策略师们一致牢牢钉住在利率问题上，而对其他因素置之不理。看涨人士则忙著解释为何股市同样会在利率上升的情况下保持良好走势。他们会告诉你说，只有在利率"意外"或"迅即"提高的情况下，市场才会受损；或者说金融类股等股票以往都在Fed首次加息之后表现出色。
对于美国国债收益率一个月中由3.90%上升至4.76%的走势，债券交易员很可能会回答说，这种状况十分出人意料，而且显得过于迅猛。
这种满不在乎的语气有点像2001年左右许多看涨人士的作风。当时，他们坚持认为应当继续买进股票，因为市场"总是"在Fed开始降息之后的一年或18个月内收高。然而，事实证明，那些听取这些建议的投资者接受了惨痛的教训，因为上一轮降息并未使股市的风光历史重现。
随著标准普尔500指数回落至年内交易区间的低端，目前的一大疑问就摆在面前：市场的倦怠是在严峻形势面前表现出来的弹性，还是更加令人不安的疲惫。
Robert W. Baird首席投资长比图斯(Bruce Bittles)说， 很奇怪，面对种种消息的打击，市场遭受的损害却没有那么严重。这表明，潜在基本面在发挥作用，一旦技术因素更具支撑力，市场将会蓄势上扬。 他补充说，当市场的乐观人气转为恐慌之后，这种情形就可能出现。
的确，各种调查和指标表明，恐慌并非市场最近回落的一个显著特征。最近几个月来，股市成功地实现反弹，即便在抛盘达到令人恐慌的极致水平之前也是如此。当然，这种情可能再次发生，但迄今为止随后的涨势总会很快受阻。
不过，还有少数人认为，利率、战争和石油是强劲涨势戛然而止的罪魁祸首，股市的上涨伴随著先是泡沫后初期复苏然后动力尽失的格局。
