At the Crossroad, Which Way Will Stocks Turn?
THE WAY STOCKS HAVE COLLECTIVELY SHRUGGED these past few weeks, either the market already has everything figured out or it hasn't a clue.
Either the market has taken full account of the widely previewed bump in interest rates to come Wednesday, or it simply doesn't know how to assimilate it. Perhaps the transfer of nominal sovereignty in Iraq that same day will be a non-event for the market, or its implications are simply unfathomable.
It's hard to tell from the market action. The slow, sideways summer shuffle continued last week, with little movement in the indexes and skimpy trading volume, suggesting investors are truly relaxed or are feigning nonchalance to mask anxiety.
After a late-day decline Friday that could have resulted from sheer apathy, the Dow Jones Industrial Average ended at 10,371, off 44 points, or 0.4%, on the week. The Standard & Poor's 500 index eased by less than a point, coming to rest at 1134. The Nasdaq Composite, aided by further gains in Internet stocks and a bounce in semiconductors, added 38 points, or 1.9%, on the week, to reach 2025.
It's become routine lately to hear commentators insist that stocks' steadiness following a bounce off their May low indicates that the Fed's expected quarter-point rate action next week is "priced into" the market. It's hard to argue that point too strenuously, given this has been one of the more carefully foreshadowed rate decisions in memory.
What's not so easy to declare, however, is what else stocks have -- or haven't -- priced in at current levels. It's less clear, for instance, what pace of additional rate increases are built into stocks at S&P 1134, or what Fed rhetorical tone is discounted.
More broadly, stocks' lethargy -- or buoyancy -- as mid-year approaches is making it tough for both market cheerleaders and hecklers to have great confidence.
To recap the first half: Stocks have gone nowhere. A giddy January rally was thwarted as soon as the new money from small investors chasing last year's rally was spent. The S&P is up 2%, year to date. It's been possible, but exceedingly tough, to catch three rallies of about 5% in the broad market. Which means it was possible to have pretty poor timing, too.
Active fund managers, as a group, haven't kept up with the index return, which could lead to harsh halftime pep talks by their bosses and more aggressive tactics in the second half.
The frustration of traditional stock investors has been heightened by the fact that the fundamentals -- what they spend most of their time trying to determine -- have been quite strong. Earnings were up more than 25% for S&P 500 companies in the first quarter, and could rise as much for the reporting season about to begin.
And yet, stock prices have stood still, perhaps convincing more investors of the old saying that the opposite of love isn't hate, but indifference. If stocks are supposed to struggle when earnings decelerate, profit margins peak and liquidity begins to drain away, it's still news to most pro stockpickers.
The rising profits and sticky share prices means the market's price-earnings multiple has slipped a bit. The S&P 500 now sits at 17 times forecast earnings for the next four quarters. That's still not cheap, versus the typical 12 times forward multiple since formal earnings forecasts began in the 1970s, and it says future stock returns will probably be subdued.
Still, valuation isn't at an alarming level -- certainly not at one that would preclude a run toward the year's high above 1160 in the S&P 500, a scenario more and more short-term traders foresee. No 3% move, up or down, should ever come as a surprise, of course. Yet such is the meager scale of the stakes lately that market players have been willing to argue over it.
At the same time, tentative evidence of investor caution is apparent.
Short interest rose a bit in the latest month, showing that a certain portion of the Street is clenched in expectation of harsher times.
There's also been a very recent shift toward very large stocks, presumably for safety. The regular, market-capitalization weighted S&P 500, for example, has begun outperforming the nimbler equal-weighted version in June.
And a search of the Factiva database for the past three months turns up 775 uses of the term "interest-rate fears," compared with fewer than 100 in the prior nine months.
Presumably, this leaves no one to be surprised that rates may head higher.
Whether all this provides the makings of some sort of relief rally which ignites a desire to chase stocks higher is far from clear. Rallies and selloffs alike this year have been fleeting, separated by long stretches of drifting and lolling.
It all makes a contrarian want to prepare for a volatility storm at some point, anything just to move the plot along.
But if markets tend to take the path of maximum frustration for all involved, then more of the same may be all that's offered for a while.
The Great Outdoors
The market is hinting that Americans are collectively getting out of the house and into the great outdoors.
Home-furnishing retailers have been one of the steadiest groups in the consumer sector over the past couple of years. They've ridden a popular embrace of domestic decorating that has produced numerous home-makeover hits on cable TV and littered the country with candles and picture frames.
The segment, however, seemingly got too popular for its own good, as department stores and even home-improvement chains sought pieces of the action. Sales have slowed at several specialty home retailers.
The stock of the best-managed and largest, Bed Bath & Beyond, is down more than 8% this year, even after a 3% pop Friday. Shares of Linens & Things and Pier 1 Imports -- the latter the subject of an ill-timed bullish feature in Barron's late last year -- also have suffered.
Conversely, Wall Street is suddenly giddy for an emerging group of retailers that cater to the snuff-and-camouflage set.
Thursday, the venerable hunting-and-fishing retailer Cabela's came public in a highly successful initial offering, pricing 7.8 million shares at $20. The stock traded up 30% in its debut Friday, finishing at 26 and giving the family-backed company a market value of $1.7 billion.
This deal follows an IPO for a Cabela's competitor, Gander Mountain, which jumped from 16 to the low 20s following its April offering, and has held its gains at a recent price around 22.
Without attempting to draw any broad cultural conclusions about this recent shift of investor attention from window treatments to duck decoys, the roiling prices offer a chance to evaluate potential investment opportunities.
Bed Bath & Beyond shares have literally gone nowhere in the past two years. Always one of the most profitable, best-respected and highly valued names in retailing, the shares have been on a plateau since mid-2002 even as earnings have risen nicely.
The company last week beat quarterly earnings numbers but missed forecasts on revenue growth, giving pause to some investors. But Friday's lift gave the shares a $3.30 gain for the week, to 39.75. BB&B affirmed its current-year profit forecast of $1.55-1.58 a share, up 20% from last year.
For an idea of how much this onetime cult growth stock has seen its valuation compress, the stock was at similar levels in the high 30s in 2002 when earnings came in at an even $1 a share, less than two-thirds this year's forecast level.
The key question is whether this long pause in the stock has allowed the fundamentals to catch up and build a firm base for another up leg, the way Wal-Mart's mid-90s stock stagnation presaged another multi-year lift.
Despite the multiple compression, Bed Bath retains a premium valuation at 25 times current-year earnings, versus about 17 for the broad market.
That's not outrageous for a company that's proven a superior grower and operator. But the evident concern expressed by the market means every incremental report on comparable-store sales will carry high stakes for the stock.
And it's always tricky for investors to determine when maturity has set in on a marquee growth stock. BB&B's sales growth has slowed from 25% two years ago to 22%, last year, an expected 17% this year and 16% next. No disaster, but the trend is clear.
As UBS analyst Gary Balter told clients last week, investors are concerned that if same-store sales begin coming at low-single digit percentage growth, it "would gradually spell the end to 20%-plus EPS growth and an even lower revaluation of the stock's P/E multiple."
Balter remains confident in the story and sees upside to the high-40s if current investor fears prove unfounded. That's an important "if," and the answer won't necessarily be clear for some time.
As for the excitement over Cabela's, it seems a matter of an intriguing business model hitting the market at the right time. Long known for its thick catalogs full of outdoor clothing, camping gear, guns and other rugged fare, the company has more recently had enormous success with a handful of cavernous superstores in semi-rural areas. There are only nine of them now, but with museum-style taxidermy and a theme-park feel, they are genuine tourist destinations. Cabela's offering prospectus says its large-format stores open at least a year generated an average of $75 million in sales each and 14% operating margins. It will focus on adding more of these 150,000-square-foot-plus stores.
Sales last year were $1.4 billion and earnings per share were 99 cents. Results in the first quarter accelerated from the levels of a year earlier. It suggests that the company could earn more than $1 a share this year, putting the current P/E multiple somewhere in the mid-20s.
For a retailer with an appealing business -- one that will no doubt undergo waves of discovery by Wall Street in coming months -- that's not terribly rich, even if it's far from a bargain. Gander Mountain now trades at 26 times 2004 earnings and Dick's Sporting Goods last week agreed to buy Gylan's Trading at more than 30 times this year's number.
One investor who elected not to buy at the IPO noted that there was disproportionate interest from hedge funds, representing hot money interested mostly in momentum. If that's the shareholder profile, some of the lucky IPO investors may well decide to flip shares for a quick buck. That could let others pick up Cabela's closer to its offering price, when a bit of the froth has been skimmed away.
股市在十字路口前何去何从？
过去几周股市的走势可谓波澜不兴，这可能是市场已对所有事情都了如指掌，也可能是还毫无线索。
市场可能已经完全消化了广泛预期的本周三加息的影响，也可能是还不知道该如何应对。周三向伊拉克移交主权一事可能不会对市场产生任何影响，也许其意义目前还难以预料。
从市场的走势中很难得出结论。上周股市继续维持平缓，冷清的走势，指数波动不大，成交相对低迷。这表明投资者要么是真正感到放松，要么是以假装冷漠来掩盖内心的焦虑。
道琼斯工业股票平均价格指数上周下跌44点，收于10,371点，跌幅为0.4%。标准普尔500指数下跌不足1点，收于1134点。那斯达克综合指数则受互联网类股继续上涨和半导体类股反弹的推动，全周上涨38点，收于2025点，涨幅1.9%。
分析师坚持认为，股市从5月份低点反弹后的稳健走势表明，美国联邦储备委员会(Fed)下周可能加息25个基点的预期已经为市场所消化，但这已经是老生常谈了。鉴于这可能是记忆中前期铺垫工作做得最好的一次加息决定，得出这种结论也在情理之中。但难以得出结论的是股市在目前水平上还消化或未消化什么因素。例如，还不清楚目前处于1134点水平的标准普尔500指数已在多大程度上反映了市场对Fed下周以后加息幅度的预期，或者说在多大程度上消化了Fed有关利率的言论。
从更广泛的角度而言，随著年中的临近，股市的疲弱──或活力也让市场上的乐观主义者和悲观主义者都难以保持很强的自信。
如果要用一句话总结上半年的股市，那就是没有方向。随著中小投资者追逐去年反弹的新资金消耗殆尽，1月份的涨势也宣告终结。今年以来标准普尔指数上涨了2%。大盘有可能会再反弹5%左右，但难度相当大。这意味著时机可能也明显不对。
活跃的基金公司作为一个整体而言，其回报率低于指数的涨幅，这可能导致其管理层向基金经理们拉下冷脸，并导致基金公司将下半年的投资策略定得更为激进。
传统型股票投资者最为关注的基本面因素一直相当不错，这就使他们越发感到沮丧。第一季度标准普尔500指数成份股公司的收益增长了25%以上，其收益在即将公布业绩的新财季中可能还会以类似的幅度增长。
但股票的价格却对此无动于衷，这可能令更多的投资者相信一句老话：爱的反义词不是憎恨，而是冷漠。对大多数看重选股的投资者而言，股市低迷应当出现在收益放缓，利润率从高点回落，流动资金开始枯竭之时，而现在的情况却不是这样。
利润上升，股价不动意味著股市的本益比略有下滑。标准普尔500指数成份股未来4个季度的预期本益比为17倍。这个数字并不低，自上世纪70年代开始正式公布收益预期以来，其预期本益比一般为12倍，这显示未来的股票回报率可能不会理想。
不过，股市本益比并未达到警戒水平，也根本不会成为标准普尔500指数涨至今年高点1160点以上的阻碍。当然，3%的涨跌幅度不应令人感到意外。
与此同时，投资者当前的谨慎态度也是显而易见的。
上月的看空比例有所上升，显示出部分华尔街人士预计将出现更为困难的时期。
近期，出于安全的考虑，资金出现了向大型股转移的迹象。比如，以市值加权法计算出的标准普尔500指数6月份的表现就开始好于以相等权值法计算出的这一指数。
对Factiva的数据库进行搜索的结果显示，过去3个月中出现了775条“担心利率”的词语，而过去9个月中这条词语出现的频率还不到100次。
大概这也是没有人对利率走高感到意外的原因所在。
是否这些因素促成了某种程度的压力解除后的反弹，点燃了人们推高股票的愿望尚不得而知。今年的反弹和下挫都来去匆匆，二者之间多是长期的窄幅波动。
这一切都使反向操作者希望对可能出现的股市剧烈波动有所准备，任何事情都可能引发这种波动。
但如果市场想给涉足其中的所有人带来更大的沮丧，那么相同的一幕可能还会重演
