Articles

Stock Markets under the Shadow of Greece, China and Store Closings

Jul 06, 2015

The NASDAQ equities index achieved another all-time high in June 2015, on the 24th, at 5,164.

2015 07 06 Stock Markets July Graphic

Then it eased off during the final week of the month and closed near 2% lower than at the end of May. Its year-over-year performance stayed strong, at +13%.

Versus its trough position in February 2009, NASDAQ has tripled and then some. Its percentage gain has been +262%. (February 2009, in the epicenter of the Great Recession, was the latest weakest point in time for equity prices in general.)

While the Dow Jones Industrial average (+5%) and the S&P 500 (also +5%) were up year-over-year at the end of June, they’ve both been mainly marking time since November of 2014.

Also, they declined month-over-month in June, by 2% in both instances. The S&P 500 is now +181% compared with its last low-point in February 2009; and the DJI is +150%.

The Toronto Stock Exchange (TSX) has wandered furthest from a well-groomed path. June was an especially painful month for the TSX. On June 30th, it was -3% month over month and -4% year over year.

Nor has the TSX glittered to anything like the same degree as the other three main North American indices relative to six years ago. Versus February 2009, the TSX is +79%, or barely more than half as great an increase as the DJI (+150%), which is itself only a little more than 50% as far ahead as NASDAQ (+262%).

Stock markets are taking investors on some rough rides not just in North America, but around the world. A continuing dearth of demand for commodities has knocked back the iShares MSCI index for all emerging market economies by 8% and for Latin American nations by 25%, or one-quarter. 

London’s FTSE 100 was -7% month over month in June and -3% year over year. Germany’s DAX 30 was -4% month over month, but still positive (+11%) year over year.

Weakness in the value of the Euro, brought on by more Greece-related financial turmoil, is of benefit to Germany’s export-intense manufacturers.

Generally speaking, though, Greece’s first-threatened, then-realized, debt default has caused a shift, of late, in asset-holdings from relatively riskier stocks to safe-haven bonds.

Except in China. That market is operating according to a set of internal dynamics separate from the nation’s decelerating ‘real’, or inflation-adjusted, gross domestic product (GDP) growth rate (i.e., from +10.0% to +6.5% annually).

This year’s June closing level of the Shanghai composite index was +110% year over year. That doubling in value masks some wild gyrations.

From July 1 in 2014 to June 5 of this year, the Shanghai index was +143%; but from June 5 to the present, it has dropped by 27%. (The usual definition of a ‘bear’ market begins with a decline of 20%.)

To all appearances, Beijing has been encouraging an investment frenzy, viewing it as a means to relieve an already stretched-thin banking sector of some of its lending responsibility. The nation’s capital market has been opened up to more outside broker access.

Hong Kong is being allowed to play a bigger role in Chinese corporate financing.

A classic bubble has apparently ensued. Newly affluent mainland investors have jumped on board, afraid that if they don’t act quickly enough, they’ll lose out on a sure thing.

This is when good judgement flees. Government officials still aren’t calling for caution. In fact, they’ve authorized additional interest rate cuts.

In North America, there’s no mystery about why resource stocks, especially those in the energy sector, are out of favor. The world price of oil fell by nearly 60% in the second half of last year.

It has since bounced back a bit, but is still carrying a discount of 40%.

But there’s another sector for which much of the latest media coverage has accentuated the negative – retail.

Target is walking away from its entire Canadian subsidiary, leaving 133 stores to find alternative tenants, if they can.

Radio Shack has filed for Chapter 11 bankruptcy protection in the U.S.

McDonald’s is closing fast-food outlets on both sides of the border.

Best Buy Canada is shuttering many of its Future Shop locations and absorbing others.

The Gap, Sears and Frederick’s of Hollywood are all downsizing.

Target in America is cutting staff.

The Walgreens Boots Alliance is ‘rationalizing’ unprofitable branch locations.

Staples, after purchasing Office Depot, is shifting more of its operations to the Web where the competition is fierce and proliferating. (Booksellers, video stores and travel agencies discovered this new reality in an earlier wave of retail sector closings.)

Black’s Photography shops (owned by Telus) are disappearing from the Canadian scene because management never discovered how to improve on photo-taking, picture-storage and social media dissemination by means of mobile devices.

The share prices of 20 mainly U.S.-based shopkeepers are shown in Table 2. The two entrants from north of the border are Canadian Tire and George Weston. The latter owns Loblaws Supermarkets and Shoppers Drug Mart, among other entities.

It would’ve been nice to have included North America’s oldest enterprise, Hudson’s Bay Company (HBC) as well, but in 2009 its shares, due to ‘private equity’ ownership, weren’t publicly listed.

More recently, under the helm of Richard Baker’s National Realty and Development Corp. (NRDC), the company has returned to the thick of things. To go along with its earlier acquisitions of Lord & Taylor and Saks Inc., HBC recently bought Germany’s Galeria Kaufhof department store chain, bringing its total annual revenue about on a par with Canadian Tire.  

In the U.S., once publicly-traded Safeway has been merged with Albertson’s and is now privately owned by Cerberus Capital Management.

It’s disappointing that the changes in Apple’s share price due solely to retail operations aren’t available. They would have made an important contribution to the listing.

With respect to their share prices, there are some obvious soft spots among the firms in Table 2 – JC Penney, Sears and The Gap.

But based on a ‘simple’ average (i.e., all companies weighted equally, not according to ‘valuations’ as calculated by number of shares times price), the equity prices for the 20 companies are ahead 223% when compared with February 2009, a better showing than for the DJI, S&P 500 and TSX. Only NASDAQ has done better.

Year-over-year, the ‘simple’ average for the 20 retail companies, at +16%, has outperformed all four major indices, including NASDAQ (+13%).

From a construction point-of-view, the results for bricks-and-mortar locations are most interesting.

Omitting Amazon from the ‘simple’ average calculations yields still-sizable gains of 204% since February 2009 and 15% year over year.

According to the latest Employment Situation report from the Bureau of Labor Statistics, net U.S. job creation in the retail sector through June 2015 has averaged +27,000 per month, a near-doubling of last year’s first-half figure of +14,000.

CMD’s ‘shopping’ category of U.S. construction starts in 2015, at an estimated $20 billion, will be up 100% compared with 2010’s most-recent low-point of $10 billion. 

Despite considerable evidence that owners and renters of physical retail space are making serious adjustments to stay relevant, the notion that they are in permanent irreversible decline seems premature.

Table 1: Stock exchanges - performances of key indices - June 30, 2015
INDEX 52-WEEK LOW 52-WEEK HIGH YEAR AGO
(JUN 30, 2014)
MONTH AGO
(MAY 29, 2015)
Latest Month-end Closing Prices
(JUN 30, 2015)
  PER CENT CHANGE,
LATEST VERSUS
52-WEEK LOW 52-WEEK HIGH YEAR AGO MONTH AGO
Dow Jones Industrials
NYSE (^dji)
Oct 16 14
15,935
May 19 15
18,351
16,827 18,011 17,620 10.6% -4.0% 4.7% -2.2%

S & P 500
NYSE (^gspc)

Oct 15 14
1,821
May 20 15
2,135
1,960 2,107 2,063 13.3% -3.4% 5.3% -2.1%
NASDAQ
(^ixic)
Oct 15 14
4,117
Jun 24 15
5,164
4,408 5,070 4,987 21.1% -3.4% 13.1% -1.6%
S & P/TSX Composite
TSX (^gsptse)
Dec 15 14
13,636
Sep 3 14
15,685
15,146 15,014 14,553 6.7% -7.2% -3.9% -3.1%
Sources: New York Stock Exchange (NYSE), Standard and Poor’ s (S & P), National Association of
Securities Dealers Automated Quotations (NASDAQ), Toronto Stock Exchange (TSE) and Reuters.
Table: CMD.
Table 2: Equity Prices for Companies in the U.S. & Canadian Retail Sector
Feb 2009* Jun 2014 Jun 2015 % Change  % Change
( A ) ( B ) ( C ) ( C ) / ( A ) ( C ) / ( B )
Amazon (AMZN) $64.79 $337.49 $434.09 570.0% 28.6%
Bed Bath & Beyond (BBBY) 21.30 59.35 68.95 223.7% 16.2%
Best Buy (BBY) 28.82 32.10 32.61 13.2% 1.6%
Canadian Tire (CTC-A.TO) 40.53 102.37 133.01 228.2% 29.9%
Costco (COST) 42.34 116.35 135.06 219.0% 16.1%
CVS Caremark (CVS) 25.74 76.83 104.88 307.5% 36.5%
George Weston (WN-TO) 60.92 78.79 98.11 61.0% 24.5%
Home Depot (HD) 23.56 82.05 111.13 371.7% 35.4%
JC Penney (JCP) 15.33 9.25 8.47 -44.7% -8.4%
Kohl's (KSS) 35.14 52.95 62.61 78.2% 18.2%
Lowe's (LOW) 18.25 48.23 66.97 267.0% 38.9%
Macy's (M) 7.87 59.88 67.47 757.3% 12.7%
Nordstrom (JWN) 13.47 69.29 74.50 453.1% 7.5%
Sears (SHLD) 36.76 38.11 26.70 -27.4% -29.9%
Staples (SPLS) 15.95 11.26 15.31 -4.0% 36.0%
Target (TGT) 28.31 59.51 81.63 188.3% 37.2%
The Gap (GPS) 38.27 42.00 38.17 -0.3% -9.1%
TJX (TJX) 11.14 53.80 66.17 494.0% 23.0%
Walgreens Boots (WBA) 23.86 74.13 84.44 253.9% 13.9%
Walmart (WMT) 49.24 75.75 70.93 44.0% -6.4%
Average % change, 20 companies: 222.7% 16.1%
 
* February 2009 was the most recent trough month for North America's major stock market indices.
Data is for each month-end closing.
Data source: Yahoo and MSN Money / Table: CMD.
Table 3: Some Other Key International Stock Market Indices
Month-end 
Closing Value Month/ Year/
Stock Index:  jun 2015 Month/ Year
iShares MSCI Emerging Markets Index (EEM):            39.62 -3.6% -8.4%
iShares MSCI Emerging Markets Asia Index (EEMA):            60.23 -4.4% 1.5%
iShares MSCI Emerging Markets Latin America Index (EEML):            33.71 -0.7% -25.1%
London FTSE 100 (^FTSE):      6,521.00 -6.6% -3.3%
German DAX 30 (^GDAXI)    10,945.00 -4.1% 11.3%
Hong Kong Hang Seng (^HSI):    26,250.00 -4.3% 13.2%
Tokyo Nikkei 225 (^N225):     20,236.00 -1.6% 33.5%
Shanghai Composite Index ETF (510210.SS)       4,277.22 -7.3% 110.0%
iShares MSCI Frontier 100 ETF for pre-emerging markets (FM):           29.27 -2.1% -10.2%
 
"Ticker symbols" are in brackets. MSCI (formerly Morgan Stanley Capital International) is a leading provider of investment decision support tools, with indices as one specialty. "iShares" is a web site that specializes in "exchange traded funds", or ETFs, managed by BlackRock Investments LLC.
Data source: finance.yahoo.com / Table: CMD.
Latest-year performances of key stock market indices
Latest-year performances of key stock market indices
*Each month's closing figure versus the June, 2014 closing figure for the index.
The Key Stock Market Indices are:
1) New York Stock Exchange - Dow-Jones Industrials (30);
2) New York Stock Exchange - Standard and Poor's (S & P) (500);
3) National Association of Securities Dealers Automated Quotations - NASDAQ Composite Index;
4) Toronto Stock Exchange - S & P/TSX Composite.
Data sources: New York Stock Exchange (NYSE), Standard and Poor’ s (S & P), National Association of
Securities Dealers Automated Quotations (NASDAQ), Toronto Stock Exchange (TSE) and Reuters.
Chart: CMD.
Performances of key stock market indices since most recent trough
Performances of key stock market indices since most recent trough
*Each month's closing figure versus the February, 2009 closing figure for the index. February 2009 was the most recent trough for all 4 indices.
The Key Stock Market Indices are:
1) New York Stock Exchange - Dow-Jones Industrials (30);
2) New York Stock Exchange - Standard and Poor's (S & P) (500);
3) National Association of Securities Dealers Automated Quotations - NASDAQ Composite Index;
4) Toronto Stock Exchange - S & P/TSX Composite.
Data sources: New York Stock Exchange (NYSE), Standard and Poor’ s (S & P), National Association of
Securities Dealers Automated Quotations (NASDAQ), Toronto Stock Exchange (TSE) and Reuters.
Chart: CMD.
S & P/TSX Composite
Toronto Stock Exchange
S & P/TSX Composite
New York Stock Exchange - Dow-Jones Industrials (30)
New York Stock Exchange - Dow-Jones Industrials (30)
New York Stock Exchange - Standard and Poor's (30)
New York Stock Exchange - Standard and Poor's (30)
NASDAQ Composite
(National Association of Securities Dealers Automated Quotations)
NASDAQ Composite
The charts show month-end closing figures.
Data sources: New York Stock Exchange (NYSE), Standard and Poor’ s (S & P), National Association of
Securities Dealers Automated Quotations (NASDAQ), Toronto Stock Exchange (TSE) and Reuters.
Charts: CMD.


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