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A Rising Tide Does Not Lift All Boats
There is an old stock market cliché that says, "A rising tide lifts all boats," meaning all stocks tend to go up when the market has a large powerful move. Although there is an element of truth in this, many stocks were left behind in the second quarter of 2009.
IN PICTURES: Eight Ways To Survive A Market Downturn
The S&P 500 returned 15.93% in the second quarter of 2009, as investors played an oversold market that bounced off its lows of March, 2009.
Key Bank (NYSE:KEY) was down 33% in the second quarter of 2009, as it struggled to raise the funds required of it in the Supervisory Capital Assessment Program (SCAP). The bank needed to raise a total of $1.8 billion, and finally, after the quarter ended, Key Bank raised the final tranche via an exchange offer. The bank also suffered a downgrade of its bond rating by Fitch Ratings from A to A-. (Learn more about credit rating agencies in our article, Bond Rating Agencies: Can You Trust Them?)
GameStop Corp (NYSE:GME) fell 27% in the quarter, as the video game retailer suffered from general investor malaise over the lack of any rebound in consumer spending and its effects on retailers, and the entry into the used video game market by Best Buy (NYSE:BBY) GameStop is one of the largest retailers of used video games, and with the large national footprint of Best Buy, investors seemed concerned over this possible future competition.
Pulte Homes (NYSE:PHM) was down 23% in the quarter and is getting down close to its bear market low of $6.47 reached in December, 2008. Although the quarter was marked by good news on various housing metrics that gave some hope to investors that the worst was behind us, the entire group drifted down during the quarter. The S&P Homebuilders SPDR (NYSE:XHB) is down 20% from a recent peak in early May 2009.
Cephalon (Nasdaq:CEPH) fell 20% in the quarter as the result of a dilutive stock offering in May 2009 that raised $709.5 million. Only a month later, those buyers were underwater as the company announced that Lestaurtinib, its drug to treat Leukemia, did not improve survival rates for patients. This is one of the major risks of a biotechnology stock as new products often have a binary outcome that can leave investors very rich or very poor.
People's United Financial (Nasdaq:PBCT), a smaller regional bank out of New England, fell 13%. The bank missed its guidance by 2 cents, but raised its dividend in its most recent quarter. The bank is one of the safer ones in our financial system with a ratio of non-performing loans to total loans of only 0.86% as of 3/31/2009.
The Bottom Line
The market had its best quarterly return since 1998, although not every stock was able to participate in this move, as company specific events took precedence for some, and overrode the strong bounce in the market. (Read Buy When There's Blood In The Streets, to learn how contrarian investors find value in the worst market conditions.)
IN PICTURES: Eight Ways To Survive A Market Downturn
The S&P 500 returned 15.93% in the second quarter of 2009, as investors played an oversold market that bounced off its lows of March, 2009.
Key Bank (NYSE:KEY) was down 33% in the second quarter of 2009, as it struggled to raise the funds required of it in the Supervisory Capital Assessment Program (SCAP). The bank needed to raise a total of $1.8 billion, and finally, after the quarter ended, Key Bank raised the final tranche via an exchange offer. The bank also suffered a downgrade of its bond rating by Fitch Ratings from A to A-. (Learn more about credit rating agencies in our article, Bond Rating Agencies: Can You Trust Them?)
Pulte Homes (NYSE:PHM) was down 23% in the quarter and is getting down close to its bear market low of $6.47 reached in December, 2008. Although the quarter was marked by good news on various housing metrics that gave some hope to investors that the worst was behind us, the entire group drifted down during the quarter. The S&P Homebuilders SPDR (NYSE:XHB) is down 20% from a recent peak in early May 2009.
Cephalon (Nasdaq:CEPH) fell 20% in the quarter as the result of a dilutive stock offering in May 2009 that raised $709.5 million. Only a month later, those buyers were underwater as the company announced that Lestaurtinib, its drug to treat Leukemia, did not improve survival rates for patients. This is one of the major risks of a biotechnology stock as new products often have a binary outcome that can leave investors very rich or very poor.
People's United Financial (Nasdaq:PBCT), a smaller regional bank out of New England, fell 13%. The bank missed its guidance by 2 cents, but raised its dividend in its most recent quarter. The bank is one of the safer ones in our financial system with a ratio of non-performing loans to total loans of only 0.86% as of 3/31/2009.
The Bottom Line
The market had its best quarterly return since 1998, although not every stock was able to participate in this move, as company specific events took precedence for some, and overrode the strong bounce in the market. (Read Buy When There's Blood In The Streets, to learn how contrarian investors find value in the worst market conditions.)
by
Eric Fox
Eric J. Fox, CFA, is a freelance financial writer and has previous experience working in the asset management industry as an equity analyst and portfolio manager on the buy side. His favorite area to write on is the energy sector and he keeps current on the industry by reading Haynesville Shale, Permian Oil and Gas and various other blogs.
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