NEW YORK (Real Money) -- How did it all happen?
How did the market come to scorn what it loved so much? Why did the momentum names begin to peak in February and begin their monumental rollover? How did the utilities, real estate investment trusts and the packaged goods stocks ascend at the same time the economic climate improved? How have the industrials remained strong despite a bond market that signals a decline in economic activity that is so needed for their earnings to improve?
Are they all of the same piece?
Right now we are in the grips of a true collapse of the momentum stocks, where it seems like there is no floor for them.
At the same time, there appears to be no price the market won't pay for the utilities. The consumer products stories go higher, depending upon their dividends and the bond market machinations. The traditional or classic growth stocks, typically valued on earnings per share, not dividends, are struggling and seem to be aimless. The industrials are case by case, with the winners, those that beat top and bottom line, going higher and those that beat only one treading water, and those that fail to do both just collapsing to where their yield support might be.
Let's take them one at a time.
First, the momentums stocks, because they are the most under attack. You need to know the history of these stocks because it is very similar to what happened in the period leading up to the Nasdaq collapse in mid-March 2000. Not long after the crash I examined the stocks that had been the most expensive stocks of the era. I called them Red Hots because they were red-hot momentum stocks that were going to beat the averages for you. Always remember that stocks, in the end, are just vehicles to beat the benchmark. At the time, the Nasdaq was pretty much the only game in town, and if you weren't beating the S&P, you stood a very good chance of having the money taken away.
There was a prolonged period, beginning in 1998, where the highest fliers took off. But things didn't start to go nuts by traditional metrics until August 1999. Take this stroll down memory lane with some of the more prominent and yes, profitable, momentum stocks of the era. In just a year's time Ariba went from a $6 billion market capitalization to $35 billion in 2000, before bottoming at $358 million in 2002. Brocade (BRCD) ran from $7 billion to $25 billion and then back to $1.5 billion in 2002. Broadcom (BRCM) went from $5 billion to $59 billion and then back to $4 billion in 2002. JDS Uniphase (JDSU) went from $5 billion to $114 billion and then to $3 billion in 2002. Juniper (JNPR) went from $17 billion in 1999 to $40 billion in 2000 to $2.5 billion in 2002. QLogic (QLGC) went from $1 billion to $12 billion and then back to $4 billion in 2002. Others had somewhat similar trajectories but took off earlier: Qualcomm (QCOM) went from $3 billion in 1998 to $54 billion in 2000 to $22 billion in 2002. VeriSign (VRSN) went from $1 billion in 1998 to $19 billion in 1999, before falling to $1.9 billion in 2002.