It was as if the helpless had been carried in and murdered, that they might not hamper those whose business it was to fall tomorrow
Monday's market carnage sounds a lot like the financial equivalent of Civil War journalist Ambrose Bierce's gory description of the Shiloh battlefield.
But while investors may spend the evening pondering which companies will follow their brethren into the meat grinder that sheared 436 points off the
Dow Jones Industrial Index
S&P 500 and Nasdaq Set Intraday Record Highs on Recovery Optimism
and 129 points off the already crippled
, the more important question might be which companies won't.
If the overall economy slows further,
interest rate cuts will likely produce a list of retail and financial services stocks that will benefit most from the softer stance on monetary policy.
According to the
, an advisory firm that tracks such data, sectors that consistently outperformed during the three, six, and 12-month periods during Fed easings in 1987, 1989, 1995, and 1998 were footwear, health care, oil and gas (drilling & equipment), beverages, and electronics/semiconductors.
For the one-year period following rate cuts in October 1987, June 1989, July 1995, and September 1998, footwear produced an average return of 45.5%; communications equipment posted an average return of 37%; and retail gave investors a 35% return.
Some money managers, though, are wary of sectors that have been havens in the past. "For the past six months, there's been a reallocation from tech stocks. Investors have been hiding in value and
stocks," says Kyle Rosen, a hedge fund manager with an eponymous operation based in Southern California. "Today that notion was crushed. Stocks that had been favored fell out of favor today."
Other managers, however, say they've returned to following the muse of
. "You look at the tape and the sectors you want to be in are the oldest of Old Economy," says one New York hedge fund manager who requested anonymity, tossing off names of his holdings that include
Utilities, oil and gas, and consumer staples are the kinds of sectors that investors will be looking for, hunting stocks that look inexpensive based on their price-to-earnings ratios and pay sweet dividends.
In most times of market turbulence, investors think of drug stocks much like they think of the Baltimore Ravens: great defense. The reason is simple -- people get sick no matter what the economy is doing so they'll still have to buy drugs.
But the stocks have had a rough 2001. For instance,
has fallen about 21%, while
has tumbled 16% and
has dropped 12%. On Monday, Merck slipped $1.54, or 2%, to $74.15, Lilly dropped 50 cents, or 0.63%, to $78.50, and Pfizer fell $2.10, or 4.9%, to $40.35.
But there are indications that investors may return to at least some drug stocks as they run from tech issues.
In a report released Monday,
noted that Pfizer and
offer high earnings growth rates with the most promising new products among the drug makers, "regardless of the backdrop."
Pfizer's earnings per share are projected to climb 27% this year, while Pharmacia's are expected to climb nearly 21%, according to figures from
First Call/Thomson Financial
SG Cowen also called Merck a "compelling value play." It trades at about 23 times this year's projected earnings, below Lilly at about 28 times and Pfizer at 31 times. (SG Cowen hasn't done recent underwriting for the three companies.)
But the firm also warned that it expects the group to "mark time" with the S&P 500 this year.
Shopping for Gains
Retail shares, which have held up relatively well amid the carnage in the tech sector, lost plenty of ground Monday.
In stark contrast to the Nasdaq, the
S&P Retail Index
is up over 20% since mid-October and up 6% from a year ago, when the tech sector began to crumble.
That record didn't help in Monday's selloff. The
S&P Retail Index
ended the day down almost 4%, with
all mirroring that decline.
"I think you have to be selective and look for turnaround," said Himali Kothari, retail analyst for the
John Hancock Small Cap Growth Fund
. "If there is an interest rate cut next week it will probably help everybody."
The second half of 2001 could bring the sector a boost from better year-on-year comparisons for sales and earnings, which began to drop off in the second half of last year. That will make it easier this year for companies to show strong monthly gains.
Also, retailers are among the top performers amid falling interest rates.
In looking at all rate cuts since 1971,
Standard & Poor's
senior investment strategist Sam Stovall concluded that the best-performing sector is consumer staples -- such as drug stores and food-chain stocks -- a group that has risen an average of 16.2% in the six months following a cut. Since Jan. 3, the Fed has twice cut rates, and most analysts suspect further cuts are in the works.
But not everyone is convinced. "I'm looking at other areas outside of retail currently," said David Brady, an ex-retail analyst and manager of the $1.3 billion
Stein Roe Young Investor Fund
. "I think it's had its run, and that the fundamentals are fully reflected in their stocks."
Banking on a Rate Cut
The wave of selling that swept the market Monday soaked the financial sector in red with a broadside that spared no one, and put even greater pressure on brokerage stocks.
Philadelphia Stock Exchange/KBW Banks Index
, which tracks the country's 24 largest banks, sank 43.85, or 5%, to 843.67, while the
American Stock Exchange Broker/Dealer Index
lost 30.94, or 6.4%, to 452.11.
"I didn't see any news other than the weakness in Japan. It continues to be distressing but I don't think it was particularly surprising," says Brock Vandervliet, banks analyst at
Indeed, what news there was on the financial sector Monday tended to lean toward being upbeat.
Salomon Smith Barney
banks analyst Ruchi Madan penned a "mini" first-quarter preview this morning saying "most banks look good or OK." Madan said the March 20
meeting and upcoming quarterly results could be positive catalysts for the sector and predicted bank stocks would "continue to outperform."
But banks in the "good" and "weak" camps alike were whacked with similar gusto.
, considered one of the good ones, lost $2.69, or 5.3%, to $47.80. Meanwhile
, which Salomon thinks could miss the consensus estimate, lost $2.77, or 7.2%, to $35.95.
In a report on mid-cap banks, Vandervliet and fellow Lehman bank analyst Jason Goldberg homed in on a number of companies they regard as "growth names" including
which are rated as strong buys because the Lehman analysts think they should benefit from "lower rates and have competitive advantages in their markets."
Brokers were pressured even more, perhaps not so surprising given all of the
nervousness about falling investment revenue, a bone-dry underwriting pipeline and slipping trading profits.
lost $4.51, or 5.2%, to $82.49, while
Morgan Stanley Dean Witter
sank $5.26, or 8.6%, to $56.
"Tech may have a little more downside but it seems the rest of the
S&P 500 and the financials might have finally capitulated," said Scott Edgar, director of research at Walnut Creek, Calif.-based
SIFE Trust Fund
, which specializes in financial service stocks.
"At the very least there is probably a trading rally down the road pretty soon," Edgar said, noting that the financial sector and the broader market have been having a number of bad days lately. "Today, of course, is the topper of them all."
Network Sector: Anywhere but Here
The full-bore buildout of the new Internet has slowed to a crawl, and taken the entire networking sector down with it.
The once-bulletproof optical-equipment makers that develop gear for fiber networks such as
have dipped to or near their 52-week lows.
has been the only member of the pack to serve as an exception to that trend, as investors are sweet on its growing list of customers and range of products.
In the optical-component sector
both hit new 52-week lows Monday as investors have sold these shares with impunity.
With telecom service providers running short of cash to buy equipment, suppliers such as Lucent, Cisco and Nortel have been moving less gear and needing fewer lasers and other components from JDS and Corning. Hence the recent profit warning, or in JDS' case
warnings (three of them) so far this quarter.
The phone companies all headed into their slide much earlier in this downturn that the networking side as overspending and underselling took their toll.
Generally speaking, shares of the telecom underdogs
continue to sag as they're forced to pour far more money into their networks than they reap.
Established players, quasi-monopolies such as
and to some degree
, have -- relatively speaking -- retained a fair portion of their share prices. Conventional wisdom says that these companies have to exert less, by way of competitive spending, to hold their ground.
And these days, holding your ground seems good enough.
Eileen Kinsella and
Scott Moritz contributed to this story.