The S&P 500 has staged a massive rally off its March low, so massive that you’d expect to see every stock in the index at least up since then. Alas, five of them have dropped since the market hit bottom. While three make sense, the other two are head-scratchers.
Some might describe the S&P 500’s 31% rise since bottoming on March 23 in the same terms (the Nasdaq Composite has risen 34% and the Dow Jones Industrial Average has advanced 30% during the same period). Still, it’s clear that the market responded to a combination of the Federal Reserve’s monetary stimulus and Washington’s fiscal stimulus in a big, big way. Combine that with the possibility that business will reopen sooner rather than later and you have a recipe for a rally.
Not so for American Airlines (AAL), United Airlines (UAL) and Southwest Airlines (LUV), which have dropped 1.1%, 3.2%, and 19.4%, respectively. And why shouldn’t they be? Air travel is halted, they’re burning through billions of dollars, have had to borrow from the government, and we still don’t know when air travel will return. Even Southwest, which had initially held up better than all its peers, finally succumbed. The fact that Warren Buffett’s Berkshire Hathaway (BRK.B) sold the entirety of its stakes in the airlines only added to the pain.
But what to make of Cincinnati Financial (CINF)? It’s an insurance company, and, like most insurance companies, has felt the pain of the economic downturn and the Fed’s low interest-rate policy. Its stock was holding up better than other insurers, including MetLife (MET)—until it reported earnings. It reported a 17% in loss cost, 13% higher underwriting expense and a 74% drop in underwriting profits, according to CFRA analyst Catherine Seifert. To make matters worse, it took a $1.7 billion investment loss, which resulted in a net loss of $7.56 a share. Ouch. No wonder the stock has fallen 16.5% since March 23.
Then there is the mysterious case of Walgreens Boots Alliance (WBA), which has dropped 4.4% since the S&P 500’s bottom on March 23. Walgreens problems really began at the beginning of April, when the company released its fiscal second-quarter 2020 results. Everything was fine until March 21, when sales stumbled, and then Walgreens said it couldn’t predict the future. Since then, Walgreens stock has barely budged. Still, its shares, at just over 11 times trailing earnings, look relatively cheap. It’s one to keep an eye on.
Write to Ben Levisohn at Ben.Levisohn@barrons.com
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May 12, 2020 at 06:37AM
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The Stock Market Has Rallied Since March 23. These 5 Stocks Have Not. - Barron's
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