After hitting their peak in October, U.S stocks (as measured by the
S&P 500) have had a volatile ride, and
financials have been leading the charge. When compared with the last bear market of the decade, which was caused by the technology bust, along with the September 11 terrorist attacks and a
recession, the markets today are dealing with a
credit crisis, high energy and food prices, and a housing slow down.
We are yet to see the recession this time around if you go by the boiler-plate definition of two consecutive quarters of negative
GDP; with fourth-quarter 2007 GDP growth coming in at 0.7%, growing from $13,970.5 billion to $14,074.2 billion, and first-quarter 2008 estimates of GDP growth coming in at about 0.8%, continuing to grow to $14,185.2 billion. Even if you do the calculations with
real GDP (inflation adjusted, with dollars chained to their 2000 value), we still see positive growth rates of 0.14% and 0.15% for Q4 2007 and Q1 2008 respectively.
Now don't get me wrong. Those are really low growth rates. I like former Fed Chairman, Alan Greenspan's comments calling this a "
Pale Recession". (To learn more about the big picture, check out
Macroeconomic Analysis.)
More To Come?
Although high
dividend yields and low
P/E ratios have helped draw
bottom fishers into the battered financial industry, massive losses in
market cap seem to be seen on a weekly basis in the sector. This week's list of bears is dominated by financial stocks that have yet to see an end to the pains of this current crisis. Although we continue to hear cries of "the worst is over," it may be hard to believe, when it was the same thing we heard less than a year ago. In the period between August and October, the S&P rallied over 10% on claims that the crisis was over. We are now lower than at the start of that rally.
Why do the losses keep coming?
Stock Picking Community sentiment still continues to be high on stocks in this list. This week, one of our big bears is Washington Mutual (WaMu), who's shares dropped almost 11% to $10.34 from $12.18 last week. This following the replacement of chief enterprise risk officer Ron Cathcart with John McMurray which was announced the previous Friday. Shares declined almost 8% on Monday to $11.22 on this news.
It is time that some changes are being made in the decision makers at WaMu. With negative earnings of -$2.42 per share, it can not compete against the more profitable
Bank of America (NYSE:
BAC), with its positive
EPS of $2.38. Even the industry, which has really been hurting, has an average EPS of $0.62. My biggest fear, though, with WaMu, is its year over year revenue growth, coming in at a -95.6%.
I am truly fearful of the financial sector. With revenues decreasing, and profits dwindling, I would like to see this change before bottom fishing in this area. CEO's can continue to claim the worst is over, but until I see some hard evidence in the financial statements, I will continue to watch from the sidelines. (Learn more about analyzing stocks that are hurting, in
Finding Profit In Troubled Stocks.)
Add Your Two Cents
What do you think will happen with WaMu going forward? Will changes in the risk management executive be enough to turn this drowning financial around? Be sure to join me (
aytonmm) in the
FREE Stock Picking Community to share your thoughts and see what other investors are saying.
