By Brian E. Clark
WisBusiness.com
For the first six months of this year, the stock market in general – and most publicly traded Wisconsin companies – were flying high.
In the past five-plus weeks, that sunny outlook has changed drastically – except for a few fortunate firms.
Spooked by new fears that credit woes are spreading, the market continued its roller coaster ride downward on Thursday, with the Dow Jones industrial average falling more than 340 points before regaining most of the loss.
“It’s very much a tale of two markets,” said Todd Parrish, a senior vice president with Robert W. Baird in Milwaukee. “It seems like it happened overnight. The rapidity of the decline is the story. These are very uncertain times.
During the first part of the year, energy and industrial stocks generally performed well across the board, said Parrish.
“The only weak area was financial stocks,” he said.
The Standard & Poor’s 500 index was up 6 percent, while the Baird Wisconsin Index was up by 6.19 percent, he said. Since then the Index has lost all it gained in 2007, dropping 10.56 percent.
During the first six months, shares of Bucyrus International soared 37 percent; Johnson Controls and Manitowoc Co. stock rose 35 percent each; Manpower Inc. was up 23 percent;, and Joy Global was up 21 percent.
Manitowoc, Joy Global and Bucyrus all make heavy equipment for mining companies. They surged with rising demand for coal and other resources, Parrish said.
Losers during that period were Harley Davidson, down 15 percent; Wisconsin Energy, off 7.2 percent; MGE Energy, down 10.7 percent; Modine Manufacturing, off 10 percent; and MGIC Investment, off 9.1 percent.
Investors were worried demand for Harleys is lower than the supply; the utilities weren’t as attractive as other shares; and MGIC was one of the financial companies beginning to show strain.
During the last six weeks – when MGIC announced it might have to write off $1 billion in losses from the CBASS, a subsidiary that sold risky, subprime mortgages – its stock value has plummeted another 41.7 percent, Parrish said.
Other big losers in the last month-and-one half include Fiserv Inc,. which dropped 16.3 percent; Johnson Outdoors, down 15.4 percent; Joy Global, 24.2 percent; and Kohl’s, 21.2.
“Not a lot has changed since second-quarter earnings were reported, but people are worried,” he said.
Though most of the index was off, there were a few winners in the past six weeks. They include: Modine Manufacturing, up 21.3; Third Wave Technologies, up 20 percent and the Ladish Co., up 10.6 percent.
In addition to the dismal performance of national mortgage companies and other finance companies that oversold subprime loans to marginal homebuyers, Parrish said hedge funds are also responsible for some of the market volatility.
“We don’t really know what’s in the hedge funds,” he said.
“The problem is that when we have a rapidly changing market, hedge funds are used to minimize risk,” he said. “But hedges can behave and unwind quickly.”
And that, he said, is “aggravating the market because there could be a failure of hedge funds.”
Though businesses commonly fail, the market “does not want to hear about lenders or mutual funds failing because it means they can’t meet their obligations.”
Parrish said the markets here and abroad are worried that world economies could sink into recession.
“The fear is that the financial sector could freeze up leading to an economic slowdown,” he said. “Like I said, these are uncertain times.”
