What a week so far. The S&P 500 did something on Wednesday that we have not seen in nearly four months: It had a "volatile" day, defined as rising or falling more than 1%. In this case, it was a down 3% day, which we have not experienced since last Feb. 8. As if that was not bad enough to elicit fears, that decline was followed Thursday by a 2% loss. The last time we saw anything close was on Feb. 2 (down 2.12%) and Feb. 5 (down 4.1%).
I'd forgotten about that early February period, as I suspect many other investors have as well. However, looking back at the data now, it was quite remarkable and a needed reminder about how volatile markets can be.
From Jan. 26 to March 9, a span of 30 trading days, the S&P 500 rose or fell at least 1% 17 times. All of those ups and downs ended up producing a rather small 2.1% loss over the period. From Feb. 2 to Feb. 14, the S&P 500 had eight volatile days out of 10 total trading days, and the end result was a 2.8% loss. It can happen, and it will happen again
I suspect we may be back in another one of those "buckle your seat belt" periods, and frankly, I've been surprised about the relative calm we enjoyed between mid-June and this week. One thing that this type of environment can produce is opportunity in deep-value land; smaller and more distressed names are often the first to be jettisoned.
While I have not seen anything very interesting yet in small-value land as a result of this week's activity, I do note that Newell Brands (NWL) continues to take it on the chin. It is down about 18% over the past month, now yields 5.2% and trades at about 7.5x next year's consensus estimates. Only the patient investor should apply, those who don't mind taking a chance on a dog with fleas.
Elsewhere, we learned that the inevitable is on the cusp of happening, as beleaguered Sears Holdings (SHLD) reportedly is preparing to file bankruptcy. This situation has been like watching a train that you knew with certainty was limping its way toward a wreck. The conductor didn't want to believe it, nor did the passengers, but as an observer, you could see the inevitability. Sears has lingered far longer than it should have, and it's a sad story in many ways, some of them nostalgic.
There was a time when the value crowd was a huge proponent of SHLD due primarily to the perceived value of the company's real estate holdings, which ended up being well overestimated in my view. Ultimately, Seritage Growth Properties (SRG) was formed in order to "unlock" this value, but it now also faces the potential repercussions of a Sears Holdings bankruptcy, holding the master lease on 230 stores leased to the troubled retailer.
I suspect we are not done yet with retailer bankruptcies, and still believe that J.C. Penney Co. (JCP) is also on the same track as Sears. It's only a matter of time.