The world continues to turn, the political scandals continue to unfold (or not), and the market continues to be driven, in part, by the hope of tax reform, with the main focus on the corporate tax rate and repatriation of cash at favorable rates. All of this, plus a surprise or two, may make for an interesting year-end. Yet, the volatility I would have expected is still not present.
The simpleton's measure of volatility that I use -- days that the S&P 500 closes up or down at least 1% -- is at the lowest level I've ever seen. There have been just eight such days so far in 2017 by my count, three of which happened from Aug. 10 to Aug. 17. Markets are up nicely this year but they've been creeping higher, with several runs of consecutive mildly positive days though nothing exciting.
The longest such period, from Sept. 26 to Oct. 5, was an eight-day run that saw the S&P 500 rise 2.2%. There were also two seven-day streaks, from Feb. 7 to Feb. 15 and from May 18 and May 26, where the index rose 2.5% during each streak. The S&P 500 may be up 17% so far this year, but it has been one heck of a boring market. Admittedly, part of that sentiment may be because I am a jaded value investor who is not finding a great deal of value these days.
However, there may be plenty of opportunity as 2017 ends and the New Year begins, as investors cull their portfolios to offset gains. There are sectors and a whole host of companies that have been absolutely trounced this year, and these may be punished even more, to the point where some are worth buying.
Take a look at the apparel and retail spaces, where names such as Vera Bradley Inc. (VRA) (down nearly 40% year to date) Under Armour Inc. (UAA) (down by more than 50% year to date after taking another hit this morning upon slashing 2017 guidance), Foot Locker Inc. (FL) (down 58%), Hibbett Sports Inc. (HIBB) (down 65%), Dick's Sporting Goods Inc. (DKS) (down 53%), and others have not participated in the boring market rally, but instead have been absolutely trounced. Now, I would not buy any of these companies simply because the price is depressed; there must be a compelling story relative to the depressed price. I've disparaged Under Armour previously as not being cheap enough, although there is value there at some price. I would not buy a Sears Holdings Corp. (SHLD) , J.C. Penney Co. (JCP) or Sears Hometown and Outlet Stores Inc. (SHOS) , for instance, at any price.
In the restaurant space you've got Zoe's Kitchen Inc. (ZOES) (down 49% year to date), DineEquity (DIN) Inc. (down 39%) and even Chipotle Mexican Grill Inc. (CMG) (down 30%) that may be in investors' cross hairs for tax-loss harvesting purposes. I've not been a fan of Chipotle for valuation reasons, but I'd buy darn near any name if I thought it was cheap enough. It's not at this point in my view, but if and when the growth crowd completely capitulates, who knows?
I will devote additional columns to this subject as year-end approaches.
