Despite some excitement recently it has been a ho-hum summer in terms of market volatility. So far in the third quarter the S&P 500 has closed up or down more than 1% (my definition of a volatile day) just three times, and all three of those sessions have occurred in the past five trading days.
Quarter to date, the S&P 500 Index is down about 2%. Interestingly, during the third quarter of 2018 the S&P 500 experienced no volatile days. However, the tide turned quickly in the fourth quarter, when there were 27 volatile days out of 82 total trading days. How quickly we may have forgotten that the S&P 500 was down more than 14% during that quarter.
I suspect we are on track to see the volatility of the past several days continue as we head into September and storm clouds brew. To be clear, volatility as described here does not necessarily mean a falling market, but rather markets swinging either way. Where she lands, nobody knows.
Speaking of volatility, private correction name CoreCivic Inc. (CXW) did something Tuesday that has become a rarity, as shares rose 4% following the release of second-quarter results. In that announcement CoreCivic boosted its per-share guidance for 2019 FFO (funds from operations) to a range of $2.69 to $2.73 from a range of $2.64 to $2.73. It's difficult to say whether CoreCivic beat quarterly estimates because the company does not have any analyst coverage at this point.
Indeed, the private prisons business and companies in it are now shunned. Sell-side analysts have stopped following CXW and fellow corrections name GEO Group Inc. (GEO) as political pressure has mounted ahead of the 2020 elections.
While it seems like we've been here before, this time it's different. Several banks have stated publicly that they no longer will lend to the private corrections industry, and several 2020 presidential candidates and other politicos have vilified the very notion of anything but government-run correctional facilities. Profits and prisons just don't mix in their view, and somehow they've exerted enough pressure on financial institutions to cut ties.
I've never seen anything like this and wonder if one of the next moves will be to try and pressure S&P and Russell to remove these companies from their indices. Both CoreCivic and GEO Group are currently in the S&P 400, Russell 2000 and Russell 3000. Removal would put further pressure on the stocks as funds and ETFs linked to the aforementioned indices would need to sell them. I'm not saying that's where this is going, but what has occurred so far has been astonishing.
CoreCivic has had its share of issues over the years; private prisons have not been perfect, but they have filled a need for strapped state government budgets, allowing states to avoid capital costs of building new facilities and cutting costs per inmate. It's hard to believe this industry will disappear altogether, but time will tell.
CoreCivic currently yields 10%, while GEO yields 11%.