Texas Tea

As you surely are aware, oil and the associated energy stocks have dropped precipitously over the past year.  Although the dynamics and inputs have been different each time, it is interesting to consider the recent decline relative to past periods of extreme weakness.   Looking at similar periods over the past thirty years, the magnitude of the recent drop is “in the neighborhood” of the other declines.  You will notice, however, that from a duration standpoint, all of the other declines lasted longer from peak to trough, suggesting that the current rout may not be over and could hit new lows in the coming months. 

 S&P 500

Year To Date Returns

Now that we have entered the third quarter, I thought it might be interesting to look back at the performance of different market sectors.  Year to date, the S&P 500 is roughly flat and the typical (median) stock is down about one percent.  On a sector basis, as you can see below, the market has been quite bifurcated.  Investors who have been heavily invested in healthcare or consumer staples have likely outperformed while investors in industrials, utilities, energy and telecom have underperformed.  Considering the variance in sector returns, I would expect to see a fair amount of dispersion between active managers on a year-to-date basis. 

Leap Second

On June 30^th, there will be a leap second.  Scientists need to do this every so often to syncronize atomic clocks with the slowing rotation of the earth.  Some clocks will read 11:59:59 twice, others will read 11:59:60 and others still will smear the leap, as they call it.  This seems simple enough, but last time this happened, Mozilla, Reddit, LinkedIn and other sites all reported crashes.  In Australia, 400 flights were grounded due to a Qantas Airlines software crash. 

As far as the markets go, this will be the first time in the electronic age that this will have been done during the week.  It is happening at night time here, but apparently we are closing our afterhours trading early.  In Asia, most systems are smearing the leap second by slightly adjusting each second in the day leading up to the event.  A second doesn’t seem like much, but there are now computer trading systems that can react in as little as one-millionth of a second.   

In one second:

Elkhart, Indiana

For some reason, Elkhart, Indiana and RVs have come up in several conversations lately.  I am hoping that at least one reader of today’s blog is actually in an RV on summer vacation.  Many of you have probably driven through Elkhart and passed the RV Hall of Fame (yes that really exists).  Elkhart is the RV capital of the world; more than 1,000 RV related companies operate in Elkhart and half of the RVs you see on the road were made in this rural Indiana County.  Elkhart is also the band instrument capital of the world for those of you studying for Jeopardy.  The chart below shows RV sales over the last 25 years.  Not surprisingly, the industry took a massive hit in 2008, but has recovered all the way back to peak levels seen back in 2007.  With the baby boomers all retiring, one would think that demographics are a tailwind for the RV industry.  Thor Industries (THO), the largest pure play in the space, took advantage of the recession and is now achieving record sales and earnings.  Interestingly, the company is not yet back to peak profit margins.

Favorite “Blue-Chips”

Yesterday, I mentioned that dividend paying stocks have been a bit weak most recently and that it is possible that rising interest rates might be a headwind for these stocks.   I received some responses from people mentioning specific high-quality names that they like, regardless of interest rate movements.  I thought it would be interesting to look back to see what a group of “blue-chip” stocks has done over the last twenty years, which is presumably a long-term period for most investors.  I used the Dow as a simple representation of what people think of as being “blue-chip”.  The worst of these stocks, DuPont, still turned $1 into $4 and returned 7.1% on an annualized basis.  Apple, which is clearly an anomaly, turned $1 into $88 and achieved a 25% annualized return.  Of course there is a bias in this list, since they occasionally replace the losers with winners.  Is your favorite long-term holding on this list?  Does it rank higher or lower than you expected over the past twenty years?