BEATEN SECTORS GO FROM OVER-SOLD TO OVER-BOUGHT
In retrospect, we owe the SEC an apology. The agency said there was a short trade on in the financials. And we expressed skepticism about the plan to deal with it. With the benefit of a full week’s worth of hindsight, it’s apparent there - in fact - was a short trade on for some of the worst-beaten stocks and bloodied sectors. The remarkable thing, though, isn’t how desperate the straits got. It’s how quickly the recovery has taken hold. In some cases, it could be argued, oversold has given way to over-bought conditions in the span of about a week. To wit: dating all the way back to July 15, the KBW Bank Index (BKX) has improved 40%. In five trading days. To turn that figure on its head, take a look at the Ultrashort Proshares Financials (SKF), the ETF that increases leverage to declines in the underlying sector. It’s declined 40% in that same span, plus another 3% in Wednesday’s trading. How about airline stocks? The Airline Index (XAL) has realized a gain of 52% in five sessions. Some of that may have been leveraged off fundamentals: promises of capacity cuts that would could help stoke demand, increase customers’ willingness to pay higher prices, and bring the revenue generated by a ticket sale more in line with the costs of flying that passenger. The retreat in oil prices the last several trading sessions likewise helped. But if ticket prices and costs could be brought into some kind of harmonic convergence, why are airlines waiting until the fourth quarter to make that happen? Wouldn’t they use the high-traffic summer season as their window of opportunity? Meanwhile, none of the big sector moves can compare with the recovery mounted by some casino operators. After fears that Vegas was, effectively, going out of business, gambling house names dropped to multi-year lows last week. Since July 15, however, shares of Las Vegas Sands (LVS) have risen 85%. Now that, folks, is how to cover a bet.
HERSHEY - YUP, THAT HERSHEY - BEATS EXPECTATIONS
Either we’ve slipped into some sugar-induced state of a separate consciousness, or what would generally appear to be unthinkable has transpired. We’re talking right up there with alien incursions, a Chicago Cubs world championship, a business journalist passing up free food. That’s right: Hershey (HSY) had a good quarter. Call it the ultimate triumph of reduced expectations, if you must, but the chocolate maker - battling rising raw materials prices, steep market share losses, and a long tradition of dunderheaded management and ownership - actually beat forecasts for the quarter it reported Wednesday. Granted, it talked down some expectations just a month ago. But, still, a win is a win. And by indications, the company showed some progress in margins, despite cranking up the spending on marketing. Whatever the reason, it appeared to have succeeded: market share losses showed signs of flattening out. Its high-end Bliss bar debuted as the best-selling new product in the chocolate category. And new management’s ambitions would seem to be realized, though all management would admit to on the conference call was that it was off to a good start. Of course, there were a few lumps in the confection. And, no, those weren’t almonds. Its cash position declined 65% from a year ago. And the fundamentals aren’t going to completely silence the contingent that would like to see Hershey partner up to better compete globally in the battle for consumers’ sweet tooth. Shares rose 5% Wednesday.
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