Everybody is talking about how quiet the stock market has been lately. Low volatility, low volumes, flat share prices. The FTSE 100 has grown just 0.01% this year.
Some analysts have compared 2014 to the peaceful summer of 1914, just before the Great War broke out. Others remember those cowboy movies where somebody mutters “it’s quiet, too quiet” then gets an arrow in their hat.
Barclays Goes Boom!
Beneath the silent surface, danger lurks. Investors in Barclays (LSE: BARC) (NYSE: BCS.US) aren’t complaining about too much quiet. Its share price has crashed a noisy 22% in the last six months. Investors have been shell shocked by an ceaseless barrage of scandals, including mis-selling PPI, gold manipulation, Libor fixing, interest-rate swaps, the dark pool debacle and more.
Investors in Lloyds Banking Group, HSBC and Royal Bank of Scotland have seen their share values mown down and there could be worse to come, with newly established watchdog the Competition and Markets Authority (CMA) launching an enquiry that could lead to the break up of “anti-competitive” banks.
The sector is also vulnerable to foreign threats, such as a eurozone bank blow-up or the fallout from sanctions against Russia. Investors who think the current market is overvalued should check out the banks. Barclays is a lot of things, but trading on a forward P/E of 9.1 times earnings for December, it isn’t overvalued (at least by conventional metrics).
Tesco Goes Bang!
Investors in Tesco (LSE: TSCO) have also been blown away. Its share price is down 15% in the last six months, and 25% in the last year. This week chief executive Philip Clarke abandoned his post after three years of declining sales ended in another profit warning.
I’m not convinced Clarke was the problem; he had a strategy for turning things round, he just didn’t have the time. Tesco is facing war on all fronts, as German discounters Aldi and Lidl grab customers share at the bottom of the market, and Waitrose and Sainsbury’s retain theirs at the top.
I reckon competition in the supermarket sector is now too tough for one company to retain a 30% share, and new chief executive Dave Lewis, poached from Unilever and with little experience in the sector, has a fight on his hands. He certainly won’t have a quiet time.
Glaxo Goes Phut!
If there was ever a FTSE 100 company built for a low volatility world, it was reliable pharmaceutical dividend machine GlaxoSmithKline (LSE: GSK). But its share price tumbled nearly 5%, yesterday, following a 4% fall in group sales and a 10% drop in pharmaceuticals and vaccines turnover in the US.
Anybody who has described Glaxo as “quiet, too quiet” will have plenty of arrows in their hat, after that sex, bribes and videotape scandal in China. At today’s 1472p, Glaxo’s share price is down 15% from its 52-week high of 2773p. That shouldn’t happen to Glaxo in a becalmed market.
Glaxo is the fourth largest company on the FTSE 100, by market cap. Until recently, Tesco accounted for £1 of every £7 spent on the high street. Barclays had designs on becoming a global investment bank. Today’s market is a silent killer. And investors should be celebrating that fact, because it has now thrown up three big buying opportunities. Who wants a quiet life anyway?
