SEVERAL COLORADO COMPANIES STUCK IN MARKET PLUNGE

Investment exec: “Time for investors to become increasingly defensive”

The Bloomberg Colorado index, a basket of 65 companies in the state, turns negative after a 7.8 percent drop this month wiped out its gain for 2018.

October has a welldeserved reputation for spooking the stock market, and this year the month is going all out, sending investors running toward gold and gobbling up their returns.

The Dow Jones industrial average is down 5.3 percent this month, while the S&P 500 is off 6.4 percent and the Nasdaq composite dropped 8.9 percent. The losses, which have come largely in the past two days, have robbed investors of the sweet gains they thought were in the bag this year when the Dow hit new highs on Oct. 3.

“We believe it is time for investors to become increasingly defensive. U.S. stock price valuations are stretched to historic levels. Many economic growth indicators have overheated, creating the dual risk of rising inflationary pressures and the bursting of an equity bubble,” said Kevin Smith, chief investment officer at Crescat Capital in Denver,

Smith is in the camp of those who think the current slump will usher in a much larger decline. And while the major indices are still positive for the year, the Bloomberg Colorado index, a basket of 65 companies based in the state, turned negative Thursday after a 7.8 percent drop this month wiped out its gain for 2018.

Some of the worst losses this month in Colorado have come at companies that were already struggling. Shares of AYTU Bioscience, after dropping 93.8 percent through Sept. 30, are off another 59.4 percent this month. Shares of Westmoreland Coal are down 52 percent this month and 95 percent this year, not unexpected after the company filed for bankruptcy protection Tuesday.

Riot Blockchain, which was riding high late last year, has seen its shares drop 40.8 percent this month, part of the deepening aversion to cryptocurrencies that started in January. It doesn’t help that regulators are probing the company.

Mimicking the larger market, some of Colorado’s high flyers have found them

selves falling fast. Denver email firm SendGrid, whose shares were up 58.6 percent this year through a high on Sept. 11, has seen its stock price walloped in October. Shares are down 20.2 percent this month.

A benign inflation report sparked hopes early on Thursday that the market rout of the previous five trading days would reverse itself, and for a while it looked like it might. Smith said investors looked beyond the report and to the longerterm pressures building.

Tax cuts that Congress passed last year are putting the country on track for a $1 trillion federal deficit, an unprecedented amount this late into a recovery, and those deficits are likely to go even higher if the economy slips into a recession. Tariffs and trade disputes, which push up the price of consumer goods, are also inflationary, Smith said.

In one sign of how scared investors are getting, they piled headlong into gold, ending a sixmonth streak of declining gold prices. That helped lift interest in gold mining companies Thursday.

Shares of Denverbased Newmont Mining, the country’s largest gold producer, shot up 7.1 percent Thursday, while Royal Gold shares rose 5.8 percent, Golden Minerals shares rose 9.2 percent and Vista Gold rose 10.8 percent.

Shares of Lakewoodbased Pershing Gold Corp., which rose 6.5 percent Thursday, are up 35.5 percent this month, making them the state’s top performer in this downturn.

“The big reason gold stayed undervalued and went down for six months in a row is that the stock markets kept going higher and higher. Gold has been left dead since 2012,” Smith said. But the gold zombies are finally awakening, and that isn’t a good omen for what might come next.