Stocks rebound in wake of ‘Brexit’ decision
Most local companies down for the year
Investors remained in a buying mood Thursday, driving U.S. stocks broadly higher for the third day in a row to reverse most of the losses suffered immediately after Britain’s vote last week to leave the European Union.
The overall stock market is now up about 2.7 percent so far in 2016. But most of Chattanooga’s publicly traded companies didn’t fare so well in the first six month of 2016.
Five of the seven stock-traded companies headquartered in the Chattanooga area lost value in the first half of the year, including two companies whose shares plunged by more than 20 percent.
Despite this week’s gains in the overall market, shares of Dixie Group fell 33.2 pecent and shares of CBL & Associates Properties were off 24.8 percent in the first half of 2016. Dixie, which shed nearly 43 pecent of its value last year and continued to drop this year, has been hurt by continued losses from sales declines in its carpets. CBL was hurt by revelations of a Securities and Exchange Commission probe of four loans made in 2011
and 2012, combined with lingering investor concerns about retail cutbacks at shopping malls and retail centers.
The big winner among Chattanooga companies for shareholders in 2016 so far has been Astec Industries, which enjoyed a 38 percent jump in its stock value. Astec, which makes asphalt paving equipment and other heavy machinery, is benefitting by a new road spending measure in the U.S. and new wood pellet plant sales around the globe.
The Dow Jones Industrials, which gained 1.4 percent during the second quarter, is up 2.9 percent this year.
The S&P 500 index added 1.9 percent in the April-June period. Much of the biggest gains came from energy stocks, which benefited from a rebound in oil prices, and utilities and telecom companies, which became more attractive as bond yields declined. The index is up 2.7 percent so far this year.
While this week’s rally on Wall Street suggests that traders’ anxiety over Britain’s departure from the EU have eased, a surge in U.S. bond prices Thursday signaled many investors remain cautious about the possible long-term implications. As bond prices rose, the yield on the 10-year Treasury note fell to 1.47 percent.
“The equity market has realized that the ‘Brexit’ in a vacuum by itself is not a reason to wholesale abandon equities,” said David Schiegoleit, managing director of investments for the private client reserve at U.S. Bank. “But there is still the fear that it becomes contagious with other economies in Europe.”
Markets in Europe also extended their rebound from the two-day slump that broke on Tuesday. Britain’s FTSE 100 rose 2.3 percent. The U.K.’s stock market has recouped its losses, though that is largely thanks to a drop in the British currency, which favors earnings for big companies overseas.
Germany’s DAX added 0.7 percent. France’s CAC 40 rose 1 percent.
The simultaneous rise in prices for stocks and U.S. bonds on Thursday was unusual and suggests nervous investors overseas are seeking the relative safety of bonds even as other traders look to ride the U.S. stock market rally further, Schiegoleit said.
“You have not only nerves pushing foreign money into U.S. Treasurys, you also have negative yields in several places around the world, which is forcing capital into the U.S. bond market,” he said.
Another factor: Over 60 percent of the stocks in the S&P 500 have a dividend yield that’s higher than the 10-year U.S. Treasury. That gives even income investors a reason to buy stocks because bonds yields have fallen.