Tag Archives: Alec Young

Stocks Tumble as Government Shutdown Looms

Economy, , ,

Stocks went south yesterday as investors’ anxiety over the possible shutdown of the governmDebt Crisis Loomingent grew. The deadline to approve a budget is this Monday night, September 30, at midnight. As bad as not passing a budget would be, a far worse scenario is what is really worrying people; the possibility that the stalled Congress will not pass a bill to raise the nation’s ceiling on borrowing.

If the budget does not pass, forcing the government into a partial shutdown for the first time in 17 years, the prospect of government default on its loans will become a real possibility, sending fear into the hearts of investors.

The tension caused by the fight over the budget and the debt ceiling is easy to understand: US credit is the basic foundation that all other investment stands upon, mainly because there is an assumption that the country will always pay its debts.

“The concern is government has become so polarized that if it cannot pass (a budget), there’s a greater chance that the debt ceiling battle will go to the brink or possibly lead to a default,” said Alec Young, global equity strategist with S&P Capital IQ.

The Dow Jones industrial average closed at 15,129.67, down 129 points, or 0.8 percent. The S&P 500 dropped 10 points, to 1,681.55, a loss of 0.6 percent. The Nasdaq fell 10 points also, a difference of 0.3 percent, to 3,771.48.

Once Hot Utilities Stocks Losing Popularity

Economy, Investments, , ,

Just like everything else powered by the whims of crowds, types of stocks also have their “five minutes of fame.” Take, for instance, the coolness surrounding Chinese Internet stocks one month, solar energy manufacturers another month, or daily-deal sites like Groupon a third month.

Dust Off Grandma's Stocks

But who would have ever thought the boring, safe, old-fashioned, faithful utility stock would become the darling of 2011? Well maybe you grandmother, but regular investors? Yes they sure were popular last year; in fact, utility sector stocks were the be-all and end-all best-performing stock sector, up 8.7% overall in 2011, says the fund-tracking firm Lipper. We don’t have to tell you this was quite a bit better than the go-nowhere, do-nothing, S&P 500.

Proceed with Caution as Economy Recovers

But before you sell the farm and buy out the electric company, heed the warning that this unlikely hero has likely wilted back into the safe haven of slow growth, where it is usually found. Investors bestowed their beneficence on utility sector stocks because of their reputation for being safe and sound, but now their price to earnings ratio has gone a bit high; up to 14, well above the S&P’s average of 12.2, a warning to proceed with caution.

"Utilities stocks were red-hot, but the public needs to know the tide has turned against them," says Alec Young, global equity strategist for S&P Capital IQ. "It's an untold story, and there hasn't been enough coverage of it."

What makes Young say this? During recessions, such as the one we are hopefully emerging from, investors flee to utility stocks for their lovely mix of stability and yield. But as the economy recovers with decent GDP growth and jobless rates lowering, history has shown that counter-cyclical stocks like utilities tend to fall behind.

"The macro picture is improving, and we're past the point of maximum fear," says Young. "Now there will be less focus on yield and capital preservation, and more willingness to speculate. All of that is bad news for utilities."