Fact of the Day: US Equity Markets Are Down

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The US equity market has had a rough start to say the least this year. The S&P 500 is down 7.7% YTD on price return basis and the Dow Jones is off by 5.7%. Tech heavy NASDAQ is performing even worse with the NASDAQ Composite  and the Nasdaq-100 falling 12% and 11.5% respectively.

Below are the returns of select indices:

  • Dow Jones Transportation Average: -7.5%
  • Utility Average: -3.8%
  • KBW Bank: 0.1%
  • PHLX Semiconductor: -13.0%
  • PHLX Oil Service: 14.9%

Consumer staples, energy and financials are performing well. But software, technology, consumer discretionary are in correction territory.

Market breadth is awful.

NYSE:

  • New 52-Week Highs: 8
  • New 52-Week Lows: 526

NASDAQ:

  • New 52-Week Highs: 22
  • New 52-Week Lows: 1323

Source: WSJ Market Data

According to an article in the journal this weekend, 72% of stocks trading on the NASDAQ are in bear markets (or down at least 20%) from their recent highs. More than 40% of the NASDAQ stocks have declined by 40% or more.

Related ETFs:

  • SPDR Dow Jones Industrial Average ETF (DIA)
  • SPDR S&P 500 ETF (SPY)
  • SPDR KBW Bank ETF (KBE)
  • SPDR KBW Regional Banking ETF (KRE)
  • Invesco QQQ Trust Series (QQQ)

Disclosure: No positions

Nuclear Power Reactors Operating in the US: Map

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The US is the world’s largest producer nuclear power accounting for 30% of the worldwide nuclear generation of electricity according to World Nuclear Association. However nuclear power is still the major source of electricity. France is the top country for depending of nuclear energy for its electricity needs. France generates most of its electricity from nuclear power than other energy sources.

Have you ever wondered where all the nuclear power plants are in the US? The following map shows the location of nuclear reactors operating and under construction:

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Source: Nuclear Power in the USA, World Nuclear Association

Dividend Withholding Tax Rates by Country for 2022

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S&P Global has updated the Dividend Withholding Tax Rates by Country sheet for 2022.This one-pager is very useful for  ADR investors that pay dividends. Countries such as Singapore, UK, Malaysia, etc. do not withhold any taxes on dividends paid out to non-residents on stock only. Though the rate for Canada is noted as 25% in this table, this can be reduced to 15% in non-retirement accounts by submitting NR-301 form to Canada Revenue Agency (CRA). For stocks (excluding REITs) held in qualified retirement accounts, Canada does not withhold any dividends for US residents. So investors are better off owning income stocks such as Canadian Banks, Utilities, etc. in retirement accounts.

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Source: S&P Dow Jones

Some US Large-Cap Stocks Have Declined Heavily From 52-Week Highs: Chart

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Technology stocks are off to rough start this year. The tech-heavy NASDAQ Composite Index is down 4.8% so far this year. The S&P 500 on the other hand is off only 2.2%. Since late last year many technology stocks are in a downward trend. The market breadth is also not good for NASDAQ. For example, last Friday 690 stocks reached their 52-week lows compared to 84 for 52-week highs on the NASDAQ according to WSJ market data.

Many large-cap stocks trading on the exchange have declined 20% or more from their 52-week highs. A recent journal article noted that as of Jan 7, 36% of stocks in the NASDAQ Composite were down 50% or more from their recent 52-week highs.

The following chart shows the heavy losses some of the hi-flyers are taking. The poster boy of investor irrational exuberance during the pandemic is none other than exercise equipment maker Peloton Interactive Inc(PLTN).Peloton stock has plunged over 81% from its 52-week high. The other pandemic winner Zoom(ZM) is off over 65%. Momentum investors favorite online furniture retailer Wayfair Inc (W) has crashed by over 52%.

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Data Source: Barchart

US large-cap stocks’ decline from 52-week highs:

Disclosure: No positions

Update: 1/17/22

From a WSJ article today:

The tech-heavy Nasdaq Composite has been particularly turbulent. Around 39% of the stocks in the index have at least halved from their highs, according to Jason Goepfert at Sundial Capital Research, while the index is roughly 7% off its peak. At no other point since at least 1999—around the dot-com bubble—have so many Nasdaq stocks fallen that far while the index was this close to its high, Mr. Goepfert said.

The selloff in many individual stocks highlights how shaky the stock market’s 2022 has been. U.S. stocks last week posted a second-straight weekly decline, dragging the S&P 500 and Nasdaq down 2.2% and 4.8%, respectively, to start the year. Some stocks and sectors have moved even more dramatically.

Source: Giant Stock Swings Kick Off 2022, WSJ

Bank Director: The Best Regional, Emerging Regional, Small Regional and Community Banks

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Bank stocks are hot again. With the planned increase in interest rates by the Federal Reserve the market is betting that banks are bound to benefit. Banks’ earnings would go higher as the Net Interest Margin (NIM) would rise. NIM is the difference in interest paid out to depositors and the interest received by banks for loans. Higher interest rates leads to banks charging higher rates for all types of loans such as mortgages, auto loans, home equity loans, personal loans, etc.

The S&P 500 is down 2.25% so far this year. However the KBW Bank Index is up 11.6% already for the year. Rising interest rates and the rotation from growth stocks to value will lead to further growth for bank stocks this year.

With over 4,370 commercial banks in the country and hundreds of them publicly listed it is important to identify the best banks for potential investment opportunities. One way is to review and consider the best banks in various categories already analyzed and published by reputed institutions. The Bank Director magazine has published the annual list of best banks in the US for 2022. Multiple criteria was used to select these banks as described in the below excerpt:

To determine the top 10 in each category, we calculated a profitability score based on return on average assets (ROAA) and return on average equity (ROAE) as of year-end 2020. We also looked at year-over-year growth in pre-provision net revenue (PPNR) from 2019 to 2020, as well as absolute PPNR as of year-end 2020. Credit quality was also examined, based on net charge offs and nonperforming loans as a percentage of total loans for 2020. To award building shareholder value, we included five-year total shareholder return from 2015 to 2020. All of these factors were ranked and then averaged — with profitability receiving a double weight — to develop a score.

The final list includes the biggest banks, as well as regional and community banks leveraging traditional operating models in robust markets. Many took advantage of the mortgage boom, and some leaned into the digital economy. While high-performing, privately-held banks can be found across the country, we focused on public banks due to the wealth of data available on these institutions via Securities and Exchange Commission filings, press releases and other public information. We also excluded banks that issued announcements before July 1, 2021, that their organization would be acquired or merged into another institution.

Once the top 10 in each size category were selected, Bank Director then studied each institution across four subcategories that contribute to overall performance: leadership, board, innovation and growth. Each category has its own unique methodology, and each bank’s within-peer rank factored into its final score in the asset size categories. The result was a ranking of the best banks in the nation, banks that excel across multiple criteria: profitability, credit, shareholder value, executive and board leadership, and innovation.

The best banks in four categories are listed below. Investors looking to add exposure to this sector can use these lists as a starting point for further research:

The Best Regional Banks:

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The Best Emerging Regional Banks:

The Best Small Regional Banks:

The Best Community Banks:

Note: TSR means Total Shareholder Returns (Share price appreciation + dividends paid)

Source: 2022 Ranking Banking: The Best Banks, Bank Director

In the Regional Banks category, California-based SVB Financial Group had a 5-year TSR of over 226%. As the name suggests Emerging Regional Banks are the on the path to becoming the next regional banks.

Disclosure: Long GBCI