Both the Dow Jones Industrial Average and the S&P 500 had their worst week since the start of the summer, closing 2% lower from the week prior as momentum stalled over worries about corporate earnings and Europe. The Dow tumbled 281 points while the S&P lost 32 points.
Financials were one of the big anchors this past week, despite JPMorgan Chase's (JPM 0.65%) having a blowout quarter thanks to the Federal Reserve's policies keeping interest rates artificially low. Ostensibly to give the housing market a shot at recovery by spurring lower rates, banks like Morgan and Wells Fargo (WFC 2.73%) instead pocketed the money as profit. Wells said lowering rates for consumers is not "a good decision from a profit standpoint," and Morgan concurred saying, "We're not going to price a lot lower to create demand." If you think the Fed is simply transferring money from your wallet to the banks ... well, you're not alone.
The indexes, though, can be forgiven for taking a breather, as the 30-stock Dow was up 10% since June 1 while the broader S&P rose 11.8% in the same time period.
72 inches down
Yet over the market's past five trading days, some stocks did even worse than the indexes, some falling by double-digit percentages. Solid-state-drive maker OCZ Technology (NASDAQ: OCZ) lost 40% in one day last week after announcing it was delaying the filing of its quarterly report because problems with customer rebate programs were leading to massive losses. In a bid to gain share against Seagate Technology (STX) and Western Digital (WDC -2.64%), it lost control of an incentive program and now revenues are reeling, leaving it more vulnerable than ever to a buyout offer -- but not before it gets its financial house in order. It ended the week down 54%.
Playing defense
Another big loser was Sarpeta Therapeutics (SRPT -1.14%), a biotech that started off the month by tripling in value after reporting that an experimental treatment for Duchenne Muscular Dystrophy showed promising results. The stock skyrocketed 200% in one day going from $15 to $45 in the blink of an eye. Unfortunately, that was followed by the loss of contract with the Defense Department to develop an Ebola virus drug. While it was swallowed up by the enormous gains made from the clinical trials, the stock did close down 20% for the week and has given back nearly double that amount from the peak it hit just days before.
Sarpeta investors can console themselves with the fact it still has a DoD contract to develop its Marburg virus drug, a disease similar to Ebola. Both are hemorrhagic fevers, meaning they cause bleeding from multiple organs within the body while in later stages victims gush blood from various orifices, but Ebola has proved to have a higher mortality rate than Marburg. Sarepta's Ebola contract, however, may be renewed at a later date should Defense get more funding, so don't count it out. Besides, the stock trades nearly 600% higher than it did just three months ago, so giving back a few points can be seen as the price of doing business.
Digging a deeper hole
Last on the hit parade is Stillwater Mining (SWC), the palladium miner that had been enjoying a strong, late-summer run on the basis of rising car sales and the hopes for an improving economy. With palladium a key component of a vehicle's catalytic converter system, the rising tide was lifting Stillwater's boat, too.
Yet there was always the fear of having Europe wreck everything, particularly with palladium and platinum prices coming under heavy pressure. And as we saw with the latest round of car-sales news, Europe remains an especially weak point. Ford (F 0.17%) saw sales slide 29% in August on the continent, and the numbers coming out for the industry for September aren't encouraging, either. France, Italy, and Spain -- all countries under severe austerity budgets -- are reporting plummeting sales. France is down 18%, Italy tumbled 26%, and Spain's sales fell off a cliff, plunging 37% from a year ago.
Stillwater apparently decided to use the opportunity of its stock's soaring value to raise money through a debt offering. Although the details were still sketchy, it hinted enough that bondholders would get even more shares if the stock performed to certain standards that shareholders could see significant dilution on the horizon.
Fellow palladium miner North American Palladium (NYSE: PAL) hasn't fared nearly as well as Stillwater, with its shares getting cut in half from their 52-week high, so the gains Stillwater investors enjoyed thus far can provide some comfort.
Stop, look, listen!
Three stocks, three similar outcomes, but the outlook for each is different. And of course, the big banks always win at our expense. But of the non-financial stocks we mentioned here today, Ford could actually be the most compelling of the bunch: financially more secure than many of its rivals, a strong global manufacturer, and a valuation that's intriguingly cheap.
