Yesterday I suggested that if an investor believed in the old investing maxim "sell in May and go away," it meant the time was drawing near to think about exiting one's positions. The Dow Jones Industrial Average had a huge run-up over the first three months and seemed to be flattening out. Of course, it instead chose to turn around and jump another 90 points, even as Hewlett-Packard once again pared off its own huge first-quarter gains.
We're only a few days into April, and already the computer maker has given back more than 7%, though it remains 56% higher than where it started off the year. Yesterday's other Dow loser was Boeing (NYSE:BA), which fell 1.7% as it is still in the process of testing the 787 in hopes of getting the aircraft back in the air. Although the aerospace engineer didn't have nearly as good a quarter as HP, its planes were largely responsible for the rise in durable-goods orders. New orders for its planes pushed the metric past expectations, but that raises the concern that ex-transportation, durable goods actually fell, suggesting a very weak economy.
That alone could make it worthwhile for an investor to consider taking a vacation from the markets for a while.
Where there's smoke, there's fire
Beyond the Dow components, more than half the stocks on the major exchanges fell yesterday, with Star Scientific (NASDAQ:RCPI) and Nordic American Tankers (NYSE:NAT) being among the biggest losers, each falling almost 11% on the day.
Star, a supplements maker, has been on a steady downward trajectory since last summer, but in recent weeks it has felt the ill effects of class action lawsuits piling up against it after revealing it was under investigation by the U.S. Attorney's Office for the Eastern District of Virginia. Seems they're looking into certain private placements and related-party transactions the company made stretching back to 2006, and investors continue to abandon its shares, which are down 47% in 2013, adding to a stunning 70% loss of value from their 52-week high.
That sinking feeling
Oil-tanker leasing magnate Nordic American also plunged after announcing that it would be pricing a follow-on offering of $87 million worth of new stock at $9.60 a share that it plans to use for acquisitions. With the stock having closed above $11 the day before, NAT's stock dropped to meet the new lower valuation.
The oil-tanker market is in disarray, and Frontline (NYSE:FRO) says it's actually in a "state of panic." Charter rates for very large crude carriers, or VLCCs, have plunged 75% from the year-ago period, according to Clarkson, the world's largest ship broker, even as shippers refuse to take previously ordered new fleets and scrap many of those they already own. According to Bloomberg figures, there remain about 22% more VLCCs in the Persian Gulf seeking cargoes than there are shipments.
Certainly, supply is one component of the collapse in rates, but another not often discussed is the degradation of global trade, particularly in the Asia-Pacific region. Japan slowed to just 0.2% GDP growth in the fourth quarter of 2012, and for all the talk of China's strength, the Federal Reserve suggests that growth there could come to a screeching halt with less than 1% growth by 2030.
In December, Frontline canceled its long-term charter with Ship Finance International for two ships, and Nordic American was told that nine Suezmax vessels it had in a pool would be withdrawn so it could be more flexible. Yet Nordic continues to look for expansion opportunities and two weeks ago acquired its 21st Suezmax tanker, which should be delivered next month. It says it believes it can increase its dividend and earnings capacity through further expansion.
It seems the shipping industry hasn't learned anything, then, and that means there will be additional fleet operators heading down to Davy Jones' locker. I'd say it's not yet time to climb aboard Nordic or any of the other shippers until they reverse course.
Fool contributor Rich Duprey and The Motley Fool have no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.