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Although we don't believe in timing the market or panicking over daily movements, we do like to keep an eye on market changes -- just in case they're material to our investing thesis.
The stock market has gone back to its losing ways so far today, with the Dow Jones Industrials (DJINDICES: ^DJI ) falling 80 points as of 12:45 p.m. EDT. Investors continue to struggle in trying to evaluate the potential impact of changing macroeconomic conditions and central-bank tactics on the markets. Moreover, as if the usual litany of concerns that have worried market participants lately weren't enough, today's brief evacuation of the Eiffel Tower in light of a bomb threat reawakened investors to the geopolitical risks that have largely gone unnoticed in recent months.
Yet, one trend from Thursday's session repeated itself today. Just like yesterday, stocks in the consumer sector again were among the weakest performers in the Dow. That's surprising, given the strength in many of the economic areas in which these stocks focus, but it seems to indicate general uneasiness about the high valuations that some of these stocks have reached.
For instance, Home Depot (NYSE: HD ) dropped 1.3%. The home-improvement stock has been strong for years and has really picked up steam in light of the accelerating recovery in the housing sector, which has seen prices rise at double-digit percentage rates over the past year. Yet over the past few months, homebuilder stocks have pulled back from their recent highs, and concerns about rising mortgage rates have made investors more sensitive to the fact that Home Depot trades at a lofty 25 times trailing earnings. A pullback therefore isn't unreasonable, but it does signal a shift from the past momentum-based trend for the stock.
Disney (NYSE: DIS ) once again showed up on the list of decliners, falling 1.2%. The stock has been weak since its earnings report, as investors seem to focus more on short-term results than on the long-term promise of its growing stable of new content-production businesses. With Disney hosting its D23 Expo this weekend, you can expect to see many of the projects that the company sees producing long-term growth, especially those based on its Marvel and Lucasfilm units. Yet as with Home Depot, value-conscious investors point to the jump in Disney's valuation as indicating at least short-term frothiness in the stock.
Finally, American Express (NYSE: AXP ) isn't exactly a consumer stock, but it relies on the spending behavior of consumers in order to generate both transaction-based and financing-based revenue. AmEx's decline of 1.2% didn't seem tied to any specific news item but rather on general concerns about whether the recovery can continue to boost spending levels. Moreover, with AmEx sporting an earnings multiple in the high teens as well, value investors might well have concluded that the stock has seen enough upside.
What all these stocks show is that even great companies can only see their share prices rise so far before countertrends start to assert themselves. Long-term investors should look forward to lower prices as potentially cheaper entry points for further investment.
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