Why January's Worst Stocks Could Keep Falling Throughout 2014

The worst-performing sectors in the S&P 500 could continue to struggle for the rest of the year. Find out what they are.

Feb 2, 2014 at 11:31AM

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.

Stocks performed terribly in January, with the S&P 500 (SNPINDEX:^GSPC) falling 3.6% to begin 2014. But even though a couple of sectors in the S&P 500 managed to post modest gains last month, energy and consumer discretionary stocks did the worst, with both the Energy Select Sector SPDR (NYSEMKT:XLU) and the Consumer Discretionary Select Sector SPDR (NYSEMKT:XLY) both falling 6% in January. Let's take a closer look at both sectors to see what caused them to post such dramatic losses.

Not feeling energetic
The reason why energy stocks have done so poorly lately has to do with the natural cyclical rhythms that the oil and gas industry go through over the long run. Over the past several years, a huge transformation in the industry has led to explosive growth in production levels, with relatively high energy prices and new unconventional production techniques greatly boosting the amount of economically viable supply available to the market. That in turn has helped bolster energy companies' prospects.

But more recently, oil and gas exploration and production companies -- especially the big ones that have the most influence on the S&P 500 -- have found it increasingly difficult to keep raising the bar. As investors have gotten used to high growth rates, the natural decline in existing wells and the rising difficulty in finding replacements have put companies in a difficult spot, and many have been unable to maintain their production levels. Combined with energy prices that have stopped going up, the result has been falling revenue and profits as producers resort to lower-margin higher-cost growth sources.

Are consumers pulling back?
Meanwhile, consumer-discretionary stocks have been coming off a huge run in 2013, when shares of the SPDR ETF tracking the sector spared 43%. So it's no great surprise to see a modest pullback in this corner of the market.

Yet within the sector, there's been a lot of inconsistency. Several niches within the consumer-discretionary field have risen, with casino giant Wynn Resorts (NASDAQ:WYNN) gaining almost 12% in January as Asian growth continues to stay strong. But at the other end of the spectrum, specialty retail stores have done poorly, with Best Buy (NYSE:BBY) leading the way down with a 40% loss on the heels of terrible holiday-quarter performance. Household-appliance makers have also put in substantial losses, with Whirlpool tanking by about 15% for the month.

Will these losses continue?
The problem with these sectors is that the trends they set tend to be fairly long-lived rather than turning on a dime. As consumers get more uncomfortable with their future prospects, they tend to rein in their spending even more, exacerbating problems. In the energy sector, it'll take a while to wean investors off the assumption that growth can continue at such impressive rates indefinitely into the future. Without new signs of extreme economic improvement both in the U.S. and around the world, the warning signs we've seen in January could last well into 2014 and perhaps even beyond.

Avoid losers and find big growers
Find consistent winning growth stocks? Most people said it couldn't be done. But David Gardner has proved them wrong time, and time, and time again with stock returns like 926%, 2,239%, and 4,371%. In fact, just recently one of his favorite stocks became a 100-bagger. And he's ready to do it again. You can uncover his scientific approach to crushing the market and his carefully chosen six picks for ultimate growth instantly, because he's making this premium report free for you today. Click here now for access.

Dan Caplinger has no position in any stocks mentioned. You can follow him on Twitter: @DanCaplinger. The Motley Fool has 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.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.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.

©1995-2014 The Motley Fool. All rights reserved. | Privacy/Legal Information