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.
Whether it was the positive news that politicians in Washington were close to a deal on the Federal budget or rumors that Stanley Fischer, who is not considered to be as dovish as Janet Yellen, may become the vice chairman of the Fed, Wall Street was consumed by taper fears today and the major indexes paid the price. The Dow Jones Industrial Average (^DJI 1.05%) lost 129 points, or 0.81%, while the S&P 500 fell 1.13% and the Nasdaq declined the most, losing 1.4%. But despite those losses, one Dow component and two other consumer-facing companies fared just as badly or even worse.
Dow component Nike (NKE 0.22%) lost 3%, making it the worst-performing Dow component today. The interesting thing about this move was that there was no good catalyst for the decline. Very little news, let alone negative reports, could be found pertaining to the company. But trading volume was nearly double that of a normal day as 6.65 million shares traded hands while the rolling three-month average is only 3.9 million shares. This very likely is a sign that a large institutional investor was selling shares today.
While Nike lost 3% on no news, shares of lululemon athletica (LULU -19.71%) declined 1.11% as investors still weigh the company's recently announced changes. On Tuesday, Lululemon announced that Founder Chip Wilson will step down as chairman and that Laurent Potdevin will take outgoing CEO Christine Day's job. Potdevin was most recently the president of footwear brand TOMS Shoes and will likely help Lululemon globalize its brand, as he had a leading role in doing just that with TOMS. For months now, investors have had to worry about what the loose-tongued Wilson may say or do next. So both this change and the announcement of a new CEO should be seen as good things in shareholders' eyes.
Another big loser today was RadioShack (RSHCQ), which lost 4.88% of its value. The decline came after the company announced that it had completed a new financing deal, in which it will receive $835 million. The money will be used to refinance existing debt and leave about $200 million for incremental liquidity. This is yet another step toward a turnaround, but the problem is this new deal will double the company's borrowing costs according to CreditSights. Typically, investors don't like to see a company increase its debt, but that is overlooked when it is caused by growth and at a low rate. But that's not the case with RadioShack. It is increasing debt and the cost of that debt to help save itself. Problem is, if turnaround plans don't work or take too long, the increased cost of the debt it is taking on now may be enough to cause the business to fail. Investors need to keep a close eye on this.
