The stock market's bounce from its early 2016 performance has been impressive, and Monday brought a continuation of those positive trends to investors. The Dow managed to climb for the seventh day in a row, and although the gains for major market benchmarks were limited, the positive sentiment that investors seem to have regained was nevertheless encouraging. Most market participants seem comfortable with the state of the U.S. economy as the approach of earnings season promises them a first read on conditions in corporate America for the year. Yet some stocks didn't share in the upward movements of the market, and Sears Holdings (OTC:SHLDQ), Diamond Resorts International (NYSE:DRII), and BP Prudhoe Bay (NYSE:BPT) lost ground on Monday.
Sears Holdings fell 5% in the wake of its latest financing transaction. Late Friday afternoon, the retailer announced that it had priced its $750 million senior secured term loan at a variable interest rate equal to the London Interbank Offered Rate plus 7.5 percentage points, and it expects to offer a 3% price discount that will leave the company getting $720 million in proceeds from the term loan. The move will allow Sears to reduce its borrowings under its revolving credit facility, but the high interest rate reflects some of the concerns that investors have had about the retailer's ability to operate profitably over the long run. With Sears having announced last week that it had entered into a special agreement with the Pension Benefit Guaranty Corporation to protect pension benefits in the wake of the company's transformational changes, investors are still nervous about where Sears will go from here.
Diamond Resorts International dropped 11% in sympathy with fellow timeshare operators like Marriott Vacations Worldwide after news that the Consumer Financial Protection Bureau was investigating Florida-based Westgate Resorts. The bureau released a decision and order late last week that denied Westgate's petition to set aside an initial civil investigative demand from the bureau's Office of Enforcement. For its part, Westgate said that it believed that it was in compliance with all regulatory requirements under the jurisdiction of the CFPB, but it still appears that the enforcement action will move forward. Westgate will now have to release consumer complaints relating to its timeshare business. Even if the CFPB doesn't broaden its scope to include companies like Diamond Resorts, investors worry that negative publicity will hurt the industry's overall reputation.
Finally, BP Prudhoe Bay also declined 11%. A story in the Wall Street Journal Monday referred to the royalty trust as "dying," reporting that operating company BP expects to cut the number of drilling rigs in the Alaskan North Slope oilfield by 60% to just two. The plunge in crude oil prices has dramatically reduced royalty payments under the trust, and the latest operational news only adds further fuel to concerns that already existed about the trust's ability to make distributions after the year 2020. If oil prices bounce back, then the trust's long-term prospects might improve. For now, though, investors are looking at falling production volume and falling prices and concluding that the potential rewards aren't worth the risk involved with BP Prudhoe Bay shares.