Nothing lasts forever. At least that's the lesson for S&P 500 stock investors this year as big gains slip away.
Fourteen stocks that had been up big are now shockingly down for the year. That includes First Republic Bank, Newell Brands and Match Group, which entirely wiped out 20% or higher gains up until the S&P 500 topped this year on Feb. 2, says an Investor's Business Daily analysis of data from S&P Global Market Intelligence and MarketSmith. And that's after the S&P 500 kicked off 2023 with one of the biggest first-month rallies in modern history.
Such a stark reversal in the market is a reminder of how markets are riskier than they've been in 60 years.
"The degree of fragility in consumer confidence and investor sentiment will play an important role going forward. Traders have thus far shown little discernment, as the bonds and equities of most financial institutions have been under extreme pressure," said John Lynch, chief investment officer for Comerica Wealth Management.
Yet Another Failed Rally?
The S&P 500 is still clinging on to a fraction of its rally in the first month of the year.
The key index is now up only 3% on the year. That's a huge disappointment given that it was up 9% at its highest point in 2022 so far on Feb. 2. That means in just weeks, the S&P 500 has given back two-thirds of its early gains.
But the pullback is even more dramatic looking at individual stocks. Back on Feb. 2, 383 stocks in the S&P 500, or more than three-quarters of the index, were up on the year. Now only 221 S&P 500 stocks, or about 44% of the index, are higher on the year.
And some of the drop-offs are dramatic.
Big Bank Gains Go Poof!
If there's a sector that's seen gains vanish faster than any other this year, it's financials. Case in point is First Republic Bank.
Keep in mind that before the failure of Silicon Valley Bank, First Republic Bank's shares were up more than 20% as of Feb. 2. Investors liked the San Francisco-based private bank's position. Now that gain and more are gone. Shares are down 90% this year, and that's even after a 30% rally on Tuesday.
Why the reversal? Just three months ago, analysts were bullish. They thought the bank would earn $7.16 a share in 2023, down just 13% from 2022.
But the failure of Silicon Valley Bank revealed, instead, that First Republic is exposed to some of the same risks. More than 67% of First Republic Bank's deposits exceeded the FDIC limits, which is high relative to many other banks. This puts the bank at higher risk of a run, as depositors worried about difficulties at the bank are apt to pull their money out fast as it's not fully insured.
Additionally, more than 110% of the bank's assets are long-term held-to-maturity assets. That's even higher than it was at Silicon Valley Bank. That's a risk as the bank is unable to quickly liquidate the positions if there's a demand for deposits.
Big S&P 500 Winners Give It All Back
But it's not just fallen banks giving back all their early year gains. There are plenty of examples from other sectors.
Rubbermaid maker Newell Brands shows the reversal. Shares had been up nearly 26% this year up until early February. But since then, reality hit the stock — and fast. Shares are down more than 12% this year. Analysts now think the company's profits this year will fall by more than a third. Worse yet, the company's profitability isn't seen exceeding 2022 levels until 2025.
Trendy app companies have reversed course, as well. Dating app Match Group is now down more than 10% this year after having been up more than 26%. And Etsy is off nearly 10% despite being up by nearly 24% in early February.
The hot airline trade, too, has been losing altitude. Shares of Alaska Air are now down 8.5% this year after surging more than 24% in the first month of the year.
Such stock reversals are just leading indicators of a recession that many think is inevitable.
"Recessions are never pain-free as they involve job losses, credit tightening and modest bankruptcies," said Vanguard Senior Economist Andrew Patterson. "A deterioration in financial conditions has long been part of our baseline expectations for a mild recession in (the second half) this year. Conditions would have to get materially worse from here for a change in our perspectives on macro fundamentals."
Big S&P 500 Gains Are Gone
Stocks down on the year after being up 20% or more on Feb. 2
| Company | Ticker | Rally to Feb. 2 | YTD % chg |
|---|---|---|---|
| First Republic Bank | 20.6% | -90% | |
| Newell Brands | 25.9% | -12.9% | |
| Match Group | 26.7% | -10.2% | |
| Etsy | 23.7% | -9.5% | |
| Alaska Air Group | 24.8% | -8.5% | |
| Mohawk Industries | 25.0% | -7% | |
| CarMax | 30.3% | -6.8% | |
| Discover Financial | 20.6% | -4.1% | |
| Ford Motor | 23.1% | -3.9% | |
| Trimble | 22.1% | -3.1% | |
| Capital One Financial | 31.0% | -2.9% | |
| Albemarle | 33.8% | -1.7% | |
| Franklin Resources | 28.2% | -0.2% | |
| General Motors | 23.4% | -0.1% |
Sources: IBD, S&P Global Market Intelligence
Follow Matt Krantz on Twitter @mattkrantz
