Dow dropped 226, decliners ahead of advancers 4-1 & NAZ sank 50. Two of the sharpest drops came at Kodak (EK), down 29%, & Allstate (ALL), down 21%, on glum reports. As in many recent sessions, financials led the way, this time down.
S&P 500 FINANCIALS INDEX gave up much the gains from Wed (finishing near the low of the day). Representative is Wells Fargo (WFC), yesterday up 5 (31%) & today down 2.
Value
127.12 |
Change
-11.65 |
% Change
-8.4% |
The Alerian MLP Index was down 2½ to 202, not serious given the recent move up from the 180s. Dow Jones REIT dropped 12 (almost 10%), it's discussed below. As expected, VIX climbed 3 into the 42s on increased fears.
REITs have been thru a very tough time in the last year. Today was just one example of how brutal it's been. They may be facing more headwinds, REIT investors will need to be brave. They are getting caught up in a cash squeeze. It looks like they will adjust div payments, stock divs may account for a portion or maybe all of the div this year. Presently they are only exploring options, but it looks like a coming event which explains today's big decline. This will allow them to keep more cash at home to pay bills (i.e. interest payments). It doesn't really imply severe financial weakness, but it is not being taken well. Personally I don't mind since the stock div portion is not taxable, it simply goes to buy more shares.
Dow Jones REIT Index --- 1 year
If this plays out, MLPs may take a look at it if accountants will let them. Since they are partnerships, not corps, their tax status is different than for corps. Already 2, Enbridge Partners & Kinder Morgan, also have stock companies, EEQ & KMR respectively, in addition to their units, EEP & KMP respectively, which pay 100% of the div equivalent in stock. If substituting stock divs for part of the cash div "works," it's a good bet cash strapped ordinary companies will also weigh this option. Off the top of my head, Caterpillar (CAT), & they're just one, is thinking about it.
There are growing worries that the recovery will not begin until next year, which would mean more ugly economic news coming for months. Dow has gotten thru a fairly terrible earnings season in decent shape, keeping above 8K (it's only 149 above presently). That floor may get more testing.
•Prospects for U.S. Recovery Dim as Home Sales, Durable-Goods Orders Slump