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After writing yesterday about the S&P 500 reaching new heights, I was prepared to follow up today with a similar story. However, as I usually caution, what goes up must come down. Except that with the indexes it’s more like a kid blowing up a balloon. They get excited as it gets bigger and bigger, so they want to see how big it can go. We all know how that story ends as the balloon busts. If I were to try that at my age, not only would the balloon bust, but I would collapse, completely winded, promising that I will never do that again. Maybe there is a lesson there for us.
The S&P withdrew by 0.03%, but it was not alone. The Dow Jones Industrial Average fell by 0.25% and the NASDAQ by 0.28%.
The Oddity of Anchors
I used to work with a gentlemen who said that same thing at every retiring employee’s dinners. He always said, “You have been an anchor for this institution for many years.” The inside joke (that most of the retirees never caught) was that he spoke from his heart. However, in some cases he meant that the individual had held the company firm through the storms of life. In other cases, he meant that the person had been an unnecessary weight that had impeded progress.
The S&P Anchors
I guess you could say that everyone of the companies listed on the S&P are just like those retirees. They are all anchors – in one way or another. Today, three of those anchors not only kept the index from reaching new heights, they dragged it down, impeding its progress.
McDonald’s (NYSE:MCD)
McDonald’s share price dropped 1.04% today to 101.30. The fast food giant is in trouble. That cannot be denied. This is the point in this story where you start thinking that I am nuts. This is where you point to MCD’s chart and you tell me that the share price has steadily increased, for the most part, since 07 September 2009, when it was at 54.39. But this is also the point where I reply that Ronald McDonald is a clown.
The problem at McDonald’s is that it needs to do something to grow organically in order to keep the share price stable. I’m not saying that the task is impossible, but I am saying that the company doesn’t appear to have many options as to how to do that. In the meantime (pardon the pun), major competitors are eating their lunch. McDonald’s announced today that it intends to return up to $20 billion to shareholders over the next three years through buybacks and dividends, a move that some would say is a scheme designed to ultimately enhance the reported EPS.
IBM (NYSE:IBM)
I have to love IBM. I was born in the same town that it was. We’re like Brothers. (In case you didn’t catch it, that was another bad pun. You can figure it out.) IBM’s share price declined 0.83% to 183.25. For this story, the history of IBM’s share price is irrelevant. The point is that it adversely affected the S&P today.
IBM’s story is mostly about being a leading manufacturer of business machines for decades. The company has had to evolve its technology at an increasingly rapid pace as the years have flown by. It’s fair to say that it has done a stellar job. But the pace is getting even more rapid, the path is getting even more complicated, and the competition is getting even more aggressive. One of it’s chief competitors, Oracle (NYSE:ORCL) may soon pass IBM in size based on market cap. As of yesterday Oracle’s market cap was at $186.3 billion, closing in on IBM at $186.7 billion.
It may be, however, simply today’s headlines that China is blaming IBM for security breaches in its banking system. It’s probably just an strategic accusation in light of the current psycho-cyber political war, but, regardless of whether it is fact or fiction, it is enough to unsettle more than a few investors.
UnitedHealth Group (NYSE:UNH)
UNH share price dropped 0.34% to 78.61 on about half the averages shares per day traded. There was no news from UNH today, so no one really knows why. Sometimes you can’t say exactly why something is an anchor. It just is.
