While a volatile quarter in the financial sector has translated to a string of extreme ups and downs in the stock market, regionally based public companies have come out on top.
“The whole arrangement of Wall Street in 10 days changed what took 75 years to build,” said Mark Fingerlin, executive vice president of the trust and investment division for Montecito Bank & Trust.
As a whole, the 30 tri-county companies tracked in the Pacific Coast Business Times/University of California, Santa Barbara, Economic Forecast Project stock index finished off the week ended Sept. 26 at 133.7, which is 3.8 points and 2.9 percent ahead of where the index closed three months ago for the week ended June 23.
Over the same time period, the S&P 500 dropped 65.1 points, or 5.1 percent, to close at 1,213.3; the Nasdaq Composite fell 132.3 points, or 5.7 percent, to close at 2,183.3; and the Russell 2000 finished off at 704.8, a 6.7 point, or 1 percent, improvement.
“The cool thing here for local investors is the local boys done good,” said Dan Hamilton, director of economics for the UCSB-EFP. “They’re up almost 3 percent whereas most of the other indices are down, with the exception of the Russell 2000 but the Russell is still smaller than the Tri-County index by a substantial amount, so it’s good stuff.”
Leading the Biz Times/UCSB-EFP index were Wells Fargo, which improved by more than 55 percent over the quarter to close at $37.31 and Bank of America, which was up 49.3 percent to close at $36.70.
Pacific Capital Bancorp was another financial institution to finish as a top performer of the regional index, closing at $20.77, or 42.4 percent above the quarter before. But Hamilton said that’s where the figures can become misleading.
“I think the number of stocks in the tri-county index is small enough that the fact that the index is up is partially luck – that’s my guess,” Hamilton said. “I looked at the gainers and losers and what I see are mostly idiosyncratic things, like Pacific Capital Bancorp.
Earlier in the year because of trouble they had, their stock lost a lot of value, so they’re coming back from a historical low earlier in the year so of course they’re going to be a best performer. It doesn’t mean anything really.”
Hamilton also noticed that if Countrywide – which was acquired by Bank of America during the quarter – still existed independently, it would have dragged down the tri-county stock index.
“We believe that especially now … it’s only a matter of time before Bank of America consolidates and suspends all of the Countrywide local operations, so whatever those local jobs numbers are … we don’t think those jobs are going to stay,” Hamilton said. “Banking in general in the country is under so much pressure, even BofA, and they’re simply going to have to do what they can to be efficient to reduce expenses to stay alive.”
Craig Allen, founder and president of Montecito Private Asset Management, said Santa Barbara-based Deckers Outdoor Corp., which relies on consumer discretionary spending, has performed poorly in the quarter, dropping its price from $139 at the beginning of the period to $104 on Sept. 23. Still, he said he expects the stock to improve around Christmas.
At the opposite extreme, Allen said Amgen’s stock has performed “exceptionally well,” with the price improving about 13 points, or more than 25 percent, over the period. Fingerlin said Amgen’s performance indicates that healthcare is a defensive sector of the economy.
Carpinteria and Denver-based Venoco has done poorly, Allen said. Adding that he expects barrel costs to drop even further.
“But if stocks turn around and start to rally, I think it will go up and stabilize and as the economy improves, demand for oil product will improve and stocks will do better, so Venoco is an outstanding value at $13 per share,” Allen said.
On the positive side for consumers, Fingerlin said oil is under $100 a barrel and gasoline prices already have started to come down. But any extra spending money that consumers get through falling gas prices, could be countered by job losses, rising unemployment and decreased purchasing power for families affected by layoffs.
Fingerlin noted a major issue in the financial markets has been the disconnect between stocks and bonds.
“It’s a remarkable quarter,” he said, with stock prices falling but government and highly rated bond prices rising sharply amid the credit crunch. “I’m not sure which market has it right: stocks or bonds,” he said.
Because of the recent events in the financial industry, including the failure of major companies like Lehman Brothers, the controversy over the federal bailout plan, and the reaction in the stock markets, Hamilton said he expects “huge” stock market volatility for at least the next three months, with companies that aren’t in trouble having their stock prices dragged down by a “general contagion” effect.
“We feel there is a loss of confidence. We feel like a bail out is difficult to achieve, not unachievable, but national politics are going to make getting a bailout a little difficult and as a result the bailout, if there is a bailout, is likely to happen late. It probably already is too late,” Hamilton said.