6 Biggest Market Surprises of the First Quarter

by Beth Gaston Moon | March 30, 2012 7:00 am

6 Biggest Market Surprises of the First Quarter

5656173006 9621647ab1 300x199 6 Biggest Market Surprises of the First Quarter [1]Believe it or not, springtime is upon us. Easter and Passover, April showers and a new baseball season. But before we get ready for arguably the most cheerful time of the year, let’s take a moment to sift through the notable curve balls the market served up during the first three months of 2012. We’re only 90 days into the year, and we’ve already been through a lot of shakeups. Here are a half dozen of the most memorable.

6. Encyclopaedia Britannica Goes Digital

After nearly 250 years in print, the publisher is shutting down its presses[2] and focusing on the digital business. Those hungry for Britannica’s information can now subscribe to the online Web-based service or use a smartphone or tablet app.

On one hand, this is savvy business — after all, the number of physical volumes sold each year dropped by more than 90% from 1990 to 2010. On the other, it’s another sad sign for both journalism and the traditional publishing industries. Are bound books the new compact discs?

5. Starbucks Spreads Its Wings

For years, Starbucks (NASDAQ:SBUX[3]) seemed content to do what it did well. Italian-inspired coffee beverages of varying complexity and expense, a comfortable environment for readers and writers, and maybe a mediocre baked good or two. But now, under the leadership of visionary CEO Howard Shultz, the Seattle-based java giant is dreaming big[4].

In early March, Starbucks unveiled plans for a single-cup dispenser machine[5], which would be in direct competition with Green Mountain Coffee Roasters’ (NASDAQ:GMCR[6]) Keurig appliance. This shifts away from the familiar coffee shop model and potentially puts more product directly in customers’ homes or offices. The news also came as an unpleasant surprise for GMCR shareholders, as the stock took a tumble on the report. The two coffee companies do remain partners[7] in Keurig-related ventures.

They are also moving out of the caffeinated beverage market entirely, experimenting with a line of juice stores[8]. In addition to freshly squeezed juice options, the Evolution Fresh chain will serve soups, sandwiches, and other healthy lunch fare.

Maybe these moves will mean a whole new audience for Starbucks and a whole new way to make money. Or they could be experiments that fail by levels of”New Coke” proportion. For now, the stock is trading near an all-time high after gaining 50% in the past 12 months.

4. Sears Stock Rallies

The Sears (NASDAQ:SHLD[9]) and Kmart brands have stifling amounts of competition. Underperforming stores are being shuttered. Earnings have been in a tailspin. And despite these formidable headwinds, the stock has managed to rally 110% in 2012.

Seemingly out of the ether, part of this buying power was likely driven by short covering[10], but the lion’s share of this upside can be chalked up to good old-fashioned speculation. Sometimes, there’is no rationale to the stock market. You just have to enjoy the ride and hope for occasional glimmers of good luck.

3. Financial Stocks Outperform

Year-to-date, the Financial Select Sector SPDR (NYSE:XLF[11]) is up 20%, doubling the return of the broad market. In 2011, while the SPX was virtually flat, the financial sector sagged more than 18% after getting clobbered in the third quarter and bouncing back slightly in the fourth.

Banks and brokers have shown increased strength despite continued concerns on a macroeconomic level. One reason for this is earnings growth, which was stronger in this sector[12] than anywhere else during the fourth quarter.

2. Apple Hits $500…and Then $600

While it’s no surprise that Apple (NASDAQ:AAPL[13]) remains everyone’s favorite stock market darling, its sheer indefatigability is nothing short of impressive. Year-to-date, Apple shares are trading 50% higher. The stock conquered the $500 level in mid-February and the $600 mark in late March.

The company has weathered the loss of its founder/chief visionary, a PR nightmare[14] due to its Foxconn manufacturing plant and vague ennui surrounding the announcement of its latest iPhone and iPad models. Right now, the real surprise will be if and when Apple stops moving higher or even begins a sharp decline. And who’s to say if any of us will be ready for it.

1. The Market Rebounds

Gas is near $4 a gallon, economic concerns remain palpable all over the eurozone, unemployment is at a three-year low but still above 8% and a Presidential election year has friction running at a fever pitch. Oh, and many investors lost a decent chunk of their portfolios in the second half of last year.

And yet. Optimism and buying enthusiasm have driven the market higher this year, recovering a lot of those portfolio losses. The SPX is up 10% for the first three months of 2012, and the Dow has gained 7%. The tech-rich Nasdaq, meanwhile, is up 18%. And all three indices have breached significant round-number levels: The SPX took out 1,300, the Dow topped 13,000 for the first time since early 2008, and the Nasdaq is now back over 3,000 after more than a decade below this millennium mark.  

Honorable Mentions (a/k/a, “Knock Me Over With a Feather”):

A few stories didn’t really throw us off guard when they hit the Street. Facebook announcing plans for an initial public offering, for example, or fuel prices resuming their upward trajectory. Hand in hand with rising oil and gas prices was an unsurprising hike in airline ticket costs.

Another foregone conclusion was Eastman Kodak (PINK:EKDKQ[15]) filing for bankruptcy[16]. The venerable company has been struggling to steady its footing in a digital environment for years, and it never executed a lifesaving strategy. The stock has been delisted from the NYSE, and the company said it will no longer make digital cameras, choosing instead to focus on photo printers, software and other new businesses.  

So that’s it. What market story shocked you over the last three months?

As of this writing, Beth Gaston Moon owns shares of Apple and Green Mountain. 

Endnotes:
  1. [Image]: http://investorplace.com/wp-content/uploads/2012/03/5656173006_9621647ab1.jpg
  2. shutting down its presses: http://investorplace.com/2012/03/encyclopedia-britannica-to-cease-printing/
  3. SBUX: http://studio-5.financialcontent.com/investplace/quote?Symbol=SBUX
  4. is dreaming big: http://investorplace.com/2012/03/starbucks-schultz-is-still-dreaming-big/
  5. single-cup dispenser machine: http://investorplace.com/2012/03/starbucks-single-serve-coffee-may-kill-green-mountain-sbux-gmcr-keurig-verismo/
  6. GMCR: http://studio-5.financialcontent.com/investplace/quote?Symbol=GMCR
  7. do remain partners: http://investorplace.com/2012/03/starbucks-green-mountain-are-still-a-team/
  8. experimenting with a line of juice stores: http://investorplace.com/2012/03/starbucks-declares-war-on-jamba-juice/
  9. SHLD: http://studio-5.financialcontent.com/investplace/quote?Symbol=SHLD
  10. likely driven by short covering: http://investorplace.com/2012/03/is-it-finally-time-to-sell-sears-holdings-shld/
  11. XLF: http://studio-5.financialcontent.com/investplace/quote?Symbol=XLF
  12. stronger in this sector: http://www.cnbc.com/id/46500063/S_P_500_Earnings_Financials_Outperform
  13. AAPL: http://studio-5.financialcontent.com/investplace/quote?Symbol=AAPL
  14. PR nightmare: http://investorplace.com/2012/03/reckoning-with-nprs-foxconn-problem-drama-masquerading-as-journalism-aapl/
  15. EKDKQ: http://studio-5.financialcontent.com/investplace/quote?Symbol=EKDKQ
  16. filing for bankruptcy: http://investorplace.com/2012/01/eastman-kodak-chapter-11-bankruptcy-ek/

Source URL: http://investorplace.com/2012/03/6-biggest-market-surprises-of-the-first-quarter/
Short URL: http://invstplc.com/1nxY1Pj