Although Wednesday’s trading ended calmly with little change, the stall here in new-high territory confirms the bulls are hesitant to keep forging ahead without some sort of tangible reasons to think stocks as a whole can justify their frothy values. The S&P 500 ended the day at 2152.43, up a mere 0.01%.
It could have been worse, of course, and it was worse for owners of Host Hotels and Resorts Inc (NYSE:HST), Royal Bank of Scotland Group PLC (NYSE:RBS) and Valeant Pharmaceuticals Intl Inc (NYSE:VRX).
These three names lost more than a little ground on Wednesday, albeit for good reasons.
Host Hotels and Resorts Inc (HST)
Just when it looked like Host Hotels and Resorts shares were finally going to pull out of their early-2016 rut, a dose of bad news comes along and up-ends the stock.
That bad news was supplied by JPMorgan, which downgraded HST on Wednesday from “neutral” to “underweight.” The core of the concern that ultimately sent HST 4% lower today was a combination of too much leverage and waning demand against a backdrop of increasing competition. Analyst Joseph Greff noted:
“Based on recent development pipeline data from STR, we currently expect the top 25 U.S. markets, in the aggregate, to post supply growth of 2.5 percent and 2.3 percent in 2016 and 2017, respectively, which has grown sequentially since late last year.”
Greff also lowered his target price on HST from $16 to $15.
Royal Bank of Scotland Group PLC (RBS)
The post-Brexit beatings for Britain’s banks aren’t finished after all. Most of them were down again today, with Royal Bank of Scotland Group leading the charge with a 3.1% tumble.
The crux of today’s selloff stemmed from worry that the Bank of England — the nation’s equivalent to the Federal Reserve — may be forced to lower Britain’s interest rates. While such a maneuver could potentially induce economic growth, it could also crimp margins for the country’s banks at a point when planned cost cutting is already going to make things operationally difficult.
The potential rate-cut spurred a strong debate even outside of banks’ business circles. The British Bankers’ Association’s chief economic adviser Rebecca Harding argued that lower rates wouldn’t stimulate much of anything, saying “Lower rates are unlikely substantially to increase lending: the immediate effect on the economy is also likely to be limited as a result.”
Valeant Pharmaceuticals Intl Inc (VRX)
Last but not least, Valeant Pharmaceuticals once again earned a spot on the daily “Worst 3” list, by the hand of a familiar adversary.
Does the name Andrew Left ring a bell? For long-faithful owners of VRX, it should. He’s the owner and operator of Citron Research, which panned Valeant Pharmaceuticals back in October based on a questionable relationship with a specialty pharmaceutical company Philidor. Citron’s allegations rekindled a steep selloff from VRX, and were a big part of the reason Valeant Pharmaceuticals fell more than 90% between August of last year and June of this year.
Well, he’s back.
On Wednesday morning, Andrew Left renewed his bearish opinion on VRX, reporting he had entered a new short (bearish) trade on the stock. No new accusations were made. Rather, Citron research just underscored the fact that Sequoia Funds had liquidated all of its stake in Valeant. Left held it up as yet-another piece of evidence the company is a lost cause.
VRX ended the day down 6.8%.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities.
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