A picture shows helmets with General Electric logos.
Loic Venance/AFP via Getty Images
Monday was a terrible day for stocks. The last few days have been dreadful. With markets reeling, investors might want to look for signs of capitulation.
Capitulation correlates with a “sell everything” mentality. Essentially, it’s when the narrative changes on Wall Street. The current narrative these days might be that the economy is strong, and will remain so, despite higher than average inflation. A new narrative that is battling for investor head space is that a recession is inevitable, and that stagflation is descending on the U.S. economy.
The recent volatile trading is like windy days between two weather systems—the more positive and negative narrative in this case.
Trading in Boeing (ticker: BA) and General Electric (GE) stock has certainly been blustery, and might be a sign that selling is getting to indiscriminate levels. And since stocks bottom before the actual economy, indiscriminate selling—or capitulation—is a good time to start looking for value again.
Monday, Boeing shares dropped 10.5%, while GE shares finished down 6.7%. Those are worse than declines than the broader market: The S&P 500 dropped 3.2% Monday, while the Nasdaq Composite fell 4.3%, and the Dow Jones Industrial Average was the relative winner with a loss of only 2%.
Other industrial stocks fared far better than GE and Boeing. Honeywell International (HON) shares ended the day down 0.8%, and Eaton (ETN) stock rose 0.5%.
It was as if investors decided to sell anything that has run into any trouble lately. Boeing has had a difficult few years since two tragic 737 MAX crashes, and GE has been engaged in a multiyear turnaround being led by CEO Larry Culp.
The spread between GE and Eaton shares—two companies that both benefit from renewable-energy trends—was about 7.2%. That’s in the worst 1% of days looking back five years. What’s more, the trading divergence happened with, essentially, no news beyond the overall market problems.
The spread between Boeing and Honeywell—two companies with large aerospace businesses—was the third-worse daily spread of the past few years. There isn’t much to pin that daily performance on, either, other than recent trading trends.
Investors, it seems, just had to get out of GE and Boeing stock Monday.
Maybe it’s a sign that investors are as bearish as they can be. Maybe it isn’t. Things can always get worse, and investors should be careful. Still, most stocks get to a level where they become attractive, despite gathering storm clouds.
Write to Al Root at [email protected]
