Banking & Finance and Manufacturing

Declining confidence prompts stock dip

Analyst says trade war, predictions of 2019 economic slowdown stoked investors’ fears in 2018.

January 11, 2019
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West Michigan’s public stocks saw an average decline of 8.4 percent last year amid what Wall Street is calling the worst dip since the Great Recession.

Local analyst Gregg Dimkoff, professor of finance at Grand Valley State University’s Seidman College of Business, calculated the West Michigan stock index to be an 8.4 percent loss using weighted averages of share returns from the region’s 16 publicly traded companies in 2018.

The region’s poor stocks performance comes amid 2018 losses of 6.2 percent, 5.6 percent and 3.9 percent for the S&P 500, Dow Jones Industrial Average and Nasdaq Composite, respectively, according to CNBC.

Only two public companies in West Michigan saw gains in 2018. ChoiceOne Financial Services ended the year up by 5 percent (from $23.80 per share to $25), and Stryker was up 1.2 percent, from $154.84 per share to $156.75 per share.

Wolverine Worldwide’s share prices held steady, from $31.88 in January 2018 to $31.89 on Dec. 28.

Perrigo had the worst year, down by 55.5 percent, from $87.16 per share to $38.75.

“If you include five quarters ago — the fourth quarter of 2017 and the first three quarters of 2018, a one-year period beginning on Oct. 1, 2017 — the company lost $600 million,” Dimkoff said. “That’s a huge loss and all by itself drove the stock down probably 30 percent or so.”

Perrigo also experienced significant leadership turnover, starting the year with John Hendrickson as CEO, followed by Uwe Röhrhoff taking the reins in mid-January, then Murray Kessler taking over as the third CEO of the year in October.

Perhaps most significant of all, on Dec. 20, Perrigo was hit by a $1.9-billion assessment from Ireland’s tax authority “out of the blue,” Dimkoff said, and its stock fell nearly 30 percent in one day.

The assessment from Ireland “relates to the tax treatment of the April 2013 sale by (Perrigo’s subsidiary) Elan Pharma of (multiple sclerosis drug) Tysabri intellectual property and related assets to Biogen,” according to Perrigo’s Dec. 20 filing with the Securities and Exchange Commission.

Whirlpool Corporation also had a bad year, with its share prices falling 36.6 percent from $168.64 at the beginning of the year to $106.87 at the end.

This continues a multiyear trend of losses for Whirlpool due to “tremendous competition” from LG and Samsung’s appliance divisions, Dimkoff said — although this year, the company also attributed its poor stocks performance to President Donald Trump’s steel and aluminum tariffs.

Dimkoff theorizes factors driving losses for other companies included higher freight and labor costs (SpartanNash); higher lumber prices, interest rates and “investors’ expectations the residential building and construction industry will slow down” (Universal Forest Products Inc.); and “uneasiness among investors about next year’s economy” (Herman Miller).

The local banks’ poor full-year performance surprised Dimkoff the most, he said, including Independent Bank, Macatawa Bank and Mercantile Bank.

“All of these banks had great years, great earnings, high reserves, low losses and great dividends. But share prices don’t reflect that because investors are wary of a slow economy,” Dimkoff said. “Investors are worried it might come to an end.”

He noted ChoiceOne was the exception to the rule because the bank has relatively few shareholders and those it does have are mostly local investors who “don’t sell; they buy and hold on and are not affected by concerns of a recession.”

Stryker performed well because the company continues to have a strong market for its products, Dimkoff said.

“Their robotic machines for doing orthopedic surgery had a really good year, and their concentration of orthopedic devices is exactly what the baby boomers need, and it’s a huge market,” he said. “There must be 60 million people that need knee replacements or will need them, and that’s Stryker’s strength.”

Dimkoff said one of the factors fueling market volatility overall is fear of rising interest rates, but he believes The Federal Reserve’s current approach to incrementally raising the federal funds rate will “normalize” long-term interest rates and incentivize investors not to put all their money in stocks and real estate.

It’s impossible to predict exactly what will happen to the stock market and the economy in 2019 based on 2018, Dimkoff said, but there are clues.

“The U.S. economy is still fairly strong but not as strong as it was. … There will be a slowdown. How much, who knows? A lot depends on Trump,” he said.

He said Trump’s immigration policies are drying up the labor pool, which is exacerbating the talent shortage and, over the years, could suppress standard of living growth and GDP growth.

“I’m concerned what happened to Japan will happen to us,” he said. “It will happen to Russia, China and most countries in Europe. … We remember when Japan was growing so fast, then they ran out of workers, and they’ve been in a recession for 20 years. That’s my fear for the future. Demographics.”

Dimkoff said investors should plan to stay diversified and ride out any fears of economic slowdowns and rising interest rates.

“Investors that turn out returns in the long run stay in when the market dives and reap a profit when it goes back up,” he said.

West Michigan 2018 stock performance

ChoiceOne Financial Services: $23.80 to $25, 5%*

Stryker: $154.84 to $156.75, 1.2%

Wolverine Worldwide: $31.88 to $31.89, flat

Steelcase: $15.20 to $14.83, (2.4%)

Gentex: $20.95 to $20.21, (3.5%)

Macatawa Bank: $10 to $9.62, (3.8%)

Independent Bank: $22.35 to $21.02, (6%)

Community Shores Bank: $3 to $2.65, (11.7%)

Meritage Hospitality Group: $20 to $17.50, (12.5%)

Kellogg: $67.98 to $57.01, (16.1%)

Mercantile Bank: $35.37 to $26.28, (20.1%)

Herman Miller: $40.05 to $30.25, (24.5%)

Universal Forest Products: $37.62 to $25.96, (31%)

SpartanNash: $26.68 to $17.18, (35.6%)

Whirlpool: $168.64 to $106.87, (36.6%)

Perrigo, Dublin, with North American headquarters in Allegan: $87.16 to $38.75, (55.5%)

West Michigan Index: 8.4 percent average loss through Dec. 28, 2018

* Adjusted for a 5% stock dividend May 31, 2018

Source: Gregg Dimkoff, Grand Valley State University

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