Federal shutdown and sentiment hit dry bulk stocks (Part 1 of 6)
Risk aversion, fear, the market, and the government shutdown drag stocks down
Dry bulk companies have had a terrible week so far. With the government unready to come to a conclusion, stocks were badly affected. Have fundamentals changed? Certainly, with government offices closed, farmers can’t access important information, companies halt major purchase plans, and consumer sentiment tends to fall. As sentiment falls, people become risk-averse and very focused on the short-term outlook: the possible threat of a US default. Not only does the current government shutdown make people focus more on the near-term outlook, but it also makes people fear the possibility of a US default—another reason to run for the hills.
Baltic Dry Index was still up on October 8: Technicals contributed to the decline
If we look at how companies fell on October 8, most declines occurred during the first three or four hours of market day. But the dry bulk indexes were still up in the green for Capesize, Panamax, and Supramax vessels, based on the DryShips Daily Market report. The Baltic Exchange Capesize Index rose from 4,020 on October 7 to 4,085, while those of Panamax and Supramax also showed increases to 1,989 and 1,145, respectively.
A closer look at the intraday and daily charts shows that we can attribute a significant part of the decline to a break in an uptrend support that began in August. Once it broke, traders or investors had put orders to sell. So the late movements in dry bulk shipping companies are driven more by technicals and sentiment.
Last week, we published an article titled Idea: Do dry bulk stocks actually follow the Baltic Dry Index? to explain that the overall market and government shutdown will have an impact on dry bulk companies more than the dry bulk index, unless for some special circumstances. But that doesn’t make sense, because the shipping indexes represent what companies can earn. So perhaps the long-term trend of a shipping index is what really drives the long-term trend of dry bulks stocks.
Opportunity exists in the current environment as long as fundamentals remain positive
For new investors, this current government shutdown will create an opportunity. When selling pressure is high and when fundamentals haven’t changed, investors can generally find companies that are cheaper. Let’s take a look at the typical indicators that analysts and money managers look at to get a picture of the fundamental outlook for companies like DryShips Inc. (DRYS), Diana Shipping Inc. (DSX), Navios Maritime Holdings Inc. (NM), Navios Maritime Partners LP (NMM), and Safe Bulkers Inc. (SB).
Browse this series on Market Realist:
- Part 2 - With robust Panamax orders, dry bulk fundamentals are improving
- Part 3 - Construction activity drops, lower dry bulk supply growth ahead
- Part 4 - We’re at the start of higher fleet utilization, so rates will rise
- government shutdown