Indiana stocks rocket higher to open year

Susan Orr •

Indiana stocks blasted back in the first quarter, with more than two dozen of the state’s 51 public companies posting double-digit percentage gains.

The surge made the market sell-off in the final weeks of 2018 a distant memory. Bloomberg’s index of Indiana stocks climbed 13 percent in the quarter, pushing it up 20 percent since stocks plunged to their 2018 lows on Christmas Eve. The surge was in step with the U.S. stock market overall, as measured by the S&P 500, which rose 13 percent in the quarter, bringing gains since Christmas Eve to 21 percent.

“The numbers are pretty eye-popping for the first quarter,” said Ken Skarbeck, president and managing partner at Indianapolis-based Aldebaran Capital. “It bounced back dramatically and quickly.”

Eleven Indiana companies saw gains of more than 20 percent, and another six saw increases topping 15 percent. Standouts came from diverse fields — from Fort Wayne-based handbag maker Vera Bradley Inc. (up 55 percent) to Indianapolis-based industrial developer Duke Realty Corp. (18 percent).

Investment professionals cite a range of factors for the rebound, including generally positive outlooks for the U.S. and world economies and the Federal Reserve’s Jan. 30 decision to halt interest-rate hikes amid signs of slowing global growth.

In large part, the economic uncertainty that marked the fourth quarter has dissipated, and stock prices have risen as a result, said Roger Lee, a senior research analyst at Columbus-based Kirr Marbach & Co. LLC.

The ongoing trade war with China, fears over continued Federal Reserve rate hikes and international unrest, including the “yellow vest” protests in France, contributed to investor unease at the end of last year, Lee said.

“In the fourth quarter, people were so drowned in fear of the global economy slowing down,” Lee said. “You had all these snowballing headwinds.”

Since then, Lee said, the United States and China have made progress on trade talks, and domestic political issues seem calmer.

The progress on trade has been especially good news for Indiana, one of the most manufacturing-intensive states in the country.

More than half of the 15 best-performing Indiana stocks last quarter were manufacturers, including Columbus-based engine maker Cummins Inc. (up 18 percent), Fort Wayne-based Steel Dynamics Inc. (17 percent), and Elkhart-based RV makers Patrick Industries Inc. (53 percent) and Thor Industries Inc. (20 percent).

The Federal Reserve’s more cautious stance on interest-rate hikes further eased investor anxiety.

In 2018, the Fed raised interest rates four times and indicated plans for additional rate hikes in 2019.

This approach took a toll on the stock market, said George Farra, co-founder and principal of Indianapolis-based Woodley Farra Manion Portfolio Management.

“By the fourth quarter of 2018, the market increasingly began to believe that the Fed had perhaps gone too far, and so they began to sell off all risk assets — stocks, commodities and so forth.”

But early this year, the Fed backed off those plans, saying in both January and March that it would maintain current rates and take a “patient” approach in considering further adjustments.

When interest rates go up, borrowing money becomes more costly and companies might scale back on capital investments that could improve their performance, said Matthew Sanchez, senior investment adviser at Fishers-based Biechele Royce Advisors.

“When it’s more expensive [to borrow], they’re really going to think twice about where they’re putting their dollars,” Sanchez said.

Higher interest rates also can make investments like bonds more attractive.

“It attracts investors away from the equity markets,” he said. Conversely, stock prices tend to do better when interest rates are lower.

Banks are the exception to this rule. They make money from the spread between the interest they pay on customer deposits and the interest they earn on investments. When interest rates are low, this spread — and the opportunity to profit from it — narrows.

Only one Indiana bank — First Capital Inc. in Corydon — was among the 20 best-performing Indiana public companies in the first quarter.

Many banks saw gains of less than 10 percent, including Muncie-based First Merchants Corp. (8 percent) and Evansville-based Old National Bancorp (6 percent).

Fishers-based First Internet Bancorp actually saw its share price drop. The price fell 5 percent, in part because the bank surprised investors with a big loan write-off in its fourth-quarter earnings report.

Looking ahead to the remainder of the year, Skarbeck is skeptical the stock market will match its first-quarter performance.

“I think the returns going forward are going to be much more difficult to come by, from these levels,” he said. “Upward movement from here won’t be as easy as the first quarter.”•

Originally published in Indianapolis Business Journal.