Arizona stocks struggling amid uneven economic recovery

• Amid a sluggish economic recovery%2C the stock market wrapped up the first half of 2015 with mostly flat results
• Insys Therapeutics continues to dazzle in the stock market. Another Arizona success was marked by GoDaddy's successful IPO
• Rising consumer confidence could point to a better second half for the economy%2C with the interest-rate backdrop still uncertain

Here's a switch: Americans in general might be feeling better than investors right now.

For the past half-dozen years, Wall Street has led the charge over Main Street, as corporate profits and CEO pay rebounded faster than sluggish home prices, wages or employment. Stock prices had tripled after their early 2009 lows.

But after a sluggish first half for the stock market punctuated by fresh worries over Greece's debt woes, the investment mood has soured.

The Dow Jones Industrial Average finished the first six months of 2015 down 1.1 percent, while the Standard & Poor's 500 index gained a slight 0.3 percent. In Arizona, roughly half of the 40 largest statewide companies tracked by The Republic lost ground in the first half. The Dow ended June at 17,619.51 after a gain of 23.16 points Tuesday. The S&P 500 finished up 5.47 points for the day at 2,063.11.

"It's still an anemic recovery," said Stephen Barnes of Barnes Investment Advisory in Phoenix, in reference to the sluggish economic backdrop.

Stocks have been due for a breather after six straight up years without a sizable correction or stumble. Many companies are struggling to boost revenue growth, with cost- cutting no longer the prop for profits as it was before.

"Earnings growth in the U.S. could be harder to come by, given a mature economic cycle and a tougher environment for companies to improve profit margins," said John Linehan, a stock-fund manager for T. Rowe Price, in a commentary.

Nor has the six-year rally left a lot of stock bargains for investors to pick over. Stocks generally are fully valued and don't offer especially bright prospects ahead, Morningstar portfolio manager Matthew Coffina said. "We encourage investors to consider their risk tolerance, pick their spots carefully and prepare for subpar market returns over the next five years."

Still, Americans generally seem to be feeling better overall. Consumer sentiment as tracked by the Conference Board jumped in June and now stands above its long-term average.

"As the trauma of the housing bust fades with each month of rising home prices, the mood to spend continues to increase," said Sal Guatieri, a senior economist at BMO Capital Markets in a commentary. "Households reported an easier time finding work in June and (reported) the best overall job prospects since the start of the Great Recession," he said.

Household spending in the U.S. constitutes roughly 70 percent of the economy and should benefit from several factors, said the Wells Fargo Investment Institute in a midyear outlook. Favorable factors cited by the group include steady gains in job creation, low mortgage interest rates and relatively inexpensive gasoline, at least compared with year-earlier prices.

Wells Fargo projects a better second half of 2015 for the economy and moderately good returns for stock investors ahead.

But while consumer sentiment has improved, the rising economic tide hasn't lifted all boats. For example, more than 46 million people are still enrolled in the federal Supplemental Nutrition Assistance Program, formerly known as food stamps. That's down only slightly from the peak near 48 million in December 2012 and nearly double the 2007 average of 26 million. The number of Arizona seeking aid has eased to 992,000 from a high of 1.1 million in 2012.

Arizona stocks stagnant

About half of Arizona's larger stocks have lost ground so far this year, with most of the weakness coming in the second quarter. Apollo Education Group, parent of the University of Phoenix, continues to post lower revenue, income and enrollment numbers while increasing layoffs. Its stock tumbled 62 percent in the first half, exceeding double-digit losses for companies ranging from Sprouts Farmers Market to truckers Swift Transportation and Knight Transportation.

On the flip side, Insys Therapeutics continues its torrid ride. The specialty pharmaceutical company, which makes pain-relief products for cancer patients, has enjoyed rising profits and revenue on a widening product pipeline. Its shares vaulted 70 percent in the year's first half, following a surge of 63 percent in 2014 and 399 percent in 2013.

Other strong Arizona stocks so far this year have included homebuilder Meritage Homes Corp., stun-gun and body camera maker Taser International and Western Alliance Bancorporation. Scottsdale web-hosting company GoDaddy has had one of the most successful initial public offerings of the year, raising $460 million in its first sale of stock to general investors. GoDaddy shares have continued to climb since then.

Stronger second half

As the rest of 2015 plays out, one key theme will be interest rates. Rates haven't risen in nearly nine years, and the Federal Reserve seems primed to push them upward. However, hardly anyone thinks the move, when it comes, will be dramatic.

"I'm not convinced the economy can stand on its own two feet," Barnes said.

But Grace Lau of PacWest Financial Management in Phoenix is more optimistic. "We continue to expect a strengthening economy to result in higher corporate profits and thus higher stock prices," she said.

Lau said she believes Wall Street earnings estimates are too conservative, and she downplays the Greek debt situation. Over the past five years, most of Greece's government debt has changed hands and now is held not by banks but by international entities such as the International Monetary Fund and European Central Bank, muting the impact of a default.

Another factor that could help stocks would be an improvement in investor sentiment, with the presidential campaign cycle possibly exerting a lift for stock prices. Of the four years in the cycle, the year before presidential elections typically is the strongest for stock-market performance, and 2015 is that year.

Meanwhile, Barnes said this week's bumpy ride tied to Greece has caused investors to examine their positions more carefully after months of mostly smooth sailing. "Over the second half, I expect less investor complacency — and that's a positive," he said.

Reach the reporter at russ.wiles@arizonarepublic.com or 602-444-8616.

Ariz. leaders, laggards so far

Some of the best, worst performers in 2015:

Leaders

Insys Therapeutics: +70 percent

Limelight Networks: +42 percent

Accelerate Diagnostics: +35 percent

Meritage Homes: +31 percent

Taser International: +26 percent

Laggards

Apollo Education Group: - 62 percent

Swift Transportation: -21 percent

Sprouts Farmers Market: -21 percent

Inventure Foods: -20 percent

Knight Transportation: -20 percent

Source: Morningstar Inc. All returns include dividends, if any.