U.S. Equity Market Diary (July 26, 2010)

Domestic Equity Market Diary (July 26, 2010)

The figure shows the performance of each sector in the S&P 500 Index for the week. Nine sectors gained with one only sector declining, healthcare which fell less than one percent. The best-performing sector was industrials, up 7 percent. Other better-performing sectors included materials and consumer discretion. The three worst-performing sectors were healthcare, consumer staples and utilities.

Within the industrials sector the best-performing stock was Textron Inc., up 20 percent. Other top-five performers in the sector were Eaton Corp., Dover Corp., Emerson Electric and Precision Castparts Corp.

Strengths

• The motorcycle manufacturer group (Harley-Davidson Inc.) was the best-performing group for the week, up 21 percent. The firm beat the consensus earnings estimate for its second quarter on the strength of its financial services unit which posted a $60.8 million profit. That was a $151.3 million improvement compared to last year. Sales of new Harley-Davidson motorcycles, though, were down 5.5 percent on a worldwide basis compared to last year.
• The diversified metals & mining group was the second-best performer, rising 18 percent on the strength of its largest member, Freeport-McMoRan Copper & Gold Inc. The price of copper increased during the week and the company reported a 10 percent earnings increase during the second quarter.
• The automobile manufacturers group (Ford Motor Co.) outperformed, gaining 12 percent. Ford’s second quarter earnings beat the analysts’ consensus estimate.

Weaknesses

• The healthcare services group was the worst-performing group, down 10 percent, led by Medco Health Solutions Inc. Although the pharmacy benefits management firm beat the consensus earnings estimate, the stock sold off on concerns about industry pricing and management comments regarding lighter generic drugs in 2011 compared to 2010.
• The healthcare distributors group underperformed, losing 4 percent, led down by AmerisourceBergen Corp. This group was hurt by the aforementioned comments from Medco.
• The computer storage & peripherals group lost less than 1 percent. Networking equipment maker QLogic Corp., which reported fiscal first quarter revenue below the analyst consensus estimate, led the group.

Opportunities

• There may be an opportunity for gain in M&A (merger & acquisition) transactions in 2010. Corporate liquidity is high, thereby providing the means to pursue acquisitions.

Threats

• Should investors’ expectations for an improving economy not come to fruition on a reasonable time frame, it could be a threat to stock prices.
• As governments around the world begin to wind down monetary and fiscal stimulus programs put in place during the economic crisis, it will likely present a headwind for stocks.