U.S. Equity Market Diary (August 2, 2010)

Domestic Equity Market

The chart shows the performance of each sector in the S&P 500 index for the week. Five sectors gained and five declined. The best-performing sector was telecom services, up 1.7 percent. Other better-performing sectors included financials and industrials. The three worst-performing sectors were technology, consumer staples, and consumer utilities.

Within the telecom services sector the best-performing stock was Verizon Communications Inc, up 4 percent. The other top-three performers were Frontier Communications Corp and AT&T Inc.

Strengths

• The real estate services group was the best-performing group for the week, up 12 percent, led by its single member, CB Richard Ellis Group Inc. The firm’s second quarter earnings easily beat the consensus estimate, driven by year-over-year increases in investment sales revenue and leasing revenue.
• The office electronics group was the second-best performer, increasing 5 percent. The group’s single member, Xerox Corp, reported earnings in the prior week above the consensus estimate, and it guided 2010 earnings up. The strength in the stock this week appeared to be a carryover from that report.
• The diversified chemicals group outperformed, rising 4 percent, led by E.I DuPont & Co which reported earnings above the analysts’ consensus estimate and raised its full year outlook above the analysts’ forecast.

Weaknesses

• The photo products group was the worst performer, down 18 percent, led by its single member, Eastman Kodak Co, which reported earnings below the consensus forecast.
• The tires & rubber group underperformed, down 13 percent. The group’s single member, Goodyear Tire & Rubber Co, reported earnings above the consensus, but the stock sold off on concerns about the outlook for the second half.
• The building products group underperformed, losing 10 percent, led by its single member, Masco Corp, which reported earnings above the consensus but warned that the second half would be challenging as home building activity was slowing and big-ticket items would continue to be deferred.

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 the monetary and fiscal stimulus programs put in place during the economic crisis, it will likely present a headwind for stocks.