U.S. Equity Market Diary (August 9, 2010)
The figure shows the performance of each sector in the S&P 500 index for the week. All ten sectors gained. The best-performing sector was healthcare, up 4 percent. Other better-performing sectors included energy and consumer discretion. The three worst-performing sectors were financials, consumer staples, and technology.
Within the healthcare sector the best-performing stock was PerkinElmer Inc., up 15 percent. The other top-five performers were Cigna Corp., Davita Inc., UnitedHealth Group Inc., and Coventry Health Care Inc.
Strengths
- The internet retail group was the best-performing group for the week, up 13 percent, led by Priceline.com Inc. The company reported second quarter earnings and revenue above the consensus estimates.
- The agricultural products group outperformed, rising 10 percent, led by its single member, Archer Daniels Midland Co. The company reported fiscal fourth quarter earnings above the consensus estimates. Some analysts believe that Archer Daniels Midland is positioned to benefit from disruptions in global wheat supplies because of a damaged Russian wheat crop.
- The managed healthcare group was the third-best performer, rising 9 percent. Health insurers have been posting higher-than-expected earnings. This week both Humana Inc. and Health Net Inc. reported earnings in excess of the consensus estimates, and they raised their outlooks for the current year.
Weaknesses
- The education services group underperformed, losing 9 percent. A Congressional hearing Wednesday focused on a report by the Government Accountability Office that found misleading recruiting practices at 15 different schools. Some privately held companies also allegedly committed fraud related to falsified financial aid applications.
- The office services & supplies group lost 8 percent, led down by Pitney Bowes Inc. which reported earnings below the consensus estimate and lowered its full-year profit outlook.
- The construction materials group also declined 8 percent. The groupâs single member, Vulcan Materials Co., reported second quarter earnings below the consensus estimate.
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 investorsâ 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.
