U.S. Equity Market Cheat Sheet (July 18, 2011)

U.S. Equity Market Cheat Sheet (July 18, 2011)

The figure below shows the performance of each sector in the S&P 500 Index for the week. One sector increased slightly and nine sectors declined. The best-performing sector for the week was energy which increased 0.12 percent. Other top-three sectors were utilities and consumer staples. Financials was the worst performer, down 3.91 percent. Other bottom-three performers were industrials and consumer discretion.

Within the energy sector, the best-performing stock was Range Resources, which rose 10.03 percent. Other top-five performers were Southwestern Energy, Chesapeake Energy, Nabors Industries, and EQT Corp.

Strengths

• The internet software & services group was the best-performing group for the week, rising 7 percent on strength in the stock of Google, which reported quarterly revenue and earnings that exceeded the consensus estimates.
• The gold group outperformed, up 5 percent, led by its single member Newmont Mining. The price of gold increased for the week.
• The tires & rubber group outperformed, gaining 4 percent, led by its single member, Goodyear Tire & Rubber. While warning that unit volume in the second quarter could fall short of expectations, a major brokerage firm with a “Buy” rating on the stock noted that the tire companies have passed through several rounds of price increases to consumers already this year, and commodity costs are now moderating, which should result in a favorable price benefit.

Weaknesses

• The electronic equipment & instruments group was the worst performer, down 15 percent on weakness in its single member, FLIR Systems. The maker of thermal imaging and infrared cameras warned that its quarterly revenue and earnings will miss analysts’ estimates, citing weak demand from government customers.
• The retail computer & electronics group underperformed, down 8 percent. GameStop stock sold off after a brokerage house analyst downgraded the stock to “Underperform” from “Sector Perform,” citing the belief that the company’s used-game business is likely to face increased competition from Best Buy Co. Best Buy stock was also weak. A major brokerage firm lowered its second quarter earnings estimate and reiterated its “Sell” rating on the stock, citing weakness in pricing on TV sets and deteriorating traffic to consumer electronic retailers in July.
• The real estate services group underperformed, down 8 percent, led by its single member, CB Richard Ellis Group. Investor concerns over an economic slow patch affecting the commercial real estate sale and leasing business may have been a factor in the decline.

Opportunities

• There may be an opportunity for gain in merger and acquisition (M&A) transactions in 2011. Corporate liquidity is high, thereby providing the means to pursue acquisitions.

Threats

• Failure to resolve the federal budget issue creates uncertainty, which is not helpful for markets.