U.S. Equity Mar­ket Radar (Decem­ber 12, 2011)

The domes­tic stock mar­ket as mea­sured by the S&P 500 Index was higher this week by 0.88 per­cent. Nine sec­tors of the index advanced and one declined. The best-performing sec­tor for the week was finan­cials which increased 1.68 per­cent. Other top-three sec­tors were tech­nol­ogy and indus­tri­als. Mate­ri­als was the worst-performer, down 0.11 per­cent. Other bottom-three per­form­ers were energy and tele­com services.

Within the finan­cials sec­tor, the best-performing stock was Mor­gan Stan­ley, up 5.54 per­cent. Other top-five per­form­ers were Com­er­ica, Gen­worth Finan­cial, Gold­man Sachs and Ventas.

Strengths

• Health­care facil­i­ties was the best-performing group for the week, up 6 per­cent, led by its sin­gle mem­ber, Tenet Health­care Corp. A bro­ker­age firm report stated that all six of the publically-traded hos­pi­tals saw a sequen­tial decrease in unem­ploy­ment in their respec­tive areas from Sep­tem­ber to Octo­ber. The report views unem­ploy­ment trends as a poten­tial pre­cur­sor to changes in the level of hos­pi­tal business.
• The spe­cial­ized con­sumer ser­vices group out­per­formed, gain­ing 6 per­cent on strength in its sin­gle mem­ber, H&R Block. The tax-preparation com­pany increased its div­i­dend by 33 per­cent, and it also intro­duced some new fea­tures includ­ing tax prepa­ra­tion apps for iPhone and Android phones and tablets.
• The home­build­ing group gained 6 per­cent. A major bro­ker­age house report on the home­build­ing indus­try stated that it has become increas­ingly appar­ent that the pieces are begin­ning to fall in place for a hous­ing rebound in 2012.

Weak­nesses

• The real estate ser­vices group was the worst per­former for the week, los­ing 6 per­cent on weak­ness in the group’s sin­gle mem­ber CBRE Group. Investor sen­ti­ment on the stock of this com­mer­cial real estate sales and leas­ing firm may have been affected neg­a­tively by a study of U.K com­mer­cial real estate by an Eng­lish uni­ver­sity. The study reported that U.K. com­mer­cial real estate investors are unable to refi­nance about 85 bil­lion pounds to 114 bil­lion pounds of debt because the loans are too high com­pared with col­lat­eral prop­erty values.
• The casi­nos & gam­ing group under­per­formed, down 5 per­cent, led by the group’s largest mem­ber, Wynn Resorts. A major bro­ker­age firm low­ered its earn­ings esti­mates and price tar­get on the stock, say­ing that Wynn Resorts may not be able to keep up with the over­all growth rate in Macau.
• The home enter­tain­ment soft­ware group declined 4 per­cent, led by its sin­gle mem­ber Elec­tronic Arts. Shares of video game pub­lish­ers declined after one pub­lisher, THQ, low­ered its rev­enue guid­ance for the hol­i­day quarter.

Oppor­tu­ni­ties

• There may be an oppor­tu­nity for gain in merger & acqui­si­tion (M&A) trans­ac­tions in 2011 and 2012. Cor­po­rate liq­uid­ity is high, thereby pro­vid­ing the means to pur­sue acquisitions.

Threats

• A mid-cycle slow­down in the domes­tic econ­omy would be neg­a­tive for stocks.
• An esca­la­tion in con­cerns over sov­er­eign debt oblig­a­tions in Europe would be neg­a­tive for stocks.

Frank Holmes is CEO and chief investment officer of U.S. Global Investors, Inc., and a Toronto, Canada native, which manages a diversified family of mutual funds and hedge funds specializing in natural resources, emerging markets and infrastructure. The company’s funds have earned more than two dozen Lipper Fund Awards and certificates since 2000. The Global Resources Fund (PSPFX) was Lipper’s top-performing global natural resources fund in 2010. In 2009, the World Precious Minerals Fund (UNWPX) was Lipper’s top-performing gold fund, the second time in four years for that achievement. In addition, both funds received 2007 and 2008 Lipper Fund Awards as the best overall funds in their respective categories. Mr. Holmes was 2006 mining fund manager of the year for Mining Journal, a leading publication for the global resources industry, and he is co-author of “The Goldwatcher: Demystifying Gold Investing.” He is also an advisor to the International Crisis Group, which works to resolve global conflict, and the William J. Clinton Foundation on sustainable development in nations with resource-based economies. Mr. Holmes is a much-sought-after conference speaker and a regular commentator on financial television. He has been profiled by Fortune, Barron’s, The Financial Times and other publications. Read more from the author/contributor here.

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