U.S. Equity Market Radar (July 23, 2012)
The S&P 500 Index rose 0.43 percent this week as the second quarter earnings season kicked off in earnest this week. Energy, technology and materials outperformed as cyclical areas outperformed. Financials were the big underperformers this week, falling more than two percent on disappointing earnings reports.
Strengths
- The energy sector was the best performer this week, rising 2.56 percent and is now the best-performing sector over the past month. Oil & gas drilling and equipment were the best performers, led by Baker Hughes and Schlumberger on the back of strong earnings reports and low expectations.
- The technology sector was led higher by the computer storage and equipment industry group along with internet software and services. SanDisk, eBay and Google were all standout performers on strong earnings reports.
- The best individual stock performer this week was SanDisk, which rose 10.38 percent as the company reported earnings and an outlook that positively surprised street expectations.
Weaknesses
- The financial sector lagged as heavyweights Bank of America, JPMorgan Chase and Morgan Stanley all fell sharply. Earnings or guidance disappointments were the primary culprits, but after a relief rally on last week’s earnings, JPMorgan Chase gave it all back this week falling by more than 6 percent.
- The consumer staples sector was brought down by record high grain prices which negatively impact “protein” companies such as Tyson, which fell 6.56 percent, as well as packaged goods companies such as ConAgra Foods, which fell 4.55 percent.
- Chipotle Mexican Grill was the worst performer, falling 19.21 percent as second quarter sales were less than expected.
Opportunity
- It is all about earnings right now with another heavy week scheduled for next week. While the week ended on a sour note, the market has weathered the current environment pretty well considering expectations coming into the week.
Threat
- While policy-makers in Europe have made strides to stabilize the situation, many risks remain and the situation remains very fluid.
- China recently cut interest rates for the second time in a month, which likely indicates the conditions on the ground remain challenging.
