U.S. Equity Market Radar (November 25, 2013)

U.S. Equity Market Radar (November 25, 2013)

- in Markets, Outlook, Radar, US Stocks
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U.S. Equity Market Radar (November 25, 2013)

The S&P 500 Index erased its decline earlier in the week, rebounding strongly to another all-time high, surpassing the 1,800 level for the first time. Positive economic data during the week offset concerns over the timing of the tapering of the Federal Reserve’s stimulus program, as weekly jobless claims fell to the lowest level since September and retail sales came in better than expected. To date, the S&P 500 is up over 160 percent since the market bottomed in March 2009 at the nadir of the financial crisis.

Rise in the S&P 500 Index since the Financial Crisis of 2008
click to enlarge

Strengths

  • The healthcare sector was the strongest sector this week and was led by biotechnology stocks. Biogen was the top performer in the S&P 500 after its multiple sclerosis drug Tecfidera won patent approval in Europe.
  • Financials also outperformed this week and were led by equity and commodity exchange stocks, and large banks such as Bank of America, JPMorgan Chase and Citigroup. Additionally, insurance stocks were aided by the gain in the 10-year government note this week. Assurant was one of this week’s best performers.
  • Consumer discretionary stocks, such as Wyndham Worldwide and Starbucks, outperformed, due in part to strong retail sales numbers released this week.

Weaknesses

  • The telecommunication services and utilities sectors were among the worst-performing groups for a second week as defensive areas of the market remained out of favor.
  • Real Estate Investment Trusts (REITs) was the worst-performing industry group in the S&P 500, mainly in response to a rising 10-year government yield. Weyerhaeuser underperformed the broad index by approximately 100 basis points.
  • GameStop was the worst performer in the S&P 500 this week, falling 11.8 percent. The video game retailer gave cautious guidance for the fourth quarter despite strong demand for the introduction of new game consoles.

Opportunities

  • The current macro environment remains positive as economic data is robust enough to give investors confidence in an economic recovery, but not too strong as to force the Fed to change course in the near term.
  • Money flows are likely to find their way into domestic U.S. equities and out of bonds and emerging markets.
  • The improving macro backdrop out of Europe and China could be the catalyst for a rally into year end.

Threats

  • A market consolidation could occur in the near term after such a strong year.
  • Higher interest rates are a threat for the whole economy. The Fed must walk a fine line and the potential for policy error is potentially large.
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.


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