- The major market indices were lower this week. The Dow Jones Industrial Index fell 4.12 percent. The S&P 500 Stock Index dropped 3.90 percent, while the Nasdaq Composite finished 3.61 percent lower.
- Barra Growth underperformed Barra Value as Barra Value finished 3.62 percent lower while Barra Growth fell 4.17 percent. The Russell 2000 closed the week with a loss of 3.27 percent.
- The Hang Seng Composite finished lower by 4.26 percent; Taiwan lost 5.14 percent, and the Kospi declined 1.03 percent.
- The 10-year Treasury bond yield closed at 3.60 percent, down 7 basis points for the week.
Domestic Equity Market
The figure shows the performance of each sector in the S&P 500 index for the week. All of the sectors had negative returns. The best-performing sector was healthcare, down 1.9 percent. Other better-performing sectors included telecom services and consumer staples. Underperforming sectors were materials, financials and energy.
Within the healthcare sector the best-performing stock was Intuitive Surgical Inc, up 10.3 percent. Other better-performing issues were Carefusion Corp, Humana Inc, Cephalon Inc and Celgene Corp.
Strengths
- The retail food group was the best-performing group for the week, up 5.4 percent. The stocks of Kroger Co, Safeway Inc and Supervalu Inc all rose. In the prior week, Supervalu reported quarterly earnings in excess of the analyst consensus estimate, and it maintained its full-year earnings forecast.
- The airline group was the second-best performer, rising 3.6 percent, led by its single member, Southwest Airlines Co. The company reported earnings greater than the consensus estimate. Also, a brokerage firm upgraded the stock to outperform, citing a benefit from less industry capacity, improved route optimization, and more passengers trying to avoid the baggage fees at other airlines.
- The regional banks group outperformed, gaining 1.1 percent. Investor interest in the group appeared to increase after U.S. President Barack Obama proposed new regulatory rules on the large banks, including a proposal for a prohibition on banks operating hedge funds. The regional banks usually do not operate hedge funds. Also, two of the regional banks posted quarterly losses less than the consensus estimates.
Weaknesses
- Three of the ten worst-performing groups were materials-related groups. The aluminum, diversified metals & mining and steel groups were down 14.3 percent, 11.9 percent, and 9.9 percent, respectively. Investors reacted to an effort on the part of China to slow down its economy by selling off many of the material stocks. China is a significant purchaser of these materials.
- The healthcare facilities group was the worst performer, losing 14.5 percent, led by its single member, Tenet Healthcare Corp. Prospects for the passage of a national healthcare bill dimmed after the Republicans won a Senate seat formerly controlled by the Democrats. The healthcare bill was seen as a positive for hospitals because it would mean more people would have health insurance.
- The other diversified financial services group underperformed, falling 8.7 percent. The members of this group are three of the large banks which sold off after President Obama proposed new regulations on the large banks, including proposed prohibitions on proprietary trading and operation of hedge funds and private equity funds.
Opportunities
- There may be an opportunity for gain in merger & acquisition transactions in 2010.
- The strength in the market since March could be an opportunity to eliminate weaker companies in the portfolio and upgrade to companies with better fundamental outlooks.
Threats
- Should investors’ expectations for an improving economy not come to fruition in a reasonable time frame, such a delay 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.
