U.S Equity Highlights and Index Summary

Domestic Equity Market

The figure above shows the performance of each sector in the S&P 500 index for the holiday-shortened week. The best-performing sector was industrials, up 4.4 percent. Other better-performing sectors included materials and financials. Underperforming sectors were telecom services, healthcare, and technology.

Within the industrials sector, the best-performing stock was Iron Mountain Inc., up 11 percent. The other top-five performers included Republic Services Inc., Dover Corp., Deere & Co. and Jacobs Engineering Group Inc.

Strengths

• The steel group was the best-performing group for the week, up 10 percent. This gain was likely due to a recovery from an oversold condition and some instances of increased steel pricing.
• The healthcare facilities group outperformed, rising 7 percent, led by its single member, Tenet Healthcare Corp. A major brokerage firm issued a report recommending purchase of the stock ahead of its fourth-quarter earnings report and 2010 guidance. The report’s thesis for owning the stock centered on an unappreciated opportunity to further improve earnings power through cost control and ultimately a return to supplementing growth through small-scale mergers and acquisitions.
• The broadcasting group outperformed, gaining 7 percent, led by its single member, CBS Corp. The company reported fourth-quarter revenue and earnings broadly in line with the consensus, and the CEO said rising revenue trends are continuing into 2010.

Weaknesses

• The education services group was the worst performer, down 2 percent. Its single member, Apollo Group Inc., preannounced revenue and earnings for its second quarter that were below the consensus estimates. An increase in bad-debt expense was one of the factors producing below-consensus earnings.
• The building products group underperformed, losing 2 percent. Its single member, Masco Corp., reported fourth-quarter earnings the prior week, and at least two brokerage reports expressed disappointment that the company did not provide earnings and cash flow guidance for 2010.
• The homebuilding group was among the underperformers, dropping 1 percent despite the Commerce Department report that housing starts increased 2.8 percent in January, a rate of increase that was above the consensus forecast.

Opportunities

• There may be an opportunity for gain in merger-and-acquisition transactions in 2010.
• With two brokerage firm-sponsored technology conferences scheduled during the next two weeks, there might be an opportunity for positive news in the technology sector.

Threats

• Should investors’ expectations for an improving economy not come to fruition in a reasonable time frame, it 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.