- The major market indices were mixed this week. The Dow Jones Industrial Index fell 0.74 percent. The S&P 500 Stock Index declined 0.42 percent, while the Nasdaq Composite finished 0.25 percent lower.
- Barra Growth underperformed Barra Value as Barra Value finished 0.08 percent lower while Barra Growth fell 0.76 percent. The Russell 2000 closed the week with a loss of 0.48 percent.
- The Hang Seng Composite finished higher by 3.36 percent; Taiwan was down 0.08 percent and the Kospi advanced 0.04 percent.
- The 10-year Treasury bond yield closed at 3.62 percent, down 16 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. The best-performing sector was financials, up 1.5 percent. Other top-performing sectors included consumer discretion and industrials. Materials, utilities and energy underperformed.
KeyCorp was the best-performing stock within the financials sector, up 5 percent. The other top-five performers were Bank of America, JP Morgan Chase, BB&T and PNC Financial Services Group.
Strengths
- The retail apparel group was the best-performing group for the week, up 5 percent. The two largest members of the group, TJX Companies and The Gap, both reported quarterly earnings in excess of the analyst consensus estimate. They also both issued positive guidance for their respective fiscal years.
- The managed healthcare group outperformed, rising 5 percent. Late Friday of the last week, the federal agency that administers government-run medical insurance programs announced an almost 4 percent increase for the baseline payment rate of Medicare Advantage plans for next year.
- The diversified supply services group was among the outperformers, gaining 5 percent. The group was led by Iron Mountain. The records management company reported earnings above the consensus estimate and raised its revenue guidance for 2010. The company also announced a $150 million stock buyback program and initiated a cash dividend.
Weaknesses
- The special consumer services group was the worst performer led down 18 percent by its only member, H&R Block Inc. The tax preparer said 2010 results will be lower than expected. It believes industry tax return filings are down due to the recession and sustained, high levels of unemployment, with more people turning to do-it-yourself services due to the weak economy.
- The fertilizer & agricultural chemicals group was the second-worst performer, falling 8 percent. Monsanto, the group’s largest member, reaffirmed its earnings guidance for 2010 at an industry conference this week but information in the presentation caused some brokerage analysts to lower earnings estimates.
- The homebuilding group was among the underperformers, dropping 5 percent. On Wednesday the Commerce Department reported that new home sales fell 1.2 percent in January from December to a seasonally adjusted annual sales pace of 309,000, below the consensus estimate. The results were probably affected by poor winter weather in January.
Opportunities
- There may be an opportunity for gain in M&A (merger & acquisition) transactions in 2010. Corporate liquidity is high with over 10 percent of corporate assets in cash and short-term investments, a record high for at least the last forty years, thereby providing the means to pursue acquisitions.
Threats
- Should investors’ expectations for an improving economy not come to fruition on 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.
