Index Summary and U.S. Equity Market Diary

Index Summary

• The major market indices were higher this week. The Dow Jones Industrial Index rose 1.10 percent. The S&P 500 Stock Index advanced 0.86 percent, while the Nasdaq Composite finished 0.29 percent higher.
• Barra Growth underperformed Barra Value as Barra Value finished 1.24 percent higher while Barra Growth gained 0.48 percent. The Russell 2000 closed the week with a loss of 0.40 percent.
• The Hang Seng Composite finished higher by 1.08 percent; Taiwan was up 1.93 percent and the Kospi advanced 1.41 percent.
• The 10-year Treasury bond yield closed at 3.69 percent, down 1 basis point for the week.

Domestic Equity Market

The figure below shows the performance of each sector in the S&P 500 index for the week. The best-performing sector was telecom services, up 2.4 percent. Other better-performing sectors included industrials and consumer staples. Under-performing sectors included energy (the only sector which declined), materials, and technology.

Within the telecom services sector the best-performing stock was Metropcs Communications Inc, up 5.4 percent. Other better-performing stocks in the sector were Sprint Nextel Corp, and Qwest Communications International Inc.

Strengths

• The construction materials group was the best-performing group for the week, up 7 percent, led by its single member, Vulcan Materials Co. The Senate approved a jobs bill that provided $28 billion in funding for states’ highway building projects.
• Two healthcare groups were among the top-ten best-performing groups with the healthcare facilities group up 7 percent and the managed healthcare group up 5 percent. Investors likely bid these groups up in anticipation that the healthcare reform legislation might be passed, in which event there would be more people covered with health insurance and therefore more people able to pay for hospital care.
• The electronic components groups outperformed, rising 6 percent, led by Corning Inc. A brokerage house analyst upgraded the stock and raised his price target, citing healthy demand for the LCD televisions that use Corning glass.

Weaknesses

• Five energy-related groups were among the underperformers, including the oil & gas driller group down 8 percent, the coal & consumable fuel group down 8 percent, and the oil & gas exploration & production group down 5 percent. These declines were likely triggered by a continuing slide in the price of natural gas during the week.
• The tires & rubber group declined 6 percent, led by its single member, Goodyear Tire & Rubber Co. A major brokerage firm initiated research on the stock with an “Underweight” rating.
• The office electronics group underperformed, down 3 percent, led by its single member Xerox Corp. A brokerage firm downgraded the stock to a “Hold” rating.

Opportunities

• There may be an opportunity for gain in M&A (merger & acquisition) transactions in 2010. Corporate liquidity is high, 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.