Index Summary and U.S. Equity Market Diary (5/1/2010)

Index Summary Diary (5/1/2010)

• The major market indices were down this week. The Dow Jones Industrial Index fell 1.75 percent. The S&P 500 Stock Index lost 2.51 percent, while the Nasdaq Composite finished 2.73 percent lower.
• Barra Growth underperformed Barra Value as Barra Value finished 2.46 percent lower while Barra Growth lost 2.57 percent. The Russell 2000 closed the week with a loss of 3.41 percent.
• The Hang Seng Composite finished lower by 0.51 percent, Taiwan was down 0.01 percent, and the Kospi advanced 0.26 percent.
• The 10-year Treasury bond yield closed at 3.66 percent, down 15 basis points for the week.

Domestic Equity Market Diary (5/1/2010)

The figure above shows the performance of each sector in the S&P 500 Index for the week. All ten sectors were down. The best-performing sector was utilities, down 0.75 percent. Other better-performing sectors included telecom services and consumer staples. Underperforming sectors included financials, technology and materials.

Within the utilities sector the best-performing stock was NRG Energy Inc., up 6.2 percent.  Other top-five utility stocks were Duke Energy Corp., Public Service Enterprise Group Inc., FPL Group Inc. and PEPCO Holdings Inc.

Strengths

• The gold group, represented by Newmont Mining, was the best-performing group for the week, rising 6 percent. The price of gold increased nearly 2 percent during the week.
• The oil & gas refining & marketing group outperformed, up 4 percent. Valero Energy Corp. reported a smaller loss than the analyst consensus estimate and the firm’s CEO said that the firm expects to be profitable for the year.
• The life science tools & services group outperformed, gaining 3 percent. Three of the group’s members (Thermo Fisher Scientific Inc., Waters Corp. and Life Technologies Corp.) reported quarterly earnings above the consensus forecast. Thermo Fisher and Waters also raised their full-year earnings forecast.

Weaknesses

• Consumer electronics, represented by Harman International Industries Inc., was the worst performer, down 24 percent. The firm said it is no longer able to enjoy the same margins it has in recent years. Harman also forecast revenue growth of 7-10 percent thru 2013, slower than its current pace.
• The photography products group, represented by Eastman Kodak Co., underperformed by losing 24 percent. The company reported quarterly earnings below the consensus estimate. A major brokerage firm reiterated its “Sell” recommendation on the stock, saying that operating losses for Kodak should persist as declining legacy businesses overshadow growth initiatives.
• The human resources & employment services group lost 15 percent. Staffing firm Robert Half International Inc. reported first quarter earnings below the consensus, and it provided an earnings forecast for the second quarter below analyst expectations. A brokerage firm downgraded the stock to “Neutral” from “Outperform.”

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.