Index Summary and U.S. Equity Market Notebook (5/15/2010)

Index Summary Notebook (5/15/2010)

• The major market indices were up this week. The Dow Jones Industrial Index rose 2.31 percent. The S&P 500 Stock Index gained 2.23 percent, while the Nasdaq Composite finished 3.58 percent higher.
• Barra Growth outperformed Barra Value as Barra Value finished 2.00 percent higher while Barra Growth gained 2.47 percent. The Russell 2000 closed the week with a gain of 6.28 percent.
• The Hang Seng Composite finished higher by 1.56 percent; Taiwan was up 2.71 percent and the Kospi gained 2.92 percent.
• The 10-year Treasury bond yield closed at 3.46 percent, up 3 basis points for the week.

U.S. Equity Market (5/15/2010)

The figure above shows the performance of each sector in the S&P 500 index for the week. All 10 sectors were up. The best-performing sector was industrials, up 3.8 percent. Other better-performing sectors included technology and consumer discretion. The three worst-performing sectors were healthcare, energy and materials. Within the industrials sector, the best-performing stock was Quanta Services Inc., up 14 percent. Other top performers in the sector were Fluor Corp., Textron Inc., Cummins Inc. and Jacobs Engineering Group Inc.

Strengths

• The construction & engineering group was the best-performing group for the week, gaining 11 percent. Fluor Corp. reported earnings slightly ahead of the consensus estimate, and it said in a regulatory filing that it could receive contracts that exceed $8.8 billion in the second quarter, its record for a single quarter. An analyst upgraded the stock.
• The wireless telecom services group outperformed, rising 10 percent. Group member MetroPCS Communications Inc. rose after a major brokerage firm raised its rating on the stock and doubled its price target on the stock from $7 to $14, citing valuation and higher earnings estimates based on the firm’s new rate plans.
• The gold group outperformed, up 8 percent, led by its single member, Newmont Mining Corp. The price of gold increased during the week.

Weaknesses

• The fertilizer & agricultural chemical group was the worst performer, falling 7 percent, led by Monsanto Co. A major brokerage firm lowered its earnings and price target on the firm, citing its belief that 2010 gross profit from the herbicide Roundup will fall short of both Monsanto’s guidance and consensus estimates.
• The data processing & outsourcing group underperformed, down 2 percent. Visa Inc. and MasterCard Inc. sold off after the Senate added an amendment to the proposed financial reform legislation that would give the Federal Reserve the authority to regulate the fees paid to banks on debit cards.
• The education services group underperformed, losing 2 percent. This group of for-profit schools has been affected recently by uncertainty over new rules to be adopted by the Department of Education.

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 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.