- The major market indices were down this week. The Dow Jones Industrial Index fell 2.02 percent. The S&P 500 Stock Index lost 2.25 percent, while the Nasdaq Composite finished 1.68 percent lower.
- Barra Growth outperformed Barra Value as Barra Value finished 2.66 percent lower while Barra Growth declined 1.84 percent. The Russell 2000 closed the week with a loss of 4.18 percent.
- The Hang Seng Composite finished higher by 0.02 percent; Taiwan was up 0.68 percent and the Kospi gained 2.55 percent.
- The 10-year Treasury bond yield closed at 3.20 percent, down 11 basis points for the week.
U.S. Equity Market Diary (June 7, 2010)
Miserable May bodes well for June-July
At U.S. Global Investors, Inc we like to use probability and statistics as an aid in our efforts to provide returns to our mutual fund shareholders. In that regard, a U.S. equity strategy report from J.P. Morgan cites some interesting statistics and probabilities with potentially positive implications for the equity market over the next couple of months. Their report shows the 7.9 percent decline in the Dow Jones Industrial Average in May was the 6th worst May decline in history. The 10 worst May declines were followed by an average 9.4 percent gain from June 1 to July 31st. Their report also shows that, on average for those 10 occasions, stocks historically troughed 8 days into June. In summary, the āMiserable May bodes well for June-July.ā
The figure below shows the performance of each sector in the S&P 500 index for the week. All ten sectors declined. The best-performing sector was technology, down 0.9 percent. Other better-performing sectors included telecom services and consumer staples. The three worst-performing sectors were materials, industrials, and financials.
Within the technology sector the best-performing stock was Netapp Inc, up 0.6 percent. Other top-five performers in the sector were Hewlett-Packard Co, Apple Inc, Qualcomm Inc and Dell Inc.
Strengths
- The managed healthcare group was the best-performing group, up 4 percent for the week. It may be that after weakness in the stocks of the healthcare insurers following healthcare reform, some investors began to seek out bargains.
- The internet software & services group outperformed, gaining 2 percent. Google Inc, the largest member of the group, rose 3 percent. Two major brokerage firms reiterated their Buy / Overweight ratings on the stock. A smaller member of the group, Akamai Technologies Inc, gained 7.5 percent. A major brokerage firm raised its target price on the stock, citing a more benign competitive environment in the internet content delivery space.
- The brewers group outperformed, rising 1 percent on the strength of its single member, Molson Coors Brewing Co. In the prior week, the Chairman of the company indicated interest in bidding for Fosterās Group Ltd according to press reports. Several other companies have also been cited as being interested in Fosterās after the Australian brewer announced in the prior week that it would split off its struggling wine business in 2011.
Weaknesses
- The healthcare facilities group was the worst performer, down 14 percent, led by its single member, Tenet Healthcare Corp. A major brokerage firm downgraded the hospital operator following confirmation the company was in preliminary discussions to acquire an Australian hospital operator.
- The homebuilding group underperformed, losing 10 percent. On Wednesday homebuilder Hovnanian Enterprises Inc reported that new home contracts in the February-April quarter declined 17 percent from the prior-year period, citing weakness due to the expiration of the homebuyer tax credit in April.
- The diversified metals & mining group lost 10 percent, led down by its largest member, Freeport-McMoran Copper & Gold Inc. The price of copper declined during the week.
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 investorsā 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.
