U.S. Equity Market Diary (June 28, 2010)
All 10 sectors of the S&P 500 index declined this week (chart below). The best-performing sector was financials, down 1.5 percent. Other better-performing sectors included health care and telecom services. The three worst-performing sectors were energy, consumer discretion and technology.
Within the financials sector, the best-performing stock was Moody’s Corp, up 4.3 percent. Other top performers in the sector were First Horizon National Corp., Discover Financial Services, Berkshire Hathaway Inc. and Capital One Financial Corp.
Strengths
- The oil & gas refining & marketing group was the top-performing group for the week, up 4 percent. Government data this week showed a drop in gasoline inventories, and the travel group AAA forecast that U.S. auto travel over the July 4 holiday weekend will likely rise 18 percent. Both factors helped lift expectations that demand for gasoline will keep prices up.
- The human resources & employment services group rose 2 percent. A major brokerage firm upgraded Robert Half International Inc. to “outperform” and raised its target price on the stock.
- The biotechnology group gained 1 percent. Genzyme Corp. entered into an agreement to repurchase $1 billion of its common stock.
Weaknesses
- The motorcycle manufacturing group was the worst performer, losing 9 percent, led down by its single member, Harley-Davidson Inc. A major brokerage firm reiterated its “sell” rating on the stock, saying its research showed that new bike demand appeared to have decelerated in May.
- Seven of the 10 worst-performing groups were in the consumer discretion sector (motorcycle manufacturing, specialty stores, photographic products, department stores, home furnishings, education services and hotels). It appears that investors have become more concerned about a slowdown in the pace of economic growth and consumer spending.
- The retail drug group underperformed, dropping 8 percent. Walgreen Corp. reported earnings below the consensus estimate, in part due to higher-than-expected expenses.
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, a headwind for stocks will likely be created.
