Domestic Equity Market Diary (July 5, 2010)
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 consumer staples only down 1.2 percent. Other better-performing sectors included telecom services and utilities. The three worst-performing sectors were financials, materials and industrials.
Within the consumer staples sector the best-performing stock was Altria Group Inc, up 3.1 percent. Other top-five performers in the sector were Dean Foods, Reynolds American, Estee Lauder and Dr Pepper Snapple Group.
Strengths
- With the S&P 500 down 5.03 percent this week, five of the top ten best-performing groups were in the staples sector (tobacco, soft drinks, household products, personal products and distillers & vintners). The prices of the stocks in the staples sector tend to outperform on a relative basis in a declining market.
- The tobacco group, up 2 percent, was one of only two groups up on an absolute basis. It was helped by a Supreme Court decision to reject an appeal by the government that sought to get tobacco firms to forfeit as much as $280 billion in profits and pay an additional $10 billion for smoking-cessation programs. The only other group gaining for the week was soft drinks, up less than one percent.
- Two of the top-ten outperformers were in the telecom services sector. The wireless services group and the integrated telecom services group each lost 1 percent. The telecom services sector tends to outperform on a relative basis in a declining market. In addition, these groups were helped when President Obama signed a memorandum that would nearly double the amount of broadband spectrum available for wireless telecom services.
Weaknesses
- The casino & gaming group underperformed, falling by 13 percent. This decline likely resulted from investor concern that a slowdown in the economy would hurt consumer spending at casinos and hotels.
- The diversified metals & mining group underperformed, losing 12 percent, led down by its single member, Freeport-McMoran. The prices of copper and gold declined during the week.
- Two real estate-related groups (industrial REITs and real estate services) underperformed, losing 13 percent and 11 percent, respectively. The declines are likely related to investor concern that a slowdown in the economy would hurt demand for commercial real estate properties.
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.
Domestic Equity Market
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 consumer staples only down 1.2 percent. Other better-performing sectors included telecom services and utilities. The three worst-performing sectors were financials, materials and industrials.
Within the consumer staples sector the best-performing stock was Altria Group Inc, up 3.1 percent. Other top-five performers in the sector were Dean Foods, Reynolds American, Estee Lauder and Dr Pepper Snapple Group.
Strengths
- With the S&P 500 down 5.03 percent this week, five of the top ten best-performing groups were in the staples sector (tobacco, soft drinks, household products, personal products and distillers & vintners). The prices of the stocks in the staples sector tend to outperform on a relative basis in a declining market.
- The tobacco group, up 2 percent, was one of only two groups up on an absolute basis. It was helped by a Supreme Court decision to reject an appeal by the government that sought to get tobacco firms to forfeit as much as $280 billion in profits and pay an additional $10 billion for smoking-cessation programs. The only other group gaining for the week was soft drinks, up less than one percent.
- Two of the top-ten outperformers were in the telecom services sector. The wireless services group and the integrated telecom services group each lost 1 percent. The telecom services sector tends to outperform on a relative basis in a declining market. In addition, these groups were helped when President Obama signed a memorandum that would nearly double the amount of broadband spectrum available for wireless telecom services.
Weaknesses
- The casino & gaming group underperformed, falling by 13 percent. This decline likely resulted from investor concern that a slowdown in the economy would hurt consumer spending at casinos and hotels.
- The diversified metals & mining group underperformed, losing 12 percent, led down by its single member, Freeport-McMoran. The prices of copper and gold declined during the week.
- Two real estate-related groups (industrial REITs and real estate services) underperformed, losing 13 percent and 11 percent, respectively. The declines are likely related to investor concern that a slowdown in the economy would hurt demand for commercial real estate properties.
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.
