U.S Equity Market Diary (August 16, 2010)

U.S. Equity Market Diary (August 16, 2010)

The figure shows the performance of each sector in the S&P 500 Index for the week. Telecom services was the only sector which gained, up 0.6 percent. Other better-performing sectors included consumer staples and utilities. The three worst-performing sectors were technology, industrials and financials.

Within the telecom services sector the best-performing stock was Verizon Communications Inc, up 1.6 percent. The other top three outperformers were AT&T
Inc and Sprint Nextel Corp.

Strengths

• The integrated telecom services group was the best-performing group rising 1 percent, led by Verizon Communications Inc. Three weeks ago the firm reported quarterly earnings above the consensus and the stock has been in a rising trend since that time.
• The agricultural products group outperformed for the second consecutive week, declining less than one percent. The group’s only member, Archer Daniels Midland Co., reported fiscal fourth quarter earnings above the consensus estimates during the prior week. Some analysts believe that Archer Daniels Midland is positioned to benefit from disruptions in global wheat supplies because of a damaged Russian wheat crop.
• In addition to integrated telecom services, several other less economically-sensitive groups were among the top-ten performers. Down less than one percent were the brewers, household products, multi-utilities, tobacco and packaged foods groups.

Weaknesses

• The electronic manufacturing services group underperformed, losing 11 percent. A disappointing sales forecast from Cisco Systems Inc put pressure on the shares of the contract manufacturers such as Jabil Circuit Inc that make parts for Cisco.
• The tires & rubber group (Goodyear Tire & Rubber Co.) underperformed, losing 11 percent. The firm sold a $900 million bond issue this week, largely to refinance existing debt. The issue received non-investment grade ratings of B1 from Moodys and B+ from Standard & Poor’s.
• The education services group underperformed, losing 9 percent for the second consecutive week. A Congressional hearing in the prior week focused on a report by the Government Accountability Office that found misleading recruiting practices at 15 different schools. Some privately held companies also allegedly committed fraud related to falsified financial aid applications.

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.