U.S. Equity Market Diary (August 30, 2010)
The figure below shows the performance of each sector in the S&P 500 Index for the week. Three sectors gained and seven declined. The best-performing sector was utilities, up 2 percent. Other better-performing sectors included telecom services & energy. The three worst-performing sectors were technology, industrials and consumer discretion.
Within the utilities sector the best-performing stock was NiSource Inc., up 6 percent. Other top performers in the sector were CMS Energy Corp., Ameren Corp., TECO Energy Inc. and PG&E Corp
Strengths
- The industrial real estate investment trust (REIT) group was the top-performing group, up 8 percent on the strength of its single member, ProLogis. A research report by the owner/developer of industrial warehouse facilities stated that the nation’s distribution property leasing markets were showing signs of recovery at midyear 2010.
- The consumer electronics group outperformed, rising 5 percent, led by its single member, Harman International Industries Inc. The maker of high-quality consumer electronics gear was mentioned favorably in an investment blog.
- The education services group outperformed, advancing 4 percent, led by member Apollo Group Inc. The for-profit education firm published a white paper that provided some incremental data points on its students’ loan default rates.
Weaknesses
- The specialty stores group was the worst performer, down 5 percent, led by its largest member, Tiffany & Co. The retail jeweler reported second-quarter earnings above consensus and raised earnings guidance for the fiscal year, but second-quarter revenue was below consensus.
- The investment bank & brokerage group underperformed, falling 5 percent. All four members of the group were down, with Charles Schwab Corp. having the largest percentage decline after a major brokerage firm lowered its rating and target price.
- The coal & consumable fuel group underperformed, losing 5 percent. The price of natural gas, a rival fuel for coal in power plants, declined this week, making it somewhat easier for power companies to switch from coal to natural gas for fuel.
Opportunities
- There may be an opportunity for gain in 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.
