U.S. Equity Market Diary (September 13, 2010)

U.S. Equity Market Diary (September 13, 2010)

The figure below shows the performance of each sector in the S&P 500 Index for the week. Seven sectors gained and three declined. The best-performing sector was healthcare, up 2 percent. Other better-performing sectors included telecom services and industrials. The three worst-performing sectors were utilities, technology, and financials.

Within the healthcare sector the best-performing stock was Medco Health Solutions Inc, up 6 percent. Other top-five performers in the sector were Celgene Corp, Aetna Inc, Quest Diagnostics Inc, and Varian Medical Systems Inc.

Strengths

• The education services group was the best performer for the week, up 4 percent. Both members of the group (Apollo Group Inc. and Devry Inc.) gained. This group, which has been very weak recently due to concerns over regulation, picked up this week as speculators apparently attempted to gain from lobbying efforts. On Tuesday, reports indicated that the U.S. Department of Education had received about 26,000 letters from for-profit education proponents in what appeared to be an orchestrated lobbying effort to influence regulation.
• The healthcare services group outperformed, rising 4 percent, led by Medco Health Solutions Inc. The pharmacy benefit management company received a recommendation from a well-known financial TV show host.
• The healthcare technology group outperformed, gaining 3 percent, led by its single member, Cerner Corp. Some investors may have interpreted the proposed accelerated capital expenditure tax write-offs proposed by the Obama Administration as positive for this group.

Weaknesses

• The consumer electronics group was the worst performer, down 9 percent, led by its single member, Harman International Industries, Inc. A major brokerage firm analyst downgraded the stock and eight other auto-related companies from “Overweight” to “Neutral” as he lowered his 2010 forecast for automobile sales.
• The building products group underperformed, down 4 percent, led by its single member, Masco Corp. A brokerage firm initiated research on Masco with a “Hold” rating.
• The semiconductor equipment group underperformed, losing 4 percent. Two customers of the semiconductor equipment manufacturers provided disappointing guidance. National Semiconductor Corp. issued revenue guidance for its current quarter that was below the analyst consensus forecast. Texas Instruments Inc. lowered the top-end of its estimate range for earnings per share and revenue in its current quarter.

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.