U.S. Equity Market Diary (November 1, 2010)
The figure below shows the performance of each sector in the S&P 500 Index for the week. Four sectors gained and six declined. The best-performing sector was materials, up 1.39 percent. Other better-performing sectors included technology and consumer discretionary. The three worst-performing sectors were industrials, utilities, and financials.
Within the materials sector, the best-performing stock was Allegheny Technologies Inc, up 13 percent. Other top-five performers were International Paper Co., Ball Corp., Titanium Metals Corp., and FMC Corp.
Strengths
- The photographic products group was the best-performing group for the week, up 20 percent, led by the group’s single member, Eastman Kodak Co. The firm reported a smaller loss in the third quarter than the analyst consensus loss estimate. The results were helped by a 26 percent jump in sales of inkjet printers and ink, and by a technology licensing deal with an undisclosed digital camera business which added about $250 million to gross profit in the quarter.
- The special consumer services group was the second-best performer, gaining 9 percent. The stock of the group’s single member, H&R Block, Inc., had sold off sharply during the prior two weeks on concerns over possible mortgage repurchase obligations and limited availability of funding for tax refund anticipation loans to its customers. Investor sentiment on the stock appeared to improve this week.
- The industrial real estate investment trust (REIT) group outperformed, rising 8 percent, led by the group’s single member, ProLogis. The large owner/developer of industrial warehouses expects to receive approximately $2.3 billion from its recently announced equity issuance and asset sales. These cash inflows, plus the company’s intention to reduce some of its debt, appeared to allay concerns over a possible debt-rating downgrade.
Weaknesses
- The tires & rubber group was the worst-performer, losing 13 percent, led by its single member, Goodyear Tire & Rubber Co. The firm’s third quarter adjusted earnings exceeded the consensus estimate, but investors may have been disappointed by guidance for increased raw material costs in the fourth quarter.
- The personal products group underperformed, down 5 percent. Avon Products, Inc. reported third quarter revenue and earnings below the consensus estimates.
- The office real estate investment trust (REIT) group lost 5 percent, led by its single member, Boston Properties, Inc. The owner of office properties reported quarterly earnings above the consensus estimate, but a brokerage firm downgraded the stock’s rating to “market perform,” saying that Boston Properties’ strengths are already baked into its share price.
Opportunities
- There may be an opportunity for gain in merger and acquisition (M&A) 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.
