U.S. Equity Market Diary (November 8, 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 consumer electronics group, represented by Harman International Industries, was the best-performing group for the week. The audio products maker rose 19 percent after reporting quarterly earnings and revenue above the consensus estimate.
- The construction materials group, represented by Vulcan Materials, was the second-best performer. Vulcan rose 16 percent despite reporting quarterly earnings below the consensus estimate. However, the CEO's remarks in the earnings report about contract awards for highway construction in Vulcan-served states continuing to outpace other states may have encouraged some investors.
- The automobile manufacturer group, represented by Ford, rose 15 percent. Ford was energized by October cars and light truck sales which were up 16 percent from a year ago and up 19 percent when adjusted for the sale of Volvo.
Weaknesses
- The agricultural products group, represented by Archer Daniels Midland, was the worst performer, down 6 percent. Archer Daniels reported quarterly earnings below the analyst consensus estimate.
- The Apollo Group led the education services group to underperform, losing 3 percent. The University of Phoenix, Apollo's main segment, reported that the Department of Education is launching a review of how the University administers federal financial aid.
- Discovery Communications led the broadcasting group to underperform, down 3 percent. Discovery reported quarterly earnings below the consensus estimate and a brokerage firm downgraded the stock based on valuation.
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 investorsā 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.
