U.S. Equity Market Diary (November 29, 2010)
The figure below shows the performance of each sector in the S&P 500 Index for the week. Two sectors increased slightly and eight sectors decreased. The best-performing sector for the week was consumer discretionary which rose 0.43 percent. Other outperforming sectors were technology and industrials. Financials, energy and healthcare were the worst performers.
Within the consumer discretionary sector, the best-performing stock was the New York Times Co., up 10 percent. Other top performers were Amazon.com, Harman International Industries, Big Lots and Tiffany & Co.
Strengths
- Internet retail, led by Amazon.com, was the best-performing group in the S&P 500 for the week, up 6 percent. Investors appear to be expecting a good holiday selling period for the online retailer. In addition, Barron’s published a positive article on the stock.
- Consumer electronics (Harman International Industries) was the second-best performer, rising 5 percent. Earlier this month, a major brokerage firm described Harman as one of its favorite long-term stories and it is now viewing the stock as a cheap, backdoor way of gaining exposure to growing demand for German luxury cars in China.
- The department stores group, led by Kohl’s and Macy’s, outperformed, gaining 3 percent. Again, investors appear to be expecting a good holiday selling period this year.
Weaknesses
- The homebuilding group was the worst performer this week falling by 4 percent. Sales of new homes in October declined 8.1 percent from September to a 283,000 annual rate. Economists had expected an increase to 312,000.
- The other diversified financial services group underperformed, declining 4 percent, led by Bank of America and JPMorgan Chase. These large banks are dealing with mortgage foreclosures and mortgage repurchase demands.
- The investment bank & brokerage group underperformed, down 4 percent, led by Goldman Sachs Group Inc. The stocks in this group appear to have been affected by news of the insider trading inquiry.
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 timeframe, 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.
