U.S. Equity Market Diary (December 20, 2010)
The figure shows the performance of each sector in the S&P 500 Index for the week. Seven sectors increased and three decreased. The best-performing sector for the week was basic materials, which rose 1.7 percent. Other outperforming sectors included consumer staples and healthcare. Financials was the worst performer, followed by technology and consumer discretionary.
Within the basic materials sector, the best-performing stock was AK Steel Holding Corp, up 11.7 percent. Other top-five performers were US Steel Corp, Allegheny Technologies, Vulcan Materials and Nucor Corp.
Strengths
- The photographic products group was the best-performing group for the week, up 8 percent. The group’s only member, Eastman Kodak, has been the subject of unsubstantiated takeover rumors.
- The construction materials group (Vulcan Materials) outperformed, rising 6 percent. The gain may be due to some investors anticipating an upturn in the housing and commercial construction markets which would benefit Vulcan.
- The steel group rose 6 percent. Nucor projected a loss for the fourth quarter but they cited improving operating rates during the quarter and their ability to increase prices over the last 30-45 days. Therefore, they were “cautiously optimistic regarding first quarter volume and pricing.”
Weaknesses
- The retail computer & electronics group was the worst performer, falling 14 percent. The group’s largest member, Best Buy, reported third fiscal quarter earnings and revenue below the consensus estimate, and lowered full-year earnings guidance. The company reported a quarterly 5 percent decline in domestic comparable store sales.
- MasterCard and Visa led the data processing & outsourcing services group down 7 percent. The Federal Reserve released proposed rules regulating debit interchange fees and card network exclusivity, which is disappointing to the industry.
- The consumer finance group was also down 5 percent, apparently due to investor reaction to the rules released by the Federal Reserve. American Express, Capital One Financial and Discover Financial Services were all down for the week.
Opportunities
- There may be an opportunity for gain in merger & acquisition (M&A) transactions in 2010 and 2011. 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.
- Quantitative easing currently being implemented by the Federal Reserve might result in unintended consequences.
