U.S. Equity Market (December 27, 2010)
The figure below shows the performance of each sector in the S&P 500 Index for the holiday-shortened week. Nine sectors increased and one decreased. The best-performing sector for the week was financials which rose 2.3 percent. Other outperforming sectors included energy and materials. Consumer staples was the worst performer, followed by healthcare and technology.
Within the financials sector the best-performing stock was Huntington Bancshares, Inc., up 10.4 percent. Other top-five performers were Regions Financial Corp., First Horizon National Corp., Zions Bancorporation and SLM Corp.
Strengths
- The electronic manufacturing services group was the best-performing group for the week, up 8 percent, led by Jabil Circuit, Inc. The company reported fiscal first quarter earnings and revenue above consensus, and it forecast second quarter earnings and revenue to be above consensus.
- The independent power producers & energy traders group outperformed, rising 6 percent. Group member Constellation Energy Group, Inc. was upgraded to “Buy” from “Hold” by a major brokerage firm. In the previous week, the board of group member Dynegy, Inc. accepted a $665 million buyout offer from an investment company controlled by investor Carl Icahn in order to take the Houston power-generation company private.
- The coal & consumable fuel group was up 6 percent. A major brokerage firm said that there is a risk that thermal coal prices may spike in the first quarter of 2011. This was based on disruptions to the coal market from unseasonal weather coinciding with renewed concerns about supply capacity in India and China.
Weaknesses
- The footwear group was the worst performer, down 4 percent, led by its single member, Nike, Inc. The firm reported that orders for the Nike brand from December to April rose 11 percent, below the consensus estimate of 11.6 percent. Investors appear to be concerned that orders in China and emerging markets decelerated from the previous period.
- The retail automotive group underperformed, losing 3 percent, led down by group member CarMax, Inc. The retailer reported quarterly earnings and revenue above the consensus, but apparently some investors were expecting more. One analyst expressed the opinion that the stock’s decline was a combination of profit-taking and deceleration in some metrics like gross profit per vehicle.
- The apparel & accessory group was down 3 percent, with all three group members (Coach, Inc., Polo Ralph Lauren Corp., and VF Corp.) down.
Opportunities
- There may be an opportunity for gain in merger and acquisition (M&A) transactions in 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 timeframe, it could be a threat to stock prices.
- Quantitative easing currently being implemented by the Federal Reserve might result in unintended consequences.
