U.S. Equity Market Cheat Sheet (January 17, 2011)
The figure below shows the performance of each sector in the S&P 500 Index for the week. Nine sectors increased and one decreased. The best-performing sector for the week was energy which rose 3.33 percent, followed closely by financials, up 3.23 percent. Technology finished third. Telecom services was the sole declining sector, down 1.55 percent. Other bottom-three performers were healthcare and utilities.
Within the energy sector the best-performing stock was Marathon Oil, up 10.3 percent. Other top-five performers were Cameron International, EOG Resources, National Oilwell Varco, and Schlumberger.
Within the financials sector the best-performing stock was Franklin Resources, Inc., up 8.5 percent. Other top-five performers were Discover Financial Services, State Street, Bank of America, and XL Group plc.
Strengths
- The semiconductor equipment group was the best-performing group for the week, rising 11 percent after semiconductor manufacturer Intel projected larger-than-expected capital expenditures for 2011.
- The engineering & construction group rose 9 percent, led by the group’s largest member, Fluor. A major brokerage firm published a positive report on the group the prior Friday, citing continued global economic improvement, higher oil demand/pricing, and accelerated growth in oil & gas awards.
- The education services group outperformed, gaining 6 percent. A brokerage firm upgraded one education stock (Corinthian Colleges), and an internet blog raised the question of whether there are more upgrades in the group to follow. Apollo Group reported earnings above the consensus estimate.
Weaknesses
- The tires & rubber group was the worst performer, down 6 percent by member Goodyear Tire & Rubber Co. A financial media story said that natural rubber prices may extend a record rally as rains cut supply, compounding a seasonal output drop, while surging auto sales boost demand. The price advance raises costs for tire makers.
- The advertising group underperformed, declining 3 percent on weakness in Omnicom Group. A major brokerage firm initiated coverage of the company with a “Neutral” rating, opining that greater competitive intensity in the industry and Omnicom’s lower exposure to faster-growing geographic markets would cause margins to fall short of the company’s target.
- The aluminum group lost 3 percent on weakness in its single member, Alcoa. The firm reported earnings above the consensus estimate, but revenue that was below the consensus. A brokerage firm downgraded its rating on Alcoa, citing excess aluminum supply that should curb the metal’s price and limit potential gains in the firm’s shares.
Opportunities
- There may be an opportunity for gain in merger & 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.
