U.S. Equity Market Cheat Sheet (January 24, 2011)

U.S. Equity Market Cheat Sheet (January 24, 2011)

The figure shows the performance of each sector in the S&P 500 Index for the week. Four sectors increased and six decreased. The best-performing sector for the week was utilities which rose 0.69 percent. Other top performers were industrials and consumer staples. Materials was the worst performer, down 3.32 percent. Other bottom performers were technology and financials.

Within the utilities sector, the best-performing stock was American Electric Power Co., up 2.79 percent. Other top-five performers were Allegheny Energy, Public Service Enterprise Group, FirstEnergy Corp. and XCEL Energy.

Strengths

• The special consumer services group (H&R Block) was the best-performing group for the week, up 8 percent. The stock of the tax-return provider was listed as a high-yielding stock by an Internet investment blog. The stock currently yields approximately 4.5 percent.
• The industrial conglomerates group outperformed, rising 4 percent. Shares of General Electric, the group’s largest member, rose after the company reported quarterly earnings and revenue greater than the consensus estimate. The company said that year-over-year revenue grew for the first time in nine quarters.
• Boosted by gains in CBS Corp. and Discovery Communications, the broadcasting group rose 3 percent. A major brokerage firm published positive reports on each of the two stocks, reiterating purchase recommendations.

Weaknesses

• The thrifts & mortgage finance group was the worst-performing group, declining12 percent, led down by Hudson City Bancorp Inc. The mortgage lender reported quarterly earnings below the consensus estimate and the company’s CEO expressed a gloomy view of the 2011 outlook. Low mortgage rates are impacting the lender’s net interest margin.
• The diversified metals & mining group declined 8 percent on weakness in its single member, Freeport-McMoRan Copper & Gold. The company reported quarterly earnings in excess of the consensus estimate, but it slightly tempered its 2011 production guidance and called for slightly higher unit costs. A major brokerage firm lowered its rating on the stock to “hold” after lowering its earnings and target price on higher costs.
• The fertilizer & agricultural chemicals group lost 6 percent, as both Monsanto Co. and CF Industries Holdings Inc. declined. Both stocks have been strong recently, and it appears that profit-taking may have been involved in the declines.

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 time frame, it could be a threat to stock prices.
• Quantitative easing currently being implemented by the Federal Reserve might result in unintended consequences.