U.S. Equity Market Cheat Sheet (February 7, 2011)

U.S. Equity Market Cheat Sheet (February 7, 2011)

The figure shows the performance of each sector in the S&P 500 Index for the week. All ten sectors increased. The best-performing sector for the week was materials which rose 4.58 percent. Other top-three sectors were energy and technology. The utilities sector was the worst performer, up only 0.32 percent. Other bottom-performers were consumer staples and telecom services.

Within the materials sector the best-performing stock was Cliff’s Natural Resources, up 8.64 percent. The other top-five performers were FMC Corp, Freeport-McMoRan Copper & Gold, CF Industries Holdings and Nucor Corp.

Strengths

• The home entertainment software group was the best-performing group for the week, up 22 percent, led by its single member, Electronic Arts. The company reported a fiscal third-quarter profit that exceeded the analyst consensus estimate and announced a $600 million share repurchase program.
• The consumer electronics group was the second-best performer, rising 15 percent. Harman International Industries, maker of audio products and electronic systems, reported fiscal second quarter earnings above the analyst consensus.
• The agricultural products group outperformed, up 10 percent. Archer-Daniels-Midland reported fiscal second quarter earnings greater than the consensus estimate.

Weaknesses

• The homebuilding group was the worst performer, down 4 percent. A major brokerage firm downgraded D.R. Horton, Inc. to “Neutral” and The Ryland Group to “Sell,” citing that homebuilder stocks have outperformed the broader market by roughly 15 percent over the past three months despite lackluster housing data.
• The office services & supplies group underperformed, down 3 percent. Avery Dennison Corp. sold off after reporting earnings ahead of the analyst consensus. A major brokerage firm remained cautious on the stock, citing the potential for higher-than-expected raw material cost inflation, specifically within paper and adhesives.
• The automobile manufacturer group, represented by Ford Motor Co., lost 3 percent. New car registrations in the United Kingdom were down 11.5 percent compared to a year ago during January.

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.