U.S. Equity Market Cheat Sheet (February 22, 2011)

U.S. Equity Market Cheat Sheet (February 22, 2011)

The figure below shows the performance of each sector in the S&P 500 Index for the week. Eight sectors increased and two decreased. The best-performing sector for the week was energy which rose 3.67 percent. Other top-three sectors were healthcare and consumer discretion. Telecom services was the worst performer, down 0.72 percent. Other bottom-three performers were utilities and industrials.

Within the energy sector, the best-performing stock was Williams Cos., Inc. which rose 12.52 percent. Other top-five performers were Tesoro Corp., Nabors Industries, Inc., Diamond Offshore Drilling, Inc. and Noble Corp.

Strengths

• The specialty consumer services group was the best-performing group for the week, up 10 percent, led by its single member, H&R Block, Inc. The stock got a boost from a newly-disclosed stake by hedge-fund operator Eddie Lampert. His RBS Partners held 399,783 shares as of December 31, 2010. Also, a brokerage firm initiated coverage of the stock with a “Buy” rating.
• Five of the top-ten best-performing groups were energy-related (oil & gas drilling, oil & gas storage & transportation, gas utilities, oil & gas equipment & services, and oil & gas refining & marketing). These groups rose between 5 percent and 8 percent as investors appeared to be attracted to the space.
• The insurance broker group outperformed, rising 6 percent as both of its members (Marsh & McLennan Companies, Inc. and Aon Corp.) rose. A major brokerage firm published a favorable report on the group, citing the secular growth of insurance buying in emerging economies.

Weaknesses

• The building products group was the worst performer, losing 6 percent, led down by its single member, Masco Corp. The firm reported earnings below the consensus estimate, and a major brokerage firm reiterated its “Sell” rating on the stock, saying that market share losses, weak pricing power, and rising commodity costs are the key drivers of the brokerage firm’s below-consensus estimates for Masco.
• The automobile manufacturer group underperformed, dropping 4 percent, led by its single member, Ford Motor Co. The auto manufacturer agreed to form a joint venture with OAO Sollers to manufacture Ford vehicles at plants in Russia.
• The telecom wireless services group underperformed, down 3 percent, led down by American Tower Corp. The stock increased nicely last week, and the weakness this week may have been profit taking.

Opportunities

• There may be an opportunity for gain in merger and acquisition 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.