U.S. Equity Market Cheat Sheet (March 14, 2011)

U.S. Equity Market Cheat Sheet (March 14, 2011)

The figure below 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 1.5 percent. Other top-three sectors were telecom services and consumer staples. Energy was the worst performer, down 4.0 percent. Other bottom-three performers were materials and technology.

Within the utilities sector the best-performing stock was Constellation Energy Group which rose 6.8 percent. Other top-five performers were Exelon, First Energy, DTE Energy, and Duke Energy.

Strengths

• The tires & rubber group was the best-performing group for the week, up 10 percent, led by its single member, Goodyear Tire & Rubber. A major brokerage firm upgraded the stock to “Overweight” and raised estimates and the price target on Goodyear.
• The specialized consumer services group outperformed, gaining 9 percent on the strength of its single member, H&R Block. The tax preparation firm reported quarterly earnings larger than the consensus estimate.
• The real estate services group gained 9 percent. The group’s single member, CB Richard Ellis Group, announced that it had obtained $800 million of new term loans under its credit facility to fund the acquisition of the majority stake in the real estate management division of ING Groep NV. A brokerage firm raised its 2012 earnings estimate and price target for CB Richard Ellis Group on the deal.

Weaknesses

• The semiconductor equipment group lost 10 percent this week as all five group members traded down. The semiconductors group also lost 5 percent. A major brokerage house report stated that they see significant downside in semiconductor stocks and semiconductor production equipment stocks over the next 12 months.
• The coal & consumable fuel group declined 8 percent, with all three members of the group declining. As stated above, the energy sector was the worst-performing sector this week, and it appears that the coal group sold off in-step with other energy-related names.
• The fertilizer & agricultural chemicals group fell 7 percent. A major brokerage firm downgraded two of the fertilizer stocks from “Buy” to “Hold,” essentially on valuation concerns. The report said they are not turning bearish on the fundamentals of the fertilizer cycle which remain robust, but they believe much of the good news is factored into current fertilizer equity prices.

Opportunities

• There may be an opportunity for a 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 (QE2) currently being implemented by the Federal Reserve might result in unintended consequences.