U.S. Equity Market Cheat Sheet (March 21, 2011)
The figure below shows the performance of each sector in the S&P 500 Index for the week. One sector increased and nine decreased. The best-performing sector for the week was energy which rose 0.37 percent. Other top-three sectors were materials and telecom services. Utilities was the worst performer, down 4.3 percent. Other bottom-three performers were technology and consumer discretion.
Within the energy sector the best-performing stock was Southwestern Energy which rose 11 percent. Other top-five performers were Peabody Energy, Consol Energy, Cabot Oil & Gas, and Range Resources Corp.
Strengths
- The coal & consumable fuel group was the best-performing group for the week, up 10 percent. All three stocks in the group increased for the week as investors appeared to seek out coal stocks in the expectation that coal usage for power plants would increase due to uncertainty over the future of nuclear power as a result of the damage to the nuclear plant in Japan.
- The diversified metals & mining group outperformed, rising 4 percent, led by its largest member, Freeport McMoRan Copper & Gold. A major brokerage firm reiterated its āoutperformā rating on the stock, citing their view that the shares are pricing in a lower copper price than they believe is warranted. The price of copper increased during the week.
- The construction & farm machinery group rose 3 percent, led by its largest member Caterpillar, which reported that retail sales were up 59 percent in the three months ended in February, an acceleration from the 49 percent gain reported for the three months ended in January. It was the tenth-straight month of improving sales.
Weaknesses
- The footwear group was the worst-performing group for the week, down 11 percent, led by its single member, Nike. The firm reported third-quarter earnings below the consensus estimate, and it said that gross margins fell 1.1 percentage points in the third quarter. Also, margins are expected to narrow by 3 percentage points in the fourth quarter and continue to decline in the next fiscal year. The company has been hurt by higher product costs, elevated freight costs, and a smaller proportion of license revenue.
- The apparel & accessories group declined 9 percent, led by Coach and Polo Ralph Lauren. Luxury goods retailers sold off in response to the nuclear power plant disaster in Japan.
- The electronic manufacturing services group underperformed, falling 8 percent. Group members Jabil Circuit and Molex sold off after electronics contract manufacturer Sanmina-SCI warned that its fiscal second quarter ending in March will be below analysts estimates.
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 investorsā 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.
- The nuclear disaster in Japan creates uncertainly, which is not good for stock prices.
