Domestic Equity Market
The figure below shows the performance of each sector in the S&P 500 Index for this holiday-shortened week. Eight sectors increased and two decreased. The best-performing sector for the week was technology which rose 2.99 percent. Other top-three sectors were materials and energy. Telecom services was the worst performer, down 0.67 percent. Other bottom-three performers were financials and consumer staples.
Within the technology sector, the best-performing stock was F5 Networks which rose 12.86 percent. Other top-five performers were JDS Uniphase, Apple, Qualcomm and Western Digital.
Strengths
- The consumer electronics group was the best performer for the week, rising 7 percent, led by its single member, Harman International Industries. The company announced that it had been chosen to supply branded audio solutions for certain automotive applications for Geely Motors of China, BYD Motors of China, and for a joint venture formed by BYD Motors of China and Daimler, AG.
- The diversified metals & mining group was the second-best performer, up 7 percent, led by its single member, Freeport McMoRan Copper & Gold. The company reported quarterly earnings which handily exceeded the consensus estimate. Also, the price of copper and the price of gold increased during the week.
- The computer hardware group outperformed, gaining 6 percent. Apple, the largest member of the group, reported quarterly earnings and revenue above the consensus estimates.
Weaknesses
- The motorcycle manufacturer group was the worst performer, down 6 percent on weakness in the groupās single member, Harley Davidson. The company reported quarterly earnings above the consensus estimate, but its U.S. sales declined 0.5 percent year-over-year.
- The diversified support service group underperformed, losing 5 percent on weakness in the stock of its largest member, Iron Mountain. The stock had risen strongly over the last month since an activist shareholder laid out proposals to drive operational improvement. On Tuesday the firm laid out its strategic plan for enhancing shareholder value. The stock sold off after the plan was announced, so it appears that the projected improvements may have already been priced into the stock.
- The diversified banks group lost 4 percent. All three members of the group (Wells Fargo, U.S. Bancorp, and Comerica) sold off after reporting earning this week. In general, banks are being challenged by slow revenue growth.
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 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.
