U.S. Equity Market Cheat Sheet (May 9, 2011)
The figure below shows the performance of each sector in the S&P 500 index for the week. Two sectors achieved small gains, and 8 sectors declined. The best-performing sector for the week was healthcare which rose 0.62 percent. Other top-three sectors were utilities and telecom services. Energy was the worst performer, down 6.95 percent. Other bottom-three performers were materials and financials.
Within the healthcare sector the best-performing stock was Gilead Sciences which rose 5.59 percent. Other top-five performers were Medco Health Solutions, Cephalon, Eli Lilly, and Zimmer Holdings.
Strengths
- The home entertainment software group was the best-performing group for the week, up 8 percent, led by its single member, Electronic Arts. The video game software firm reported fiscal fourth quarter revenue and earnings above the consensus estimate. Also, importantly, the firm’s business model is shifting from packaged product to a digital delivery model. Digital revenue growth in the fourth quarter accelerated to 72 percent year-over-year, up from 39 percent in the third quarter.
- The metal & glass container group gained 4 percent. Group member Owens- Illinois reported quarterly earnings this week above the consensus estimate. Last week group member Ball Corp handily beat consensus earnings. Both stocks rose this week.
- The broadcasting group rose 3 percent, led by CBS Corp, which handily beat the consensus earnings estimate. The company also doubled its quarterly dividend.
Weaknesses
- Commodities and commodity-related equities sold off this week, resulting in declines for several commodity-related groups including oil & gas drilling (the worst performing group, down 10 percent) and oil & gas equipment & services (down 9 percent). The price of oil declined during the week.
- Metals groups also sold off, with the diversified metals & mining group down 9 percent, and the gold group off by 8 percent. The prices of copper and gold both were lower for the week.
- The brewers group lost 8 percent, led by its single member, Molson Coors Brewing. The company reported quarterly earnings below the consensus estimate, saying that sales to retailers in Canada fell 6.9 percent hurt by comparisons with last year’s Winter Olympics, continued economic pressure, and discounts by smaller brewers.
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.
- The nuclear disaster in Japan creates uncertainly, which is not good for stock prices.
