U.S. Equity Market Cheat Sheet (May 16, 2011)

U.S. Equity Market Cheat Sheet (May 16, 2011)

The figure below shows the performance of each sector in the S&P 500 Index for the week. Five sectors gained and five sectors declined. The best-performing sector for the week was consumer staples which rose 2.08 percent. The other top sectors were utilities and healthcare. Financials was the worst performer, down 2.13 percent. Other bottom- performers were materials and energy.

Within the consumer staples sector, the best-performing stock was Dean Foods, which rose 22 percent. Other top-five performers were Sysco Corp, Dr. Pepper Snapple Group, Walgreen Co. and Coca-Cola Enterprises.

Strengths

• The food distributors group was the best-performing group for the week, up 11 percent. The group’s only member, Sysco Corp., reported quarterly earnings and revenue above the consensus estimates. The company was apparently able to pass along cost increases easier than in the prior quarter.
• The home entertainment software group gained 9 percent on the strength of its single member, Electronic Arts Inc. U.S. video game industry retail sales for April, as reported by NPD Group, were up 24 percent on a year-over-year basis.
• The commercial printing group rose 6 percent. Its single member, RR Donnelley & Sons, entered into an accelerated share repurchase agreement with an agent bank under which it repurchased an initial amount of 19.9 million shares of its stock. In the prior week, the company authorized a $1.0 billion share repurchase program.

Weaknesses

• The specialized consumer services group was the worst performer, losing 8 percent. The group’s only member, H&R Block Inc., sold off after a press report said that a group of mortgage bond investors are banding together to force H&R Block’s subprime lending unit to buy back billions of dollars in mortgage bonds.
• The other diversified financial services group lost 5 percent on weakness by all three of its members: Citigroup, JPMorgan Chase and Bank of America.
• The investment banking & brokerage group lost 5 percent. The stock of its largest member, Goldman Sachs Group, was down on investor concerns that the bank might still face charges from the U.S. Department of Justice over some of its transactions during the financial crisis.

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.
• The end of quantitative easing currently scheduled by the Federal Reserve for the end of June might result in a weaker economy.
• The nuclear disaster in Japan creates uncertainly, which is not good for stock prices.