U.S. Equity Market Cheat Sheet (May 30, 2011)
The figure below shows the performance of each sector in the S&P 500 index for the week. Three sectors gained, and seven sectors declined. The best-performing sector for the week was materials which rose 2.07 percent. Other top-three sectors were energy and telecom services. Utilities were the worst performer, down 1.65 percent. Other bottom-three performers were healthcare and consumer staples.
Within the materials sector the best-performing stock was CF Industries Holdings which rose 11.6 percent. Other top-five performers were AK Steel Holding, Freeport-McMoRan Copper & Gold, Monsanto, and Newmont Mining.
Strengths
- The diversified metals & mining group was the best-performing group for the week, up 7 percent, led by its single member, Freeport-McMoRan Copper & Gold. The prices of copper and gold were both up for the week.
- The fertilizer & agricultural chemicals group outperformed, up 6 percent, driven by strength in both of its members (Monsanto and CF Industries Holdings). Corn prices are up from their May low. A major brokerage firm upgraded CF Industries from “Neutral” to “Overweight,” citing its valuation, solid cash low characteristics, strong crop prices, and a favorable outlook for agricultural fundamentals in the year ahead.
- The specialty stores group outperformed, rising 5 percent. Tiffany & Company advanced sharply after reporting quarterly earnings and revenue above the consensus estimates. The firm also raised its earnings guidance for the full year.
Weaknesses
- The healthcare services group was the worst performer, down 4 percent, led by Medco Health Solutions. Pharmacy benefits manager Medco said that, after this year, it will lose its contract to handle mail order and specialty drug benefits for the Federal Employees Health Benefits Program, a program that provides it with about $3 billion a year in revenue.
- The airlines group underperformed, losing 4 percent on weakness in the stock of its single member, Southwest Airlines. High winds and hail affected the air traffic pattern in Dallas this week. Southwest said it expected to cancel or delay an undetermined number of flights as it checks eight aircraft for damage.
- The electronic equipment & instruments group fell 3 percent on weakness in its single member, FLIR Systems. The company said it will pay two former executives $39 million to settle claims over the firm’s use of infrared technology obtained through a past acquisition.
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.
