U.S. Equity Market Cheat Sheet (June 6, 2011)
The figure below shows the performance of each sector in the S&P 500 Index for the week. All ten sectors declined. The best-performing sector for the week was healthcare which declined 1.34 percent. Other top-three sectors were utilities and energy. Consumer discretion was the worst performer, down 3.23 percent. Other bottom-three performers were materials and industrials.
Within the healthcare sector the best-performing stock was Forest Labs, Inc. which rose 3.13 percent. Other top-five performers were Biogen Idec, Inc., UnitedHealth Group, Inc., Quest Diagnostics, Inc. and Cigna Corp.
Strengths
- The education services group was the best-performing group for the week, up 13 percent, driven by increases in both of its members (Apollo Group, Inc. and DeVry, Inc.). The stocks of for-profit education companies were up sharply after the Department of Education’s final rules regarding gainful employment appeared to be much easier to comply with than the rules in the original draft.
- The specialized consumer services group was the second-best performer, up 1 percent, led by its single member, H&R Block, Inc.
- The home entertainment software group outperformed, rising 1 percent on the strength of its single member, Electronic Arts, Inc. The game developer launched an online gaming service entitled “Origin” which lets consumers buy and download games to personal computers.
Weaknesses
- The paper packaging group was the worst-performing group, down 9 percent. Group member Sealed Air Corp. sold off sharply after it announced that it had agreed to buy cleaning-products maker Diversey Holdings, Inc. for $2.9 billion in cash and stock.
- Household appliances was the second worst-performing group, losing 7 percent. Both of its members (Whirlpool Corp. and Stanley Black & Decker) declined. These two stocks may have been affected by investor concern over the state of the housing sector.
- The retail food group lost 6 percent with all four members of the group (Kroger Co., Supervalu, Inc., Safeway, Inc., and Whole Foods Market, Inc.) declining. A major brokerage firm report stated the belief that grocers could face margin and/or volume risk as consumers react to higher gas and food prices.
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 uncertainty, which is not good for stock prices.