U.S. Equity Market Cheat Sheet (August 8, 2011)
The domestic stock market suffered a sharp correction this week with the S&P 500 Index losing 7.19 percent. The figure below shows the performance of each sector in the index for the week. All ten sectors declined. The best-performing sector for the week was consumer staples which decreased 2.54 percent. Other top-three sectors were telecom services and utilities. Energy was the worst performer, down 9.98 percent. Other bottom-three performers were materials and financials.
Within the consumer staples sector the best-performing stock was Kraft Foods, which rose 1.43 percent. Other top-five performers were PepsiCo, Colgate-Palmolive, Hershey Co., and Dr Pepper Snapple Group.
Strengths
- With the stock market undergoing a sharp correction, it is normal for some of the groups in the consumer staples and utility sectors to outperform. That occurred this week as soft drinks, household products, integrated telecom services, packaged foods; tobacco and multi-utilities appeared among the top-ten groups. Those groups were down between 0.92 percent and 2.72 percent.
- The construction materials group outperformed, down 1.57 percent, led by its single member, Vulcan Materials. In the company’s second quarter earnings conference call this week, the CEO said that they were “encouraged by the broad-based improvement in pricing versus the prior year’s second quarter.”
- The gold group outperformed, losing 2.16 percent. This group consists of a single member, Newmont Mining Co. The price of gold increased during the week.
Weaknesses
- The price of crude oil declined this week, and three of the bottom-ten underperforming groups were energy-related. The coal & consumable fuels group declined 21 percent. The oil & gas drilling group fell 16 percent, and the oil & gas refining & marketing group gave up 16 percent.
- The industrial REITS (real estate investment trusts) group was the second-worst performer, down 19 percent, led by its single member, Prologis. Several REIT groups were among the weakest groups in the financials sector this week, perhaps due to investor concern over the possibility of an economic slow-down and its effects on real-estate values.
- The airlines group underperformed, down 15 percent by its single member, Southwest Airlines Co. The company reported quarterly earnings below the consensus this week, and the CEO said that, based on bookings for August and September, the rate of growth has slowed.
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
- A mid-cycle slowdown in the domestic economy would be negative for stocks.
- An escalation in concerns over sovereign debt obligations in Europe would be negative for stocks.
