U.S. Equity Market Cheat Sheet (September 12, 2011)

U.S. Equity Market Cheat Sheet (September 12, 2011)

The domestic stock market was lower this week with the S&P 500 Index down 1.68 percent. The figure below shows the performance of each sector in the index for the week. All sectors decreased. The best-performing sector for the week was technology which decreased 0.50 percent. Other top-three sectors were consumer staples and healthcare. The financials sector was the worst performer, down 2.56 percent. Other bottom-three performers were materials and industrials.

Within the technology sector the best-performing stock was SanDisk, up 10.82 percent. Other top-five performers were Juniper Networks, Tellabs, Western Digital, and Cisco Systems.

Strengths

• The retail drug group gained 2 percent, led by member CVS Caremark. Industry member Walgreen Co. reported August same-store sales increased 5.6 percent year-over-year, above the 5.3 percent consensus estimate.
• The oil & gas refining & marketing group outperformed, rising 2 percent. Refiners continue to experience a profitable spread between the price of refined product and the cost of crude oil.
• The computer & electronics group rose 2 percent, led by member GameStop. August physical video game sales data released this week were weak, but a major brokerage firm reiterated its “Outperform” rating and $30 price target on GameStop. It cited strong industry growth that should resume in September, GameStop’s unique initiatives, including its growing loyalty program, and its digital and used offerings.

Weaknesses

• The household appliances group was the worst-performing group, down 10 percent, led by its single member, Whirlpool. A major brokerage firm lowered its rating on the stock to “Neutral” from “Buy,” citing expected further market share losses, deteriorating North American margins, risks to volume growth, and retail consolidation in Brazil.
• The diversified metals & mining group underperformed, losing 6 percent, led by its largest member, Freeport McMoRan Copper & Gold. The stock’s weakness is likely related to investor concern over an economic slowdown which could reduce demand for copper.
• The consumer electronics group declined 5 percent on weakness in its single member, Harman International Industries. A major brokerage firm reduced its earnings estimates for Harman, based on the broker’s lowered, below-consensus estimates for North American auto production.

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.