U.S. Equity Market Cheat Sheet (October 3, 2011)
The domestic stock market as measured by the S&P 500 Index was slightly lower this week by 0.44 percent. The figure below shows the performance of each sector in the index for the week. Six sectors increased and four declined. The best-performing sector for the week was telecommunication services which increased 1.80 percent. Other top-three sectors were financials and health care. Materials was the worst performer, down 3.21 percent. Other bottom-three performers were consumer discretionary and technology.
Within the telecommunication services sector, the best-performing stock was American Tower, up 2.89 percent. Other top-three performers were Verizon Communications, and AT&T.
Strengths
- The property & casualty insurance group outperformed, rising 5 percent, led by the group’s largest member, Berkshire Hathaway, Inc. The firm announced a share buy-back. Valuations of group members in general were raised by the announced agreement of the acquisition of Harleysville Group, by Nationwide Mutual Insurance Co. for $60 per share in cash, a 90 percent premium over the closing price prior to the announcement.
- The life & health insurance group gained 5 percent, led by group members AFLAC, Prudential Financial, Inc., and MetLife. The Harleysville Group acquisition described above also appeared to raise valuations in the life & health insurance group.
- The electronic manufacturing services group outperformed, up 4 percent, led by Jabil Circuit, Inc. The contract manufacturer of electronics reported quarterly revenue and earnings above the consensus estimate, and it raised its earnings guidance for the current quarter.
Weaknesses
- The casinos & gaming group was the worst performer, down 11 percent, led by its largest member, Wynn Resorts. The weakness was likely caused by investor concern over macro issues.
- The fertilizer & agricultural chemicals group underperformed, losing 10 percent, led down by Mosaic Co. and CF Industries Holdings. The U.S. Department of Agriculture released corn inventory data which was larger than expected.
- The oil & gas drilling group declined 8 percent. Oil service-related groups have been weak on investor concern that oil exploration and production companies might cut back expenditure budgets when faced with a possible economic slow-down.
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 of concerns over sovereign debt obligations in Europe would be negative for stocks.
