U.S. Equity Market Cheat Sheet (October 31, 2011)
The domestic stock market as measured by the S&P 500 Index was 3.78 percent higher this week, driven by improving investor sentiment as European leaders put forth a package of measures intended to rework their bailout fund, recapitalize European banks and reduce Greeceās debt.
All ten sectors of the S&P 500 increased. The best-performing sector for the week was materials, which increased 7.87 percent. Other top-three sectors were financials and energy. Consumer staples was the worst performer, up only 0.22 percent. Other bottom-three performers were utilities and consumer discretion.
Within the materials sector, the best-performing stock was Allegheny Technologies, up 23.79 percent. Other top-five performers were Cliffs Natural Resources, U.S. Steel Corp., Freeport-McMoRan Copper & Gold and AK Steel.
Strengths
- The real estate services group was the best-performing group for the week, up 24 percent on the strength of its only member, CBRE Group. The company, formerly known as CB Richard Ellis Group, reported earnings in-line with the consensus estimate and revenue above the consensus. The stock had been weak recently due to investor concern over potential weakness in commercial real estate due to a potentially slowing economy. However, the stock surged this week as investor sentiment improved.
- The coal & consumable fuel group gained 18 percent, with all three group members contributing to the gain. Consol Energy reported quarterly earnings and sales above the consensus estimates. Peabody Energy reported results roughly in-line with the consensus.
- The diversified metals & mining group outperformed, up 17 percent. The group was led by its largest member, Freeport-McMoRan Copper & Gold, which benefited from higher copper and gold prices during the week.
Weaknesses
- Household appliances was the worst-performing group for the week, down 10 percent on weakness of the groupās only member, Whirlpool. The appliances manufacturer reported earnings and revenue below the consensus estimate.
- The personal products group lost 7 percent on weakness in member Avon Products, which reported quarterly sales and earnings below the consensus estimate.
- The internet retail group underperformed, down 6 percent, led down by members Amazon.com and Netflix. Amazon reported earnings below the consensus estimate. Netflix, on the other hand, beat estimates on earnings, but disclosed that the company had lost 800,000 subscribers during the third quarter due to a price increase. The company also guided fourth quarter earnings well below analyst expectations.
Opportunities
- There may be an opportunity for gain in M&A (merger & acquisition) 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.
