U.S. Equity Market Radar (November 21, 2011)
The domestic stock market as measured by the S&P 500 Index was lower this week by 3.81 percent. All ten sectors of the S&P 500 declined. The best-performing sector for the week was consumer staples which decreased 1.16 percent. Other top-three sectors were utilities and telecom services. Financials was the worst-performer, down 5.57 percent. Other bottom-three performers were materials and energy.
Within the consumer staples sector the best-performing stock was Reynolds American, up 3.11 percent. Other top-five performers were Philip Morris International, PepsiCo, Sysco, and Lorillard.
Strengths
- The construction materials group was the best-performing group for the week, up 5 percent, led by its single member, Vulcan Materials. The largest producer of construction aggregates in the U.S. made a presentation this week at the Stephens Inc. Fall Investment Conference.
- The tobacco group outperformed, gaining 1 percent. Reynolds American and Philip Morris International both advanced during the week.
- The gas utility group outperformed, rising 1 percent on strength in its largest member, ONEOK, which made a presentation this week at the RBC Capital Markets Master Limited Partnership Conference.
Weaknesses
- The health care facilities group was the worst-performing group for the week, down 13 percent, led down by its single member, Tenet Healthcare. Health care providers are waiting to see what kind of budget cuts the “Super Committee” might make, or whether cuts would be made by sequestration. In September, Tenet Healthcare estimated that sequestration would result in a $40 to $54 million cut to its annual cash flow.
- The coal & consumable fuel group lost 12 percent. In a coal industry report this week, a major brokerage firm stated that, in its view, the stocks are discounting too high of a price for coking coal, and that thermal coal fundamentals are also showing signs of weakness that could surprise the market.
- The oil & gas refining & marketing group underperformed, losing 12 percent. U.S. refiners declined on an announcement that the direction of flow in the Seaway pipeline will be reversed. This may increase the cost of crude oil and thus decrease refining profit margins.
Opportunities
- There may be an opportunity for gain in 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.
