U.S. Equity Market Radar (November 28, 2011)
The domestic stock market as measured by the S&P 500 Index was lower this week by 4.69 percent. All ten sectors of the S&P 500 declined. The best-performing sector for the week was consumer staples which decreased 2.40 percent. Other top-three sectors were utilities and healthcare. Energy was the worst-performer, down 6.24 percent. Other bottom-three performers were financials and materials.
Within the consumer staples sector the best-performing stock was Mead Johnson, up 0.50 percent. Other top-five performers were Reynolds American, Walgreen Co., Wal-Mart, and Kroger Co.
Strengths
- The hypermarkets & supercenters group was the best-performing group for the week, down 0.73 percent, led by its largest member, Wal-Mart. A major brokerage firm report stated that Wal-Mart management believes that Black Friday sets the trend for the holidays, and that the retailer has an aggressive plan to win the weekend.
- The restaurants group outperformed, declining by 1.58 percent. Yum! Brands Inc. announced that it will separate its India business, creating a separate reporting division called Yum! Restaurants India in order to continue to drive aggressive international expansion. Yum! Brands also announced that it will open fast-food chain restaurants in gas stations run by China Petrochemical Corp.
- The health care technology group outperformed, dropping by 1.61 percent, led by its single member, Cerner Corp. The stock of this software company, which develops electronic medical records software, sold off sharply recently, but appeared to stabilize this week.
Weaknesses
- The coal & consumable fuel was the worst-performing group, down 10 percent. All three members of the group declined.
- The steel group underperformed, losing 10 percent with all five group members declining. On Monday, the World Steel Association reported steel production for 64 countries in October increased 6.2 percent year-over-year, indicating higher supply amid softer U.S. and European demand for steel.
- The other diversified financial services group lost 9 percent. All three group members (Bank of America, Citigroup, and JPMorgan Chase) lost more than six percent. These three large banks will be among the banks undergoing a new “stress test” prescribed by the Federal Reserve.
Opportunities
- There may be an opportunity for gain in merger & acquisition (M&A) transactions in 2011 and 2012. 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.
