U.S. Equity Market Radar (December 12, 2011)
The domestic stock market as measured by the S&P 500 Index was higher this week by 0.88 percent. Nine sectors of the index advanced and one declined. The best-performing sector for the week was financials which increased 1.68 percent. Other top-three sectors were technology and industrials. Materials was the worst-performer, down 0.11 percent. Other bottom-three performers were energy and telecom services.
Within the financials sector, the best-performing stock was Morgan Stanley, up 5.54 percent. Other top-five performers were Comerica, Genworth Financial, Goldman Sachs and Ventas.
Strengths
- Healthcare facilities was the best-performing group for the week, up 6 percent, led by its single member, Tenet Healthcare Corp. A brokerage firm report stated that all six of the publically-traded hospitals saw a sequential decrease in unemployment in their respective areas from September to October. The report views unemployment trends as a potential precursor to changes in the level of hospital business.
- The specialized consumer services group outperformed, gaining 6 percent on strength in its single member, H&R Block. The tax-preparation company increased its dividend by 33 percent, and it also introduced some new features including tax preparation apps for iPhone and Android phones and tablets.
- The homebuilding group gained 6 percent. A major brokerage house report on the homebuilding industry stated that it has become increasingly apparent that the pieces are beginning to fall in place for a housing rebound in 2012.
Weaknesses
- The real estate services group was the worst performer for the week, losing 6 percent on weakness in the groupās single member CBRE Group. Investor sentiment on the stock of this commercial real estate sales and leasing firm may have been affected negatively by a study of U.K commercial real estate by an English university. The study reported that U.K. commercial real estate investors are unable to refinance about 85 billion pounds to 114 billion pounds of debt because the loans are too high compared with collateral property values.
- The casinos & gaming group underperformed, down 5 percent, led by the groupās largest member, Wynn Resorts. A major brokerage firm lowered its earnings estimates and price target on the stock, saying that Wynn Resorts may not be able to keep up with the overall growth rate in Macau.
- The home entertainment software group declined 4 percent, led by its single member Electronic Arts. Shares of video game publishers declined after one publisher, THQ, lowered its revenue guidance for the holiday quarter.
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.
