U.S. Equity Market Radar (December 28, 2011)
The domestic stock market as measured by the S&P 500 Index was higher this week by 3.74 percent. All ten sectors of the index increased. The best-performing sector for the week was energy, which gained 5.44 percent. Other top-three sectors were financials and industrials. Technology was the worst performer, up 2.01 percent. Other bottom-three performers were consumer staples and consumer discretion.
Within the energy sector the best-performing stock was Nabors Industries, up 8.96 percent. Other top-five performers were Baker Hughes, Murphy Oil, Marathon Oil, and Tesoro.
Strengths
- The healthcare facilities group was the best-performing group for the week, up 13 percent, led by the group’s single member, Tenet Healthcare. This increase may be an example of a low-priced stock with a relatively high beta (1.20) reacting to a stock market rally this week.
- Three groups related to home sales and home construction outperformed this week. The building products group, the household appliances group, and the home furnishings group rose 11 percent, 10 percent, and 9 percent, respectively. Sales of existing homes in the U.S. rose in November to a 10-month high. Housing starts in the U.S. reached a 19-month high in November. Sales of new U.S. homes rose in November to a seven-month high.
- The education services group gained 9 percent. This week the U.S. Department of Education announced the appointment of Georgia Yuan as Deputy Under Secretary, replacing James Kvaal who transitioned to President Obama’s reelection team earlier this year. A major brokerage firm report stated its belief that this appointment will help the Education Department to increasingly shift to an approach that is based on outcome metrics rather than on ideology.
Weaknesses
- The home furnishings retail group was the week’s worst-performer, down 6 percent, led by its single member, Bed Bath & Beyond. The retailer sold off after reporting third-quarter earnings above the consensus and revenue slightly below the consensus. The earnings figure was aided by a lower tax rate. Same-store-sales were below consensus for the quarter, and sales comparisons become more difficult in the current quarter.
- The systems software group underperformed, down 4 percent, led down by Oracle which reported fiscal second quarter earnings and revenue below the consensus estimates.
- The airlines group lost 1 percent, led by its single member, Southwest Airlines. This week, the Federal Aviation Administration (FAA) released new rules on pilot fatigue. The rules, which take effect in two years, reduce the hours that pilots can work and give them longer rest breaks. The new rules will likely result in higher costs for the airline industry.
Opportunities
- There may be an opportunity for gain in merger & acquisition (M&A) transactions in 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.
