U.S. Equity Market Radar (January 1, 2012)
The domestic stock market as measured by the S&P 500 Index was lower this week by 0.61 percent. Two sectors of the index increased and eight decreased. The best-performing sector for the week was telecommunication services which gained 0.72 percent. Other top-three sectors were utilities and consumer staples. Financials was the worst performer, down 1.30 percent. Other bottom-three performers were materials and industrials.
Within the telecom services sector the best-performing stock was MetroPCS Communications, up 6.24 percent. Other top-three performers were Sprint Nextel. and AT&T.
Strengths
- Health care facilities was the best-performing group for the week, up 3 percent, led by the group’s single member Tenet Healthcare. The Centers for Medicare & Medicaid Services (CMS) announced that it was going to delay the Recovery Audit Prepayment Review demonstration that was scheduled to begin on January 1, 2012.
- The building products group outperformed by gaining 3 percent, led by the group’s single member, Masco. November pending home sales rose 7.3 percent from October compared to the consensus expectation of a 1.5 percent rise.
- The homebuilding group outperformed, rising 2 percent, also spurred by the November pending home sales report. Also, as reported on Friday of the prior week, sales of new U.S. homes rose in November to a seven-month high. All three members of the group (Pulte, D.R. Horton, and Lennar) increased.
- The casinos & gaming group gained 2 percent, led by group member International Game Technology, with Wynn Resorts also gaining. The U.S. Department of Justice eased its stance toward online gambling restrictions.
Weaknesses
- The household appliances group was the worst-performing group, led down 7 percent by its single member, Whirlpool Corp. The appliances manufacturer sold off after Sears reported that it will close up to 120 stores and that holiday same-store-sales were down 5.2 percent year-over-year. Whirlpool appliances are sold in Sears’ stores.
- The diversified metals & mining group lost 4 percent on weakness in Freeport- McMoRan Copper & Gold Inc. The firm settled a strike at its large Grasberg mine. The labor contract was extended for two years with a 24 percent base wage hike in year 1 followed by a 13 percent base wage increase in year 2.
- The office electronics group fell 4 percent as its single member Xerox declined.
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.
