U.S. Equity Market Radar (January 9, 2012)

U.S. Equity Market Radar (January 9, 2012)

The domestic stock market as measured by the S&P 500 Index was higher this week by 1.67 percent. The best-performing sector for the week was materials which rose 3.82 percent. Telecom services was the worst-performer, down 2.73 percent.

Something that may have flown under the radar of many investors is the recent outperformance of the regional banks. The large money center banks tend to get all the attention in the media and most of that attention has been negative. Yet over the past few months regional banks have outperformed and this is one more positive confirming factor that the economy may be in better shape than many investors currently believe.

Strengths

• Fertilizer and agricultural chemicals was the best-performing group for the week, up 8.9 percent, led by Monsanto. Monsanto reported earnings this week and beat estimates on strong demand for genetically modified seed corn.
• The building products group outperformed by gaining 8.8 percent, led by the group’s single member, Masco Corp. November construction spending rose 1.2 percent and there is renewed hope that housing is finally turning the corner.
• The auto manufacturing group outperformed, led by the group’s single member, Ford. Ford rose 8.8 percent on strong industry-wide December auto sales. Ford’s sales rose 10 percent.

Weaknesses

• The wireless services industry group was the worst-performing group, down 6.7 percent as MetroPCS Communications fell 7.6 percent. The stock fell on disappointing fourth quarter subscriber growth.
• The home entertainment software group lost 4.4 percent on weakness in Electronic Arts. The stock dropped on concerns its new massive multi-player online game “Star Wars: The Old Republic” was not sustaining its early momentum.
• The general merchandise group fell 3.8 percent as Family Dollar declined 7 percent. Family Dollar reported earnings that essentially met expectations but concerns around narrowing gross margins drove the stock lower.

Opportunities

• U.S. economic data remains surprisingly strong and increases the odds that economic momentum can be maintained.

Threats

• An escalation in concerns over sovereign debt obligations in Europe would be negative for stocks.