U.S. Equity Market Radar (January 16, 2012)
The S&P 500 Index was higher this week by 0.88 percent. For the second week in a row, the best-performing sector was basic materials which rose 3.93 percent. Energy was the worst-performer, down 1.24 percent. Within the basic materials sector, top performers included Eastman Chemical, Freeport-McMoRan Copper and Gold, and CF Industries. The worst performers in energy included Cabot Oil & Gas, QEP Resources and EQT Corp.
Strengths
- Diversified metals and mining, led by Freeport-McMoRan, was the best-performing group for the week, up 7.9 percent. Improving sentiment surrounding China’s economic prospects drove copper up 6.3 percent this week.
- The auto parts and equipment group outperformed by gaining 7.5 percent. The group was led by Borgwarner, which issued better than expected earnings guidance for 2012.
- The homebuilding group also outperformed rising 7.5 percent. The group was led by Lennar, which reported a 20 percent increase in new orders.
Weaknesses
- The tire and rubber industry group (Goodyear Tire) was the worst-performing group, down 10.9 percent. Goodyear Tire noted recent weakness in volume trends globally.
- The home entertainment software group lost 8.4 percent on weakness in Electronic Arts. The stock dropped on reports that U.S. video game sales dropped 21 percent in December.
- The coal group fell 5.5 percent as sharply lower natural gas prices put pressure on thermal coal pricing. Consol Energy declined 11 percent.
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.
