U.S. Equity Market Radar (January 30, 2012)
There are several signs that things are looking up for global markets. These two charts show momentum for U.S. stocks, especially small-caps, is improving. Throughout this Alert we have included charts showing how the momentum has shifted in many areas of global markets.
The domestic stock market as measured by the S&P 500 Index was basically flat for the week, rising a very modest 0.07 percent. Cyclical sectors continue to lead the way as basic materials, technology and industrials all posted gains for the week. More defensive areas, such as consumer staples and telecom services, fell for the week.
Strengths
- Within the basic materials sector, Eastman Chemical, U.S. Steel Corp. and Freeport-McMoRan rose sharply. Eastman Chemical agreed to buy Solutia in a deal that was well received by the market because it is expected to be immediately accretive.
- Within the technology sector, the biggest news of the week was Apple’s blowout quarterly earnings report as iPhone and iPad sales vastly exceeded expectations.
- Individual stocks that performed well this week include Netflix, First Solar and J.C. Penney. All three stocks rose by at least 18 percent this week.
Weaknesses
- In the telecom sector, both AT&T and Verizon reported earnings that were not well received this week. Smartphone-related costs and iPhone subsidies cut into the company’s margins.
- The office electronics industry group was the worst performer this week as Xerox reported disappointing fourth quarter earnings and weak 2012 guidance.
- The electronic components group was dragged down by Corning, which fell by more than 12 percent on expectations for weak glass prices.
Opportunities
- Earning results have been encouraging so far and the market has responded. Next week will be another heavy week of earnings announcements.
Threats
- An escalation in concerns over sovereign debt obligations in Europe would be negative for stocks.
