U.S. Equity Market Radar (July 2, 2012)
The S&P 500 Index rose 2.03 percent this week on the back of a huge rally on Friday. Two noteworthy events this week included the Supreme Court ruling on healthcare legislation announced on Thursday, which the market negatively reacted to, and the EU Summit conclusion on Friday, which provided the market a positive surprise relative to low expectations. Key proposals of the EU Summit include the establishment of a single supervisory body for eurozone banks and the allowance for direct bailout of banks, essentially back stopping the banks and likely holding the Euro together if the details can be worked out. This was a major catalyst for the market which had become accustomed to being disappointed by European leaders.
Strengths
- The energy sector rocketed 4.8 percent higher this week as oil rose by 6.5 percent. Much of this week’s move came on Friday when crude oil rose by more than 9 percent. Stocks that had been beaten up the most tended to be the ones that rallied the most.
- The materials sector rose 2.8 percent with leadership from construction materials, steel and fertilizer names.
- Homebuilders were also among the best performers for the week as Lennar reported strong quarterly results and housing data continues to be better than expected.
- The best individual stock performer this week was Constellation Brands which rose 39.7 percent as the company bought the other half of its joint venture with Grupo Modelo, giving the company sole distribution of Modelo’s brands in the U.S. including Corona.
Weaknesses
- The technology sector lagged as tech heavyweights such as Intel, Hewlett-Packard and EBay all fell for the week.
- Retailers and related names also tended to struggle this week as disappointing earnings guidance from O’Reilly Automotive appeared to begin a negative cascade that took down several high flying stocks such as Chipotle Mexican Grill and Ross Stores.
- Managed care companies were negatively impacted by the Supreme Court ruling upholding the Affordable Care Act as Wellpoint, Coventry Health and Aetna were among this week’s worst performers.
Opportunity
- With the Fourth of July holiday in the middle of the week next week, expect muted trading activity. However, the European Central Bank is expected to cut interest rates on July 5 and unemployment data will be released next Friday.
Threat
- Europe positively surprised the market this week but the threat remains that the EU Summit proposals will be unable to be implemented in a timely fashion.
