U.S. Equity Market Radar (July 16, 2012)
The S&P 500 Index rose 0.16 percent this week driven by a strong rally on Friday as Chinese GDP was in line with expectations and earnings from JP Morgan were well received after recent intense attention surrounding a recently acknowledged trading loss. Along with financials, defensive areas such as utilities and healthcare tended to outperform.
Strengths
- The financial sector was the best performer rising 1.62 percent with J.P. Morgan rising 6.4 percent as the company reported earnings on Friday that were well received by the market.
- The utility sector wasnât far behind with broad-based gains as 30 of 31 S&P 500 constituents rose for the week.
- The best individual stock performer this week was Diamond Offshore which rose 7.57 percent. Other deepwater offshore drillers were also strong on reports of increased rig tender activity and the signing of a deep water contract by Noble Corp. at attractive levels.
Weaknesses
- The technology sector lagged as negative preannouncements from Lexmark International, Applied Materials and Advanced Micro Devices. In addition, Acer (the worldâs third largest computer maker) cut its 2012 PC shipment forecast.
- The materials sector also lagged as Freeport-McMoRan fell by more than 5 percent on China slowdown concerns and Alcoa falling by 3.65 percent on disappointing earnings results.
- Lexmark International was the worst performer this week, falling by more than 24 percent as the company preannounced second quarter results and reduced forecasts due to weaker demand in Europe.
Opportunity
- We saw additional monetary easing this week with rate cuts from Brazil and South Korea after a barrage of activity last week with rate cuts from the European Central Bank (ECB) and Bank of China, along with more quantitative easing from the Bank of England. These government policy actions are positive for the equity markets and risky assets in general.
Threat
- While policy makers in Europe have made strides to stabilize the economic situation, many risks remain and the situation remains very fluid.
- China has now cut interest rates for the second time in a month, which likely indicates the conditions on the ground remain challenging.
