U.S. Equity Market Radar (July 30, 2012)
The S&P 500 Index rose 1.71 percent this week as the equity market shrugged off weak earnings reports and focused on potential monetary policy easing from both the Federal Reserve and European Central Bank (ECB), which could come as early as next week. The telecom services sector led the way, followed by financials and industrials. The materials sector was the only sector in negative territory for the week.
Strengths
- The telecommunication services sector was the best performer this week rising 4 percent, driven by much-better-than-expected earnings reports from MetroPCS Communications and Sprint Nextel. MetroPCS was the best performer in the S&P 500, rising by more than 40 percent.
- The financial sector was predominately led higher by the investment banks and brokerage stocks, which were among the worst performers last week. JPMorgan Chase, Goldman Sachs, Morgan Stanley and Citigroup all rose by more than six percent.
- The industrial sector also performed well as key stocks outperformed, including Caterpillar and General Electric.
Weaknesses
- The materials sector lagged as Dow Chemical disappointed along with Vulcan Materials. Cliffs Natural Resources was the worst performer in the group on continued weak iron ore prices.
- Other areas that were weak included education services, casino and gaming, construction materials, and coal.
- DeVry, the for-profit education company, was the worst performer, falling 29 percent as the company warned of higher costs and declining enrollment.
Opportunity
- The market shifted its focus from earnings to central bank policy late in the week and that should be the focus next week as we could see action from the Fed, the ECB or both.
Threat
- While policy-makers in Europe have made strides to stabilize the situation, many risks remain and the situation remains very fluid.
- China recently cut interest rates for the second time in a month, which likely indicates that conditions on the ground remain challenging.
