U.S. Equity Market Radar (August 6, 2012)

U.S. Equity Market Radar (August 6, 2012)

The S&P 500 Index rose 0.36 percent this week as the equity market shrugged off initially disappointing news from both the Federal Reserve and European Central Bank (ECB). The market rallied strongly on Friday to erase losses from earlier in the week. It appears the market also negatively reacted to the news that Knight Capital lost $440 million in a mini “flash crash” for the firm caused by a software glitch. By Friday, the company was able to secure short-term financing to continue trading and this appeared to be a relief to the market.

Strengths

• The technology sector was the best performer this week rising 1.52 percent driven by a stealth rally in Apple which rose by more than 4 percent this week, along with healthy performances from Teradata, Microchip Technologies and Cisco.
• The financial sector was once again near the top of the performance charts with solid performances from the insurance companies as Metlife, Lincoln National, Prudential and Allstate all reported earnings this week that were well received by the market.
• Frontier Communications was the best performer in the S&P 500 this week, rising by 18 percent on better than expected second quarter results and an improving outlook.

Weaknesses

• The healthcare sector lagged as managed care companies and healthcare distributors sold off sharply on disappointing quarterly results. Within the managed care industry group, Humana dropped more than 11 percent and in the distribution space, Cardinal Health fell by more than 7 percent.
• Utilities also underperformed this week, bucking a recent positive trend for the sector.
• Abercrombie & Fitch was the worst performer in the S&P 500 this week. The stock hit a three-year low as the company slashed its full-year earnings outlook by almost a third.

Opportunity

• The market shifted its focus from earnings to central bank policy last week and that shift will likely dominate the price action for the next several weeks.

Threats

• While policy makers in Europe have made strides to stabilize the economic situation, many risks remain and the situation remains very fluid.
• The head of the ECB, Mario Draghi, stated that the ECB will do whatever it takes to save the euro. However, it appears all is not under his control and policy makers in Germany may not allow for the policies the central bank believes the economy needs.