U.S. Equity Market Radar (August 20, 2012)
The S&P 500 Index rose 0.87 percent this week, as dormant news flow from Europe proved a relief to developed markets in general. Trading volume has been characteristically anemic in the summer heat, but investors have not given up hope on potential policy change ahead of the Federal Reserve Chairman’s Jackson Hole speech at the end of the month. Cyclical areas continued to exhibit strength this week with technology, discretion, and financials leading. Defensive sectors including utilities, telecom, and healthcare were laggards for the week.
Strengths
- The technology sector was the best performer this week, rising 2.3 percent driven by a rally in communication equipment and internet software and services. JDS Uniphase, Cisco, Ebay, and Google were among the best performing names.
- The discretion sector also performed well with housing-related names particularly strong. Both PulteGroup and The Home Depot rose around 7 percent as U.S. building permits surprised on the upside in July with a 6.8 percent sequential jump.
- Sears was the best performer in the S&P 500 this week rising by 15.7 percent as its second quarter loss narrowed due to lower inventory costs.
Weaknesses
- The utilities sector lagged as rotation into more cyclical areas continued for the week. Utilities also became the worst performing sector over the past three months.
- Telecom also underperformed this week, in synch with a change in risk preference.
- Staples, Inc. was the worst performer in the S&P 500 this week, falling by more than 15 percent. The company reported lower-than-estimated sales for the second quarter and lowered annual sales and earnings guidance citing slower growth in the U.S. and sluggish demand in Europe.
Opportunity
- The market is looking past the current economic weakness and remains focused on the potential monetary policy action from the Fed, the European Central Bank (ECB), and China.
Threat
- The S&P 500 has almost reached its April high, a technical resistance level, and could be vulnerable to any disappointments from global central bankers.