U.S. Equity Market Radar (September 17, 2012)

U.S. Equity Market Radar (September 17, 2012)

The S&P 500 Index rose 1.94 percent this week as the markets embraced additional Federal Reserve policy in the form of quantitative easing and a promise to keep interest rates exceptionally low through mid-2015. This follows last week, when the European Central Bank announced “unlimited” sovereign bond purchases out to three years for countries that meet certain conditions. We often cite government policy as a precursor to change and that has definitely been the case over the past week or so. These events allow the market to look beyond the current economic malaise and focus on improving fundamentals over the next 6-12 months.

Strengths

• The energy sector rose 4.06 percent, leading the way as the Fed sped up the printing presses. Commodities were strong across the board. Halliburton, Southwest Energy and Pioneer Natural all rose by more than 9 percent this week.
• Financials were also very strong this week, rising by 3.82 percent. Commercial real estate firm CBRE Group jumped by 15 percent and large banks such as Bank of America and Citigroup were up about 8.5 percent on the back of Fed easing.
• Alpha Natural Resources was the best performer in the S&P 500 for the second week in a row, rising by 23.91 percent. The stock continued the “bounce” that began last week as beaten down areas such as coal were among the week’s best performers.

Weaknesses

• Defensive sectors were the laggards again this week as the “risk on” trade roared back and sector rotation was the theme. Consumer staples fell 11 basis points while health care was modestly positive in a strong market.
• The utilities sector lagged for the fifth week in a row as the market continued to rotate into other areas.

• Monster Beverage was the worst performer this week in the S&P 500, falling by more than 7 percent on news of continued investigations into the safety, labeling and marketing of energy drinks in general.

Opportunity

• The market reacted very positively to this week’s Fed announcement, hitting a four-year high. The old saying, “Don’t fight the Fed” is probably appropriate here.

Threat

• The market will now shift to earnings preannouncements and the upcoming elections, which could cause some volatility.