U.S. Equity Market Radar (September 24, 2012)
The S&P 500 Index declined 0.38 percent this week, consolidating in the wake of the Federal Reserve’s decision to conduct open-ended quantitative easing via purchases of mortgage-backed securities and to keep interest rates exceptionally low through mid-2015 to boost employment. This week Japan followed bold policy actions of the European Central Bank and the Fed by expanding its own asset purchase programs to weaken the yen. So far we have observed concerted efforts by G3 countries to further expand the central bank balance sheet in a bid to stimulate economic growth.
Strengths
- The telecom sector rose 2.4 percent, the best performer, led by prepaid and postpaid wireless operators one week after Apple’s iPhone 5 release. MetroPCS and Sprint Nextel rose 9.4 percent and 7.4 percent, respectively, this week. Sprint’s CEO also predicted wireless industry consolidation in an investment conference.
- The healthcare sector was the second strongest performer this week, advancing 1.83 percent. Gilead Sciences was up 9.31 percent on positive survey reviews of its HIV single-tablet regimen. Tenet Healthcare climbed 7.29 percent on the prospect of improving hospital reimbursement rates from Medicaid.
- MetroPCS was the best performing stock for the week. The company, adding 300,000 LTE subscribers in the last two months, is launching voice over LTE service in all of its 14 markets in 4 to 6 months.
Weaknesses
- Cyclical sectors took a breather this week after surging last week in response to the open- ended quantitative easing announcement by the Fed. The financials, energy and materials sectors, the top three performers last week, ended up in the bottom three this week.
- The energy sector declined together with a more than 6 percent retreat in crude oil prices on comments that Saudi Arabia had raised production and speculation of a release in the U.S. strategic petroleum reserve ahead of the presidential election.
- Alpha Natural was the worst performer this week in the S&P 500, falling by more than 15 percent on concerns that the company’s credit ratings may be lowered by Standard & Poor’s due to closure of eight mines and production cuts.
Opportunity
- While debasing the value of their paper currency in the long term, renewed money printing in the developed world may have the ability to send asset prices higher in the near term.
Threat
- The market will now shift to earnings preannouncements and the upcoming elections, which could cause some volatility.
