U.S. Equity Market Radar (October 15, 2012)
The S&P 500 Index fell 2.21 percent this week and posted the worst week since early June. The market fell on renewed European concerns as Spain’s bailout is on hold and various European officials made conflicting comments. The boost from the Federal Reserve’s recent quantitative easing announcement appears to have faded and investors are focused on third-quarter results which began to trickle out this week but were not generally well received. All sectors were lower for the week in a broad-based sell off.
Strengths
- The utility sector was the best performer this week falling 0.73 percent. In a “risk off” week the traditionally defensive sector outperformed.
- The energy sector registered the second-best performance this week, still falling by 1.57 percent. Coal, energy service and drillers outperformed as natural gas prices rose by nearly 6 percent this week.
- Peabody Energy Corp. was the best-performing stock in the S&P 500 this week as the company rose by nearly 15 percent. CONSOL Energy Inc., another coal producer, was the second-best performer as coal stocks rallied on strong natural gas prices.
Weaknesses
- The telecommunication services sector was the worst performer, falling 4.53 percent. The sell off was largely related to reports that SoftBank (a Japanese company) was in talks to buy Sprint Nextel, which could potentially pressure AT&T and Verizon.
- The consumer discretionary sector also underperformed as Dollar Tree gave disappointing guidance, which dragged down the entire discount store group. While the discounters were part of the story, the group experienced a broad-based sell off.
- Edwards Lifesciences Corp. was the worst performer this week in the S&P 500, falling by more than 19 percent as the company preannounced a third quarter revenue shortfall due to disappointing sales of a key device in Europe.
Opportunity
- While debasing the value of their paper currencies 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 announcements and the upcoming elections, which could cause some volatility.
