U.S. Equity Market Radar (November 19, 2012)

U.S. Equity Market Radar (November 19, 2012)

The S&P 500 Index was down again this week, falling 1.45 percent. Concerns regarding the “fiscal cliff” and the potential tax and economic ramifications dominated trading this week. On Friday, we received some relief as “fiscal cliff” discussions between the White House and congressional leaders were initially constructive and gave the market hope that a resolution could be found before the end of the year.

Strengths

• At the sector level, all groups were down for the week but the consumer discretion sector was the best performer in a weak market. Within the consumer discretion sector, Abercrombie & Fitch and GameStop were the leaders, rising 29.7 percent and 15.6 percent, respectively. Abercrombie & Fitch reported earnings that were well ahead of street estimates as management’s turnaround efforts are showing traction. Gamestop announced the closing of 200 money-losing stores next year, which was well received. The company also announced the sale of more than one million copies of the new “Call of Duty” game, which is potentially the best initial game launch in the company’s history.
• The healthcare sector was also a relatively strong performer with the biotech area outperforming. Gilead Sciences was the leader, rising by more than 14 percent on the release of very favorable clinical trial results of an experimental Hepatitis C drug.
• Titanium Metals was the best performing stock in the S&P 500 this week as the company rose by 43.5 percent after Precision Castparts offered to buy the company for $16.50 in cash.

Weaknesses

• Cyclical areas were the hardest hit this week with industrials, materials and technology as the worst performers. Industrials experienced broad-based weakness with only a handful of stocks able to eke out gains. The materials sector was similar with weakness across the board.
• The technology sector saw weakness in bellwether names such as Microsoft, Dell and Hewlett-Packard.
• J.C. Penney was the worst performer in the S&P 500 this week, falling 21 percent. The company’s turnaround plan is moving slower than many expected and it appears it will get worse before it gets better.

Opportunity

• After a significant selloff, the market staged a potentially significant reversal on Friday, possibly allowing for at least a bounce in next week’s holiday-shortened trading sessions.

Threat

• The market is clearly focusing on the upcoming “fiscal cliff” and any delays or disappointments during the lame duck session will likely garner a negative response.