U.S. Equity Market (December 10, 2012)
The S&P 500 Index rose modestly this week but has strung together gains for three weeks in a row. Financials were the standout leader this week, while materials and technology lagged.
Strengths
- Financials rallied this week as mega cap financials such as Citigroup, Bank of America and JP Morgan gained. Insurance companies also posted a strong week, likely bouncing back from weakness related to Hurricane Sandy.
- The industrials sector also rallied this week, likely driven by building positive sentiment toward a Chinese economic recovery and optimism toward a global economic recovery in 2013.
- Seagate Technology and Western Digital were the best performing stocks in the S&P 500 this week, up 12.87 and 12.44 percent respectively. Both stocks are in the hard disk drive industry and presented at a conference this week. Speculation of industry consolidation and supply discipline were the most likely reasons the stocks rose sharply.
Weaknesses
- The materials sector was the worst performer this week driven lower by Freeport-McMoran, which fell 18.74 percent. The company announced a dilutive acquisition of two related energy companies and the market reacted negatively to perceived corporate governance issues and lack of obvious synergies.
- The technology sector also underperformed with Apple falling 8.92 percent pulling the sector lower. There was considerable speculation on what the driver of the decline was, but with capital gains taxes likely headed higher next year some tax planning was probably involved and contributed to the recent selling.
- Freeport-McMoran was the worst performing stock in the S&P 500 this week as discussed above. Darden Restaurants was the second worst performer, down 11.76 percent. The company, which owns Olive Garden and Red Lobster, gave a profit warning for the quarter and cut estimates significantly.
Opportunity
- The market has been resilient even as the fiscal cliff remains uncertain, giving hope the market can continue its historical seasonal strength into year end.
Threat
- Lots of economic data noise due to Hurricane Sandy that will likely depress reported economic results for November.
