U.S. Equity Market Radar (January 7, 2013)
The market roared back this week as policy makers were able to avert the fiscal cliff with a collective sigh of relief. The S&P 500 had its best week since December 2011, rising by 4.57 percent.
Strengths
- Every sector in the S&P 500 rose sharply this week with cyclical areas leading the way. The energy sector was the best performer, rising 5.47 percent this week, bouncing back from a poor performance last week. Oil rose 2.5 percent this week and positive manufacturing data out of China were the drivers.
- Financials were also strong, just trailing energy for the week. There also was broad-based strength in banks and insurance companies.
- Avon Products was the best performer in the S&P 500 this week rising 15.09 percent. The company was recently able to amend a credit facility covenant and also begun a restructuring program.
Weaknesses
- In a very strong week for stocks, there were a few negative outliers. UnitedHealth Group fell by more than 3 percent as a broker downgraded the stock on expectations of shrinking margins in 2013.
- Watson Pharmaceutical fell by more than 4 percent as a competitor unexpectedly announced approval of generic Concerta.
- Family Dollar Stores was the worst performer in the S&P 500 this week falling 9.65 percent. The company reported earnings that missed estimates and issued downside guidance for the current quarter and full year. The company cited gross margin pressure and increased expenses.
Opportunity
- With the fiscal cliff behind us, focus will begin shifting to earnings over the next few weeks. Alcoa, Monsanto and Wells Fargo report next week and will kick off this earnings season.
Threat
- The dysfunctional political process brings little hope for the U.S. to regain its AAA credit rating and more credit downgrades are possible if Washington remains acrimonious.
