U.S. Equity Market Radar (January 21, 2013)
The market ended higher for the third week in a row as the quarterly earnings season began but will kick off in earnest next week. Cyclical areas outperformed, with energy, industrials and consumer discretionary leading the way, while telecommunications services was a notable laggard.
Strengths
- The energy sector led the way this week after lagging modestly last week. Oil rose nearly 2 percent this week, supporting the gains. Gains in the sector were broad-based with most stocks moving higher. Refiners led the way, followed by coal and oil & gas drillers.
- Industrials were strong this week in what was also a broad-based rally. General Electric reported earnings on Friday which exceeded expectations for both earnings per share and revenue. The stock rose nearly 3.5 percent on Friday.
- Dell was the best performer in the S&P 500 this week, rising 18.2 percent. The company is in discussions with private equity firms regarding a leveraged buyout to take the company private.
Weaknesses
- The telecommunications service sector was the worst performer for the second week in a row as AT&T reported a $10 billion charge for its pension plan and smartphone discounts.
- The technology sector underperformed even on the back of Dell’s strength. Index heavyweights such as Google, Apple and Intel were among the worst performers. Intel negatively surprised the market with a significant increase in its capital expenditure budget for 2013.
- Capital One Financial was the worst performer in the S&P 500 this week, losing 8.1 percent. The company reported earnings on Friday which missed analysts’ estimates. Revenue guidance for 2013 was also disappointing.
Opportunity
- The focus will be on earnings over the next few weeks, with Apple, Google, McDonald’s and Starbucks, among others, set to report next week.
- It appears Congress will kick the can a little farther down the road and pass temporary debt ceiling relief until mid-April.
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.
