U.S. Equity Market Radar (January 28, 2013)
The market ended higher for the fourth week in a row as the market grinds higher, even in the face of some disappointing earnings results. The Apple earnings announcement and trading was the key event of the week. Apple disappointed and the stock suffered falling 12 percent this week. When a high-profile stock like Apple disappoints and the market shrugs it off and moves higher the market is in full-blown bull mode. The market was strong across the board except for technology which was dragged down by Apple’s results.
Strengths
• The discretion sector led the way this week with strength in internet retailers such as Netflix, Priceline.com, Expedia and Amazon. Netflix rose an amazing 71 percent this week after the company unexpectedly reported a profit, and gained more customers than expected. Unsurprisingly, Netflix was the best performing stock in the S&P 500 this week.
• Financials were also strong this week in what was also a broad-based rally. AIG, Bank of America and State Street Corp. were among the best performers. The market appears to be a believer in the economic recovery story and it is being reflected in economically sensitive areas.
• Advanced Micro Devices was the second-best performer in the S&P 500 this week rising 15.8 percent. The company reported earnings that beat expectations, and while the company still has hurdles to overcome the worst may be behind it.
Weaknesses
• The technology sector was the worst performer as Apple’s guidance for next quarter disappointed. The company faces increasing margin headwinds and stiff competition, and without an obvious new product that will move the needle, the stock sold off.
• Other notable decliners this week included Joy Global, McCormick, Hasbro and Cliffs Natural.
• Coach was the worst performer in the S&P 500 this week losing 17.1 percent. The company reported earnings on Wednesday which missed analysts’ estimates. The company was also more cautious in its second-half outlook, seeing single-digit sales growth and flat North American comps.
Opportunity
• The focus will remain on earnings next week, with Caterpillar, Pfizer, Amazon and Qualcomm, just to name a few, all set to report next week.
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.
