U.S. Equity Market (February 18, 2013)

U.S. Equity Market (February 18, 2013)

The market was essentially flat for the week, digesting recent earnings reports while economic data was generally as expected. There has been some increased volatility under the surface with certain companies exhibiting large moves in either direction, which is a trend that should be closely monitored.

Strengths

• The industrials sector led the way this week with broad-based strength. Leaders included rails names such as CSX and Norfolk Southern as well as the industrial supply companies Fastenal and WW Grainger. Masco rose by more than 12 percent and was the best performer in industrials as the company reported a solid quarter and expected a strong home construction market in 2013.
• Financials were also strong this week as Moody’s and McGraw-Hill bounced back after big losses the week before.
• Constellation Brands was the best performer in the S&P 500 this week, rising 36.2 percent. The company will gain full control over the Corona beer and Modelo brands in the U.S. and will also acquire a brewery in Mexico as part of the AB InBev acquisition of Modelo. This deal was reached in an effort to gain anti-trust approval and was very favorable to Constellation Brands.

Weaknesses

• The telecom services sector was the worst performer as CenturyLink fell by more than 20 percent after the company cut its dividend, which surprised investors.
• The energy sector also underperformed as exploration and production companies led the way down. Energy has been a strong performer this year, and this may be simple profit taking.
• Cliffs Natural Resources was the worst performer in the S&P 500 this week, losing 20.9 percent. In a surprise move, the company cut its dividend and announced a dilutive equity issuance to shore up the company’s balance sheet.

Opportunity

• Housing and inflation data will be reported next week, and if recent trends continue to hold, then those events could be a positive catalyst for the market.

Threat

• After the best January in more than 20 years, a pullback would almost be expected.