U.S. Equity Market Radar (April 29, 2013)
The S&P 500 bounced back this week after suffering its worst losses of the year last week. Cyclicals rose this week and noncyclical areas were the laggards, which is a change from recent trends. We potentially could be at an inflection point, as defensive areas such as telecom, staples, healthcare and utilities have outperformed by a wide margin in recent months and mean reversion may kick in as expectations got too lofty for defensives and too gloomy for cyclicals.
Strengths
- The energy sector was the leader this week in a broad-based rebound. Outperformers included Newfield Exploration and Halliburton, which rose 11.7 and 9.0 percent, respectively, this week. Both companies responded positively to earnings announcements.
- The materials sector was not far behind as index heavyweights in the chemical space outperformed, such as Dow Chemical, Du Pont and LyondellBasell. All three companies reported earnings this week.
- Netflix was the best performer this week rising by nearly 32 percent. The companies earnings report was very well received as the company gained 2 million domestic subscribers and 1 million international subscribers.
Weaknesses
- The telecom services sector was the worst performer this week as AT&T fell 3.2 percent for the week on slowing revenue growth concerns and a reduction in its stock buyback program to ensure its credit rating.
- The consumer staples sector also fell as Proctor & Gamble, Clorox and Safeway all had disappointing earnings reports.
- Edwards Lifesciences was the worst performer in the S&P 500 this week, declining 22.8 percent as the company missed quarterly earnings expectations and lowered full year earnings and revenue forecast.
Opportunity
- The market is climbing that proverbial wall of worry and just shakes off any bad news.
- Global central banks are literally pulling out all the stops in an attempt to ignite economic growth.
Threat
- A market consolidation wouldnāt be a surprise after a strong start to the year.
- We remain in the middle of earnings reporting season and key names to watch next week are Mastercard and Visa which should provide good color on global economic activity. Pfizer, Merck and CVS Caremark also will be of interest, as any missteps from perceived defensive areas have been punished by the market this past week.
