U.S. Equity Market Radar (June 3, 2013)
The S&P 500 finished down for the second week in a row, falling 1.14 percent. The traditionally defensive groups continue to be hit the hardest with dividend paying stocks being sold across the board as treasury yields begin to rise. We highlighted the beginning of this rotation about a month ago as cyclicals began their outperformance.
Strengths
- The technology sector was the leader this week with a diverse set of companies experiencing gains. First Solar, Applied Materials and EMC Corp. were the best performers and all rose by more than 4.5 percent.
- The financial sector was the second best performer, led by Morgan Stanley, CME Group and MetLife. Insurance companies and the large banks generally performed this week as higher interest rates at this point are still viewed as positive developments.
- Newmont Mining was the best performer in the S&P 500 this week gaining 7.23 percent. Broadly speaking gold stocks rallied this week as the dollar weakened and downside volatility returned to the market.
Weaknesses
- The telecommunication sector was the worst performer this week, as interest rate sensitive areas of the market sold off sharply.
- The consumer staples sector also underperformed largely for similar reasons mentioned above.
- Cliffs Natural Resources was the worst performer in the S&P 500 this week declining 11.44 percent as iron ore prices accelerated their recent price decline this week.
Opportunity
- Germany pulled an about face and is now comfortable with less European fiscal austerity and is even offering to support its southern neighbors.
- Lower food and energy prices globally are helping to keep a lid on inflation, a blessing for global central bankers pondering further accommodation of monetary policy.
Threat
- A market consolidation could continue in the near term, as the S&P 500 kept trending higher beyond its all time record for a month defying the proverbial “Sell in May” seasonal pattern.
- The U.S. dollar is lingering around its three-year high, which may translate into lower earnings for S&P 500 companies going forward since around 50 percent of S&P 500 earnings are made from overseas.
