U.S. Equity Market Radar (June 10, 2013)
The S&P 500 finished higher this week after two down weeks and a modest 5 percent correction. The traditionally defensive groups bounced back this week even as treasury yields moved higher. A key data point out this week was nonfarm payrolls, which increased by 175,000 and was more or less in line with expectations. This was enough encouragement for the market to rally nicely on Friday in a classic “Goldilocks” situation, not too hot and not too cold.
Strengths
- The telecommunication services sector was the leader this week with AT&T and Verizon both bouncing back after a sharp sell-off in those names the past two weeks.
- The consumer staples sector was the second-best performer, also bouncing back from recent poor performance. Campbell Soup, Walgreen and Coca-Cola were all strong performers.
- Monster Beverage was the best performer in the S&P 500 this week, gaining 12.88 percent. At the company’s annual meeting this week, the CEO indicated that the company’s sales were improving. The company has recently received a fair amount of negative publicity regarding the health effects of energy drinks in general.
Weaknesses
- The materials sector was the worst performer this week. The sector was only modestly lower overall with weakness seen in household names such as Alcoa and US Steel.
- The technology sector lagged this week and was essentially unchanged for the week.
- Iron Mountain was the worst performer in the S&P 500 this week, declining 19.22 percent. The company plans to convert to a real estate investment trust, but the IRS is questioning their eligibility.
Opportunity
- The current macro environment remains positive as economic data remains robust enough to give investors confidence in an economic recovery, but not too strong as to force the Federal Reserve to change course in the near term.
- The market pulled back 5 percent and bounced right on cue as it has done all year.
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.
- Mortgage rates rose above 4 percent this week and if housing were to slowdown or pause for a period of time that could be a significant drag for both the real economy and the markets.
