U.S. Equity Market Radar (July 8, 2013)
The S&P 500 finished higher by 1.59 percent in a holiday-shortened week that ended with an upside surprise for the monthly non-farm payroll numbers, which came in at 195,000 new jobs versus consensus estimate of 165,000 new jobs in June. Cyclical sectors generally performed better than defensive sectors, led by consumer discretionary. Utilities suffered another loss as the yield on 10-year U.S. government bonds hit a 52-week high of 2.73 percent on Friday.
Strengths
- The consumer discretion sector led the S&P 500 this week, as cable and media companies outperformed once again, driven by continued takeover speculation.
- The S&P Automobiles and Components gained 4.29 percent this week after strong June car sales data showed U.S. car and light truck sales were 15.9 million on a seasonally adjusted annualized basis. This is 11 percent higher year-over-year, and the highest such print since November 2007. Ford gained 7.95 percent and Goodyear Tire gained 3.67 percent.
- Cablevision Systems was the best performer in the S&P 500 again this week up 14.27 percent following a gain of 12.43 percent last week, as the company continues to be discussed as an M&A target.
Weaknesses
- Utilities suffered another loss on the week as the yield on 10-year U.S. government bonds hit a 52-week high of 1.63 percent on Friday following a stronger-than-expected non-farm payrolls report.
- The consumer staples sector also fell behind the market with Mead Johnson down 12.50 percent for the week after the company guided for lower pricing in its China operations.
- The S&P Homebuilding Index dropped 4.13 percent this week with the rise in interest rates threatening the recovery in the housing sector.
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.
- Money flows are likely to find their way into domestic U.S. equities, and out of bonds and emerging markets, which should help the market find a floor.
Threat
- A market consolidation could continue in the near term, as macro concerns could dominate for the next couple of weeks while the market waits for earnings.
- Higher interest rates are a threat for the whole economy, the Fed must walk a fine line, and the possibility for policy error is potentially large.
