U.S. Equity Market Radar (July 22, 103
The S&P 500 posted a 0.71 percent gain this week and has now risen for four weeks in a row after a bout of weakness in May and June. Federal Reserve chairman Ben Bernanke appeared to soften his tone again this week, giving the market hope that the Fed’s quantitative easing (QE) program won’t be reduced in September, as many currently expect. Earnings season is in full swing and that was definitely a driver this week with several high profile technology names disappointing, which led the sector lower in an otherwise strong market.
Strengths
- The industrial sector was the best performer this week as transportation stocks performed well and the index heavyweight General Electric rose 4 percent on an earnings report that was well received.
- The energy sector was also a strong performer this week as WTI crude oil rose 2.29 percent to 108.38. Oil service giant Schlumberger was the best performer this week rising 7.68 percent with most of that coming on Friday as the company reported earnings that indicated strength in virtually all segments of the business.
- Johnson Controls was the best performer in the S&P 500 this week rising 10.95 percent after the company reported a 32 percent profit, on a stronger auto segment and expected improvement in Europe.
Weaknesses
- Information technology was the worst performing sector this week on disappointing results from the index heavyweights. This included high profile earning misses by Microsoft, Intel and Google. Ebay also disappointed market expectations and was among the worst performers in the sector.
- Telecom services were also down for the week as Verizon was weak on lower profit margins.
- Microsoft was the worst performer in the S&P 500 for the week, falling 12.13 percent. The company reported disappointing earnings results on weak personal computer sales, and the company took a $900 write-down on Surface tablet inventory, highlighting the difficultly in transitioning away from PCs.
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 Fed 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.
- Earnings in the energy, financial and industrial areas have generally been well received over the past two weeks. Key names in those sectors reporting next week include, Halliburton, United Technologies and Boeing, to name a few.
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 likelihood for policy error is potentially large.
- Large technology companies have disappointed so far this earnings season and Apple is up to bat next week.
