U.S. Equity Market Radar (July 29, 2013)
The S&P 500 ended essentially flat for the week as earnings reports caused some choppiness. Earnings season is in full swing and that was definitely a driver this week as technology and housing related names disappointed as a group.
Strengths
- The healthcare sector was the best performer this week as earnings reports were well received. Boston Scientific, Celgene, Actavis, Eli Lilly, McKesson and Edwards Lifesciences all rose by more than 5 percent.
- The technology sector was also a strong performer this week, but there was significant bifurcation underneath the surface. The index heavyweight Apple rose 3.77 percent and was a significant driver of overall sector results. QUALCOMM also responded favorably to earnings, rising by more than 5 percent this week.
- TripAdvisor was the best performer in the S&P 500 this week rising 21.99 percent as the company’s earnings and revenues beat Wall Street’s expectations.
Weaknesses
- The industrial sector was the worst performing sector this week on disappointing results from Norfolk Southern, which dragged downed the rail stocks. Caterpillar also disappointed and fell by more than 4 percent for the week.
- The energy sector lagged as oil prices retreated from recent highs and midcap energy service companies generally disappointed.
- Expedia was the worst performer in the S&P 500 for the week, falling 26.75 percent. The company reported disappointing earnings results citing stiff competition in the online travel segment.
Opportunity
- The current macro environment remains positive as economic data is still 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.
- Earnings season rolls on next week with Pfizer, Merck, Amgen, Mastercard and Exxon Mobil all reporting.
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, so the Fed must walk a fine line. The likelihood for policy error is potentially large.
- Second quarter GDP is scheduled to be released next Wednesday, along with a Federal Open Market Committee (FOMC) meeting the same day. GDP estimates have been coming down in recent weeks and if the Fed sticks to its “tapering schedule” the market may react negatively.
