U.S. Equity Market Radar (August 12, 2013)
The S&P 500 was down this week, with the materials sector being the only positive sector, up a modest 0.87 percent. Uncertainty surrounding the Federal Reserve’s quantitative easing (QE) program continues to weigh on investors’ minds.
Strengths
- The materials sector was the best performer this week as it responded to better economic data out of China, which remains a key driver for this sector. Both steel and mining industries were the best performers.
- In an otherwise down market, the consumer staples sector was able to outperform as Tyson rose 10 percent on a strong earnings report.
- Cliffs Natural Resources was the best performer in the S&P 500 this week, rising 18.32 percent as the company responded to better economic data out of China.
Weaknesses
- The telecom services sector was the worst performing sector this week as AT&T and Verizon Communications were weak for the second week in a row.
- The financial sector lagged as large banks and broker-dealers underperformed. Morgan Stanley, JPMorgan Chase and Goldman Sachs all fell by more than 3 percent.
- First Solar was the worst performer in the S&P 500 for the week, falling 13.28 percent. The company reported disappointing quarterly results.
Opportunity
- The current macro environment continues to be 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.
- Earnings have generally been well received as earnings season continues into next week.
Threat
- A market consolidation could occur in the near term after such a strong year.
- Higher interest rates are a threat for the whole economy. The Fed must walk a fine line and the potential for policy error is large.
- With much of the significant economic data out of the way, the focus will be on the Fed and whether it will taper in September.
