U.S. Equity Market Radar (August 19, 2013)

U.S. Equity Market Radar (August 19, 2013)

The S&P 500 fell sharply this week as quantitative easing (QE) tapering prospects regained momentum, and is now widely expected to begin in September. Economic data was mixed, but on balance was viewed as stronger than average. The potential for reduced stimulus along with the associated increase in interest rates weighed on the market.

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Strengths

• Every sector in the S&P 500 declined this week, but the technology sector was the best performer of the bunch as Apple rose by more than 10 percent on news of a prominent hedge fund manager taking a large stake in the company. The company also announced a new product release for September.
• Cyclical areas of the market were relative outperformers as rising real interest rates and a steeper yield curve potentially preclude better economic performance.
• Apple was the best performer in the S&P 500 this week as mentioned above, while Newmont Mining was the second best performer rising 9.73 percent. Gold rose sharply due to inflation concerns beginning to creep into the market.

Weaknesses

• The utilities sector was the worst performing sector this week falling 4.36 percent on rising interest rates.
• The consumer discretion sector lagged as a wide variety of companies fell by 5 percent or more. These companies include Macy’s, Expedia, Cablevision and AutoNation.
• TripAdvisor Inc. was the worst performer in the S&P 500 for the week, falling 12.29 percent. The company’s CEO stated at a conference that traffic growth was not as strong as expected and pricing was also a bit soft.

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.
• 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.