U.S. Equity Market Radar (September 16, 2013)
The S&P 500 posted a solid performance this week rising by nearly 2 percent. The S&P 500 crossed back above the closely watched 50-day moving average and is not far from the highs reached in early August. Economic data was mixed and earnings announcements were light, so all eyes were focused on the Federal Reserve and what it may or may not decide. The Fed announcement is scheduled for next Wednesday, holding the potential to act as a market driver no matter the decision.
- Cyclicals outperformed this week as the improving global growth story gains more traction. The industrials sector was the best performer as it experienced broad-based gains. Airline stocks were strong as Delta was added to the S&P 500 this week, rising nearly 13 percent. Southwest Airlines was also strong, rising by more than 6 percent.
- The consumer discretion and materials sectors were not far behind. Within consumer discretion, housing stocks were strong with Lennar, Pulte Group and DR Horton among the leaders for the week. Steel and fertilizer names were relative outperformers in the materials sector.
- Molex was the best performer in the S&P 500 this week rising 31.73 percent. The company is being bought by Koch Industries.
- The utilities sector was a relative underperformer as higher interest rates and less cyclical characteristics weighed on the shares.
- Energy was among the laggards as refiners were generally down for the week. Technology also lagged as Apple’s new iPhone release was underwhelming, with the stock falling by more than 6 percent.
- Urban Outfitters was the worst performer in the S&P 500 for the week falling 9.82 percent. The company disclosed in a regulatory filing that third quarter, same-store sales are running behind plan.
- 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.
- An improving macro backdrop out of Europe and China could be the next catalyst for the market to move higher.
- 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 likelihood for policy error is potentially large.
- Seasonally, September is one of the worst months of the year for domestic equities. Volatility coming into the Federal Open Markets Committee (FOMC) meeting in mid-September should be expected.