U.S. Equity Market Radar (October 7, 2013)
The S&P 500 was virtually flat for the week even as the market bounced around day-to-day. The federal government shutdown was the biggest news of the week, although the market decided this decision didnāt matter that much after all.
Strengths
- The healthcare sector was the best performer this week with Tenet Healthcare leading the way as the company closed its pending acquisition of Vanguard Health Systems. The stock rose 14.3 percent. St. Jude Medical and Edwards Lifesciences were also strong performers on talk of eliminating the medical device tax.
- The materials sector also rallied this week as fertilizer companies, such as Mosaic and CF Industries, rebounded. Chemicals were strong as well, as PPG Industries, Eastman Chemical and Lyondellbasell were all sector leaders.
Weaknesses
- The consumer staples sector was the worst performing group again this week, falling by roughly 1 percent. Weakness was seen in the beverage sector as Dr. Pepper, Snapple, Coca-Cola and Monster Beverage were among the worst performers.
- Industrials also lagged for the week as defense-related issues suffered on the government shutdown. Raytheon, Lockheed Martin, United Technologies and Northrop Grumman all fell by at least 3 percent.
- J.C. Penney was the worst performer in the S&P 500 for the second week in a row, falling 13.15 percent. Last week the company announced it was raising equity which dilutes existing shareholders by about 30 percent. The company was unable to shake liquidity or credit concerns this week.
Opportunity
- The current macro environment remains positive as economic data has been 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.
- The improving macro backdrop out of Europe and China could be the next catalyst for the market to move higher.
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 likelihood for policy error is potentially large.
- The debt-ceiling debate has captured investorsā attention this week and potential missteps in Congress could create uncertainty and offer short-term oriented investors a reason to sell.
