U.S. Equity Market Radar (November 4, 2013)
The S&P 500 eked out a new high this week as defensive areas of the market reasserted themselves. The telecom, staples and healthcare sectors led the way, while materials and financials were the big relative losers this week.
Strengths
- The telecom service sector was the best performer this week as AT&T rose nearly 3 percent on speculation of a potential acquisition of Vodafone.
- The consumer staples sector also rallied as tobacco and drugstore companies posted good performance this week.
- J.C. Penney was the best performer in the S&P 500 this week rising 19.88 percent. Comparable store sales were down 4 percent versus expectations of a 6 percent drop, and third quarter revenue estimates increased modestly.
Weaknesses
- The materials sector was the worst performing group this week with mixed performance. MeadWestvaco fell by more than 10 percent on news that the company is selling a net $1.1 billion in timberland assets to Plum Creek Timber.
- The financial sector also lagged as real estate investment trusts generally fell, led by Plum Creek Timber.
- Avon Products was the worst performer in the S&P 500 this week, falling 16.92 percent. The company fell after posting disappointing earnings along with an announcement that government fines related to foreign bribery investigations may materially impact earnings.
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 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 catalyst for a rally into year end.
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.
- The debt ceiling and government shutdown have passed, but the economic fallout will likely be felt over the next weeks and months as they negatively affect upcoming economic data releases.
