U.S. Equity Market Radar (November 18, 2013)
The S&P 500 rose again this week hitting the highest levels this year. The market rally was broad based with every sector posting gains for the week. All eyes were focused on Federal Reserve Chairman nominee, Janet Yellen who at her senate confirmation hearing reiterated her dovish outlook for monetary policy, which should continue to be a tailwind for equities.
Strengths
- The consumer discretion sector was the best performer this week led by retailers and home builders. Macy’s reported and beat expectations sending the stock up roughly 10 percent for the week. JC Penney also rose roughly 10 percent for the week as the stock continues to climb after a sharp sell off earlier in September and October. Homebuilding stocks also rose as DR Horton reported better than expected earnings results.
- The healthcare sector was also strong this week in a broad based rally. Outperformers included Forest Labs, Allergan and Actavis.
- Iron Mountain was the best performer in the S&P 500 this week rising 12 percent. The company’s attempt to convert to a Real Estate Investment Trust (REIT) structure is getting closer and the IRS could render a decision as soon as the end of the year.
Weaknesses
- The telecom services and utilities sectors were the worst performing groups this week but still rose for the week as defensive areas of the market just couldn’t keep up.
- The market exhibited broad based strength this week but areas of weakness included coal, agricultural products and steel.
- Denbury Resources was the worst performer in the S&P 500 this week, falling 8.84 percent. The oil and gas exploration company fell after revising its corporate strategy and announcing slower growth expectations.
Opportunities
- 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.
- The improving macro backdrop out of Europe and China could be the catalyst for a rally into year end.
Threats
- 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 potentially large.
- The debt ceiling and government shutdown has passed but the economic fallout will likely be felt over the next weeks and months as it negatively affects upcoming economic data releases.
