U.S. Equity Market Radar (December 16, 2013)
The S&P 500 Index fell this week in a broad-based sell off. This appears to be a normal correction after advancing for eight weeks in a row. Interestingly, cyclical sectors tended to outperform, while traditional defensive areas underperformed. Expectations of better global growth and higher bond yields are likely the cause of this phenomenon.
Strengths
- The materials sector was the best performer this week led by Dow Chemical, U.S. Steel and International Paper.
- The industrial sector also experienced relatively good performance, but was led by an eclectic group of stocks making it hard to generalize on industry drivers.
- Adobe Systems Inc. was the best performer in the S&P 500 this week, rising 9.51 percent. The company announced that its Creative Cloud web-based product was signing up customers at a faster pace than previously estimated.
Weaknesses
- The healthcare sector was the worst performer this week in a broad-based sell off. Laboratory Corp of America was the worst performer in the sector on a disappointing profit outlook. This news also dragged down Quest Diagnostics.
- The telecom and utilities sectors also fell this week, but it appears more related to general market weakness and a lack of investor interest in defensive areas of the market.
- Newfield Exploration was the worst performer in the S&P 500 this week, falling 11.62 percent. The company updated its three-year plan and investors were disappointed with the company’s production and capital investment program.
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 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.
Threats
- A market consolidation could occur in the near term after such strong performance year-to-date.
- 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 have passed but the economic fallout will likely be felt over the next weeks and months, negatively affecting upcoming economic data releases.
