U.S. Equity Market Radar (January 6, 2014)
The S&P 500 Index entered 2014 with a whimper, falling for the week as most sectors were lower. After such a strong year and strong finish to 2013, giving back a little this week was not completely unexpected.
Strengths
- The financial sector was the best performer this week, led by Bank of America which rose by nearly 5 percent on the back of a broker upgrade. Other large banking and capital market related names were also strong, such as Citigroup and Morgan Stanley.
- The consumer discretion sector broke even this week in predictably mixed trading. H&R Block, Urban Outfitters and Wynn Resorts all rose by about 2.5 percent, while other high profile names in the group were lower, such as Priceline and Starbucks.
- Delta Air Lines was the best performer in the S&P 500 this week, rising 8.14 percent. The company reported its December operating and financial performance on Friday, which positively surprised the market.
Weaknesses
- The energy sector was the worst performer this week as oil prices fell 6 percent, the U.S. dollar was stronger, and a fiery oil-related train derailment in North Dakota didn’t help sentiment either.
- The utilities and telecom services sectors were also among the worst performers as interest rate sensitive areas of the market continue to struggle.
- Pioneer Natural Resources was the worst performer in the S&P 500 this week, falling 6.15 percent. Energy names generally were among the worst performers this week.
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 aggressively 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 economic situation could possibly drive equity prices well into 2014.
Threats
- A market consolidation could occur in the near term after such strong performance.
- 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.
- A lot of potentially good news is priced into the market and the economy will need to deliver to maintain the positive momentum in the market.
