U.S. Equity Market Radar (January 13, 2014)

U.S. Equity Market Radar (January 13, 2014)

The S&P 500 Index ended the week higher and shrugged off a weak jobs report on Friday. Health care and utilities led the way this week as investors embraced biotechnology stocks and medical device companies. Utilities rallied on Friday as Treasury yields dropped sharply after the weak payroll report.

click to enlarge

Strengths

• The health care sector was the best performer this week led by Forest Labs. The company rose by more than 15 percent as it announced its acquisition of Aptalis Pharma (a private company). Other strong performers included Intuitive Surgical, Boston Scientific and McKesson.
• The utilities sector was not far behind, rising by more than 2 percent. Most of the gains occurred on Friday, and virtually every constituent in the index was higher as Treasury yields fell sharply after a weak employment report.
• Forest Labs was the best performer in the S&P 500 this week rising 15.73 percent, but Constellation Brands was a close second, rising 15.36 percent. The company reported earnings on Wednesday that were well ahead of expectations and also raised its fiscal 2014 guidance.

Weaknesses

• The telecom services sector was the worst performer this week. AT&T fell by more than 3 percent as competition heats up with T-Mobile.
• The materials sector was also weak as Alcoa reported earnings that disappointed, while steel and base metals also sold off. Cliffs Natural Resources, US Steel and Freeport-McMoRan were among the worst performers.
• Bed Bath & Beyond was the worst performer in the S&P 500 this week, falling 13.10 percent. The company reported quarterly results that were shy of forecasts.

Opportunities

• 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 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.