U.S. Equity Market Radar (February 3, 2014)
The S&P 500 Index ended the week modestly lower, falling 0.43 percent, in a volatile, choppy week. Earnings season has been mixed so far with some high-profile misses, such as Amazon.com. The interest-rate-sensitive utility sector was by far the best performer as interest rates continue to fall with global financial market volatility.
Strengths
- Utilities were strong across the board with 30 of 31 names in the S&P 500 Utilities Index higher for the week. The utilities sector was the best performer in January, with most of that gain occurring this week.
- Health care also outperformed this week continuing a year-long trend. This week saw strong performance from the health-care technology and life-science tools industries.
- Alexion Pharmaceuticals was the best performer in the S&P 500 this week, rising 18.77 percent. The company released quarterly earnings results which were ahead of expectations. The company also completed its move of operations to Ireland, which should significantly lower its tax burden in 2014.
Weaknesses
- The consumer staples sector was the worst performer this week with weakness in several bellwether names. Altria Group and Philip Morris were among the worst performers, along with Procter & Gamble, Kellogg and Coca-Cola.
- The energy sector was also weak as bellwether names such as Exxon Mobil and Chevron had earnings disappointments. The offshore service and drilling names also were weak.
- ADT was the worst performer in the S&P 500 this week, falling 22.54 percent. The company announced disappointing quarterly results with both earnings and revenue falling short of expectations due to higher customer churn and fewer customer adds during the quarter.
Opportunities
- The current macro environment remains positive as economic data is robust enough to give investors confidence in an economic recovery, but not too strong as to force the Fed 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
- Last week could have marked the beginning of a short-term market consolidation period after such strong performance over the past six months.
- Higher interest rates are a threat for the whole economy. The Fed must walk a fine line and the potential for policy error could be large.
- A lot of good news may be priced into the market and the economy will need to deliver to maintain the positive momentum in the market.
