U.S. Equity Market Radar (February 24, 2014)

U.S. Equity Market Radar (February 24, 2014)

The S&P 500 Index was virtually unchanged this week. The market bounced around in a narrow range without making much real progress. Health care led the way on the back of merger and acquisition (M&A) activity while financials trailed as some of the big banks experienced modest declines.

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Strengths

• The health care sector was the leader this week as generic drug maker Actavis agreed to acquire Forest Laboratories. Both stocks rose on the news with Actavis rising 13.8 percent and Forest Labs jumping 35.7 percent, posting the best performance in the S&P 500 this week.
• The utilities sector was not far behind with strong performances from Ameren and Public Services Enterprise. Both companies beat earnings expectations and rose by more than 5 percent for the week.
• Nabors Industries rose 21.6 percent this week. The company released quarterly earnings results, which were ahead of expectations, and is communicating enhanced visibility for its North American land drilling business.

Weaknesses

• The financials sector underperformed as index heavyweights Bank of America and Citigroup both fell by roughly 2.5 percent.
• The consumer staples sector was also a laggard as Coca-Cola fell 4.5 percent and Wal-Mart fell 3.5 percent on poor earnings results.
• US Steel was the worst performer in the S&P 500 this week, falling 8.19 percent. A U.S. Department of Commerce ruling on anti-dumping duties for tubular products was a disappointing development for domestic steel producers.

Opportunities

• The current macro environment remains positive as economic data is robust enough to give investors confidence in an economic recovery, but not so 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

• A short-term market consolidation period after such strong performance over the past six months cannot be ruled out.
• Higher interest rates are a threat for the whole economy. The Fed must walk a fine line and there is a large potential for policy error.
• A lot of good news potentially is priced into the market and the economy will need to deliver to maintain the positive momentum in the market.