U.S. Equity Market Cheat Sheet (January 10, 2011)

U.S. Equity Market Cheat Sheet (January 10, 2011)

The figure shows the performance of each sector in the S&P 500 Index for the week. Seven sectors increased and three decreased. The best-performing sector for the week was technology which rose 2.7 percent. Other top-performing sectors included healthcare and financials. The consumer staples sector was the worst performer, followed by telecom services and basic materials.

Within the technology sector, the best-performing stock was Motorola, up 14 percent. Other top-five performers were JDS Uniphase Corp., Hewlett- Packard, F5 Networks and SanDisk.

Strengths

• The casinos & gaming group was the best performing group, gaining 10 percent. Casino stocks that have casinos in Macau, such as index member Wynn Resorts, rose after gambling revenue in Macau surged 66 percent on a year-over-year basis in December.
• The automobile manufacturers group outperformed as the group’s only member, Ford Motor Co., was up 9 percent. General Motors also increased. U.S. sales of cars and light trucks rose 11.1 percent in December on a year-over-year basis.
• The homebuilding group outperformed, rising 9 percent. Construction spending in the U.S rose for the third-straight month in November. The 0.4 percent increase also beat the consensus forecast of 0.2 percent. The homebuilding outlays component rose 0.7 percent. Homebuilding stocks were also helped by the ADP Employer Services December jobs report, which showed new jobs almost three times what economists had forecast. A brokerage firm upgraded the stocks of D.R. Horton and Meritage Homes to “outperform” from “market perform.” On Friday, KB Home Corp. reported earnings which beat the consensus estimate.

Weaknesses

• The construction materials group was the worst performer as the group’s only member, Vulcan Materials, lost 9 percent. The stock sold off after Republicans in the U.S. House of Representatives voted to allow the House Appropriations Committee to restrain spending from the Highway Trust Fund.
• The general merchandise stores group underperformed, down 8 percent. Target declined after reporting same-store-sales increased 0.9 percent in December, far below the consensus estimate of 4.0 percent. The company said that strong grocery and apparel sales were offset by soft performance in electronics, toys and some home categories. Family Dollar Stores stock fell after the company reported first fiscal quarter earnings below the consensus estimate and provided a fiscal second quarter earnings forecast below the consensus.
• The gold group lost 7 percent as the group’s only member, Newmont Mining, fell as the price of gold declined for the week.

Opportunities

• There may be an opportunity for gain in merger & acquisitions (M&A) transactions in 2011. Corporate liquidity is high, thereby providing the means to pursue acquisitions.

Threats

• Should investors’ expectations for an improving economy not come to fruition in a reasonable time frame, it could be a threat to stock prices.
• The quantitative easing currently being implemented by the Federal Reserve may result in unintended consequences.