U.S. Equity Market Cheat Sheet (March 28, 2011)

U.S. Equity Market Cheat Sheet (March 28, 2011)

The figure below shows the performance of each sector in the S&P 500 Index for the week. All ten sectors increased this week. The best-performing sector for the week was energy which rose 4.08 percent. Other top-three sectors were technology and materials. Financials was the worst performer, up 0.50 percent. Other bottom-three performers were utilities and healthcare.

Within the energy sector the best-performing stock was Nabors Industries which rose 10.67 percent. Other top-five performers were Massey Energy, Valero Energy, EOG Resources, and Range Resources.

Strengths

• The electronic manufacturing services group was the best-performing group for the week, up 9 percent, led by Jabil Circuit. The firm reported second quarter earnings above the consensus estimate, and it provided third quarter earnings guidance greater than the consensus. The strong guidance helped mitigate concerns that the company’s business would be disrupted by effects of the Japanese earthquake and tsunami.
• The education services group outperformed, gaining 7 percent, with both members of the group (Apollo Group and DeVry) increasing. The Department of Education is expected to issue gainful employment regulations in late March or early April, and it appears that investors may be anticipating the rules to be softened from the original proposal.
• The diversified support service group was up 7 percent on strength in the stock of Iron Mountain. The data storage firm adopted a “poison pill” plan to fend off a hostile takeover by an activist investor.

Weaknesses

• The computer & electronics retail group lost 4 percent. The group’s largest member, Best Buy, sold off after providing earnings guidance below the consensus for the firm’s current fiscal year. It also forecast that same-store-sales over the next 12 months would be flat at best and could decline by up to 3 percent as U.S. consumers deal with high unemployment, a weak housing market and high fuel prices.
• The telecom wireless services group underperformed, down 3 percent, led down by Sprint Nextel. The wireless provider sold off following the announcement that AT&T had a contract to acquire T-Mobile USA. Some investors appeared to be concerned that Sprint might not have sufficient scale to compete with the enlarged AT&T and Verizon Communications.
• The other diversified financial services group declined 2 percent. Group member Bank of America declined after its request to increase its dividend was denied by the Federal Reserve Board.

Opportunities

• There may be an opportunity for gain in merger & acquisition (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 within a reasonable time frame, it could be a threat to stock prices.
• Quantitative easing currently being implemented by the Fed might result in unintended consequences.
• The nuclear disaster in Japan creates uncertainty, which is not good for stock prices.