U.S. Equity Market Cheat Sheet (May 23, 2011)

U.S. Equity Market Cheat Sheet (May 23, 2011)

The figure below shows the performance of each sector in the S&P 500 Index for the week. Four sectors gained and six sectors declined. The best-performing sector for the week was energy which rose 0.85 percent. The other top sectors were consumer staples and utilities. Technology was the worst performer, down 1.52 percent. The other bottom performers were industrials and consumer discretion.

Within the energy sector, the best-performing stock was Newfield Exploration Co. which rose 6.89 percent. Other top performers were El Paso Corp., Range Resources Corp., Southwestern Energy Co., and QEP Resources Inc.

Strengths

• The building products group was the best-performing group for the week, up 8 percent, led by its single member, Masco Inc.
• The fertilizer and agricultural chemicals group was the second-best performer, gaining 4 percent. The stocks of both members of the group (Monsanto Co. and CF Industries Holdings Inc.) rose.
• The consumer finance group outperformed, rising 4 percent. The April master trust credit card filings data showed that both net credit losses and delinquencies on credit cards continued to decline. The stocks of American Express Co., Capitol One Financial Corp., and Discover Financial Services Co. increased for the week.

Weaknesses

• The specialty stores group was the worst performer, down 12 percent, led down by Staples Inc. The office supply firm reported quarterly earnings below the consensus estimate and it lowered its full-year outlook.
• The retail apparel group underperformed, losing 5 percent. Group member Gap Inc. sold off sharply after significantly lowering its fiscal year 2011 profit forecast, citing cost inflation caused by surging cotton prices and increased pay for workers who make clothes in China and other parts of Asia.
• The semiconductor equipment group declined 5 percent. A major brokerage firm lowered its rating on the group from “neutral” to “cautious,” citing looming excess supply because of recent strong capital expenditures. The report downgraded KLA Tencor Corp to “sell” from “neutral” and Applied Materials Inc. to “neutral” from “buy.”

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 on a reasonable timeframe, it could be a threat to stock prices.
• The end of quantitative easing currently scheduled by the Federal Reserve for the end of June might result in a weaker economy.
• The nuclear disaster in Japan creates uncertainty, which is not good for stock prices.