U.S. Equity Market Cheat Sheet (August 15, 2011)
The domestic stock market was volatile this week with the S&P 500 Index losing 1.72 percent. The figure below shows the performance of each sector in the index for the week. One sector managed a small increase, and the other nine sectors declined. The best-performing sector for the week was materials which increased 0.23 percent. Other top-three sectors were healthcare and technology. Financials was the worst performer, down 5 percent. Other bottom-three performers were energy and telecom services.
Within the materials sector, the best-performing stock was CF Industries Holdings, which rose 14.69 percent. Other top-five performers were Newmont Mining, Monsanto, Sigma-Aldrich, and Praxair.
Strengths
- The fertilizers & agricultural chemicals group was the best-performing group for the week, up 6 percent, led by CF Industries Holdings. The U.S. Department of Agriculture lowered its U.S. corn and soybean production forecasts sharply this week. This news was supportive of agricultural product prices and fertilizer equities.
- Three of the top-ten outperforming groups were real estate investment trusts (REITs). Residential, retail, and office REITs rose between 3 percent and 6 percent. At least two brokerage firms published reports pointing out that the spread between the dividend yield on REITs and the yield on the 10-year U.S. Treasury note is above the historical average spread, implying that REITs are attractive.
- The broadcasting group outperformed, gaining 5 percent. All three of the group members (CBS, Discovery Communications, and Scripps Networks Interactive) reported earnings the prior week which exceeded the consensus analysts’ estimates.
Weaknesses
- The education services group underperformed, losing 10 percent, led down by Devry. The for-profit educational firm warned that new student enrollment is lagging due to the economy, new government regulations regarding higher education, and an industry-wide reversion toward historical levels of enrollment after several years of exceptional enrollment growth.
- Several financial-related groups (regional banks, investment banking & brokerage, thrifts & mortgage finance, real estate services, and other diversified financial services) underperformed, falling from 8 percent to 11 percent.
- The construction materials group lost 10 percent, led down by its single member, Vulcan Materials. A major brokerage firm reiterated its “sell” rating on the stock, citing macro concerns and the uncertain impact of government spending on infrastructure continuing to weigh heavily on the stock.
Opportunities
- There may be an opportunity for gain in merger and acquisition (M&A) transactions in 2011. Corporate liquidity is high, thereby providing the means to pursue acquisitions.
Threats
- A mid-cycle slowdown in the domestic economy would be negative for stocks.
- An escalation in concerns over sovereign debt obligations in Europe would be negative for stocks.
