U.S. Equity Market Radar (August 13, 2012)
The S&P 500 Index rose 1.07 percent this week as the equity market has rallied for five weeks in a row. It has been a choppy ride but the market is looking past the current economic weakness and focusing on expected government policy action. Cyclicals led the way this week with materials, energy and technology setting the pace. Defensive, lower beta sectors such as utilities and consumer staples were down for the week.
Strengths
- The materials sector was the best performer this week rising 2.83 percent driven by a rally in the steel and metals and mining areas. Standout performers included Freeport—McMoRan, U.S. Steel and Allegheny Technology.
- The energy sector also performed well with coal names particularly strong. Coal companies Consol Energy, Peabody Energy and Alpha Natural Resources all rose by more than 6 percent as interest in the space returns as the entire sector has been under tremendous pressure over the past year with many stocks in this space down 50 percent or more.
- Dean Foods was the best performer in the S&P 500 this week rising by 36 percent as the company announced it will spin off its organic and soy milk operation.
Weaknesses
- The utility sector lagged on what appeared to be sector rotation into more cyclical areas. Utilities have still outperformed over the past three months.
- Consumer staples also underperformed this week, likely due to sector rotation.
- Monster Beverage was the worst performer this week in the S&P 500, falling by nearly 19 percent. The company reported earnings that disappointed and the company announced it had received a subpoena relating to energy drink sales and promotion.
Opportunity
- The market remains focused on the potential monetary policy action from the European Central Bank (ECB) and China and is looking past the current economic weakness.
Threat
- While policy makers in Europe have made strides to stabilize the situation, many risks remain and the situation remains very fluid.
- The S&P 500 is now less than 1 percent away from the highs reached in April and is at a technical resistance level.
