U.S. Equity Market Radar (June 24, 2013)

U.S. Equity Market Radar (June 24, 2013)

The S&P 500 finished down more than 2 percent this week on central bank policy fears as the Federal Reserve and Ben Bernanke reaffirmed the likely reduction in the current quantitative easing (QE) program in the next few months. The traditionally defensive groups such as telecom and utilities were the worst performers this week as they are viewed as bond proxies and bonds sold off very hard this week.

click to enlarge

Strengths

• All sectors were in the red this week, the energy sector was the best of a bad bunch. While oil prices were down for the week, oil prices remain in the middle of the trading range that we have seen for the past year.
• The financials sector was the second best performer, as many banks and insurance companies could benefit from a steeper yield curve, which steepened considerably this week.
• Micron Technology was the best performer in the S&P 500 this week, gaining 8.93 percent. The company reported earnings this week, beating expectations and raising guidance, along with reaffirming strong macro tailwinds for the company.

Weaknesses

• The telecom services and utilities sectors were the worst performers this week, as both areas were hit hard by the selloff in bonds this week, as they are viewed as bond proxies.
• The materials sector also lagged this week on broad-based weakness. Some manufacturing data out of China this week was disappointing, pointing to continued weak top line growth for many companies in the sector.
• Whirlpool was the worst performer in the S&P 500 this week declining 12.32 percent. The company sold off due to concerns over the effects rising interest rates will have on housing activity and appeared to trade in sympathy with the homebuilders who were also among the worst performers for the week.

Opportunity

• The current macro environment remains positive as economic data remains robust enough to give investors confidence in an economic recovery, but not too strong as to force the Fed to change course in the near term.
• Money flows are likely to find there way into domestic U.S. equities and out of bonds and emerging markets, which should help the market find a floor.

Threat

• A market consolidation could continue in the near term, as the S&P 500 kept trending higher beyond its all time record for a month defying the proverbial “Sell in May” seasonal pattern.
• Higher interest rates are a threat for the whole economy. The Fed must walk a fine line and the potential for policy error is potentially large.