U.S. Equity Market Radar (July 1, 2013)
The S&P 500 finished higher this week after dropping more than 2 percent last week on central bank policy fears. The traditionally defensive groups such as telecommunications and utilities bounced back strongly as they were the worst performers the prior week since they are viewed as bond proxies and moved with the bond markets.
Strengths
- The utilities sector rose roughly 3 percent this week in a broad-based rally. Macro factors are at work and virtually the entire group moved higher.
- The consumer discretionary sector was the second-best performer, as cable and media companies outperformed, largely driven by takeover speculation. Cablevision Systems and Time Warner Cable both rose by more than 10 percent while Comcast rose by more than 5 percent.
- Cablevision Systems was the best performer in the S&P 500 this week, gaining 12.43 percent. Liberty Media and Charter Communications are rumored to be interested in acquiring the company.
Weaknesses
- The materials sector was the worst performer this week, as agricultural and fertilizer companies were under selling pressure as corn-planted acres unexpectedly rose in the most recent USDA report, implying potentially lower prices for corn and lower fertilizer applications. CF Industries, Mosaic and Monsanto were among the sector’s worst performers.
- The technology sector also lagged this week as Apple fell 4.25 percent. Investors remain concerned regarding margins and various unit shipments. Apple is scheduled to report on July 24.
- Accenture was the worst performer in the S&P 500 this week declining 9.37 percent. The company reported lower-than-expected sales, and sales forecasts for the upcoming quarter were also short of analysts’ expectations.
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 so as to force the Federal Reserve to change course in the near term.
- Money flows are likely to find their 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 macro concerns could dominate for the next couple of weeks while the market waits for earnings.
- 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.
