U.S. Equity Market Radar (September 2, 2013)
The S&P 500 sold off this week as the threat of U.S. involvement in the Syrian conflict and possible regional geopolitical ramifications weighed on the market. Financials led the way down this week with regional banks among the worst performers, concerns of a slowing housing market was the likely culprit.
Strengths
- In a down week for the market, the energy sector was the best relative performer as concerns of a U.S. military strike on Syria and the potential for a wider conflict in the Middle East caused oil to spike mid-week and supported the sector.
- The telecom services and utilities sectors were both outperformers as defensive areas generally outperformed this week.
- Salesforce.com was the best performer in the S&P 500 this week rising 12.71 percent as the company reported better than expected second quarter sales and earnings results.
Weaknesses
- The financials sector was the worst performing sector this week falling by more than 3 percent. Rising mortgage rates have dampened the housing market in recent months and that trend continued this week with weaker housing data. This housing data, along with a flatting of the yield curve were the likely drivers of the decline in the sector.
- The industrials sector was also hit hard this week as Joy Global cut its revenue forecast for the upcoming 2014 fiscal year. Generally speaking, cyclicals underperformed this week on geopolitical uncertainty.
- Advanced Micro Devices was the worst performer in the S&P 500 for the week, falling 10.41 percent. The drop is in response to continued weak personal and notebook computer sales.
Opportunity
- The current macro environment continues to be positive as economic data remains robust enough to give investors confidence in an economic recovery but not too strong 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.
- An improving macro backdrop out of Europe and China could be the next catalyst for the market to move higher.
Threat
- A market consolidation could occur in the near term after such a strong year.
- 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.
- Seasonally September is one of the worst months of the year and volatility coming into the Federal Open Market Committee (FOMC) meeting in mid-September should be expected.
