U.S. Equity Market Radar (December 2, 2013)
The S&P 500 Index set another post-financial crisis high of 1,807 mid-week and finished the week slightly up by 0.06 percent. Positive economic data during the week offset concerns about taper-timing of the Federal Reserve’s stimulus program, as weekly jobless claims fell to the lowest level since September and the LEI Index came in better-than-expected. To date, the S&P 500 is up over 160 percent since the market bottomed in March of 2009 at the depths of the financial crisis.
Strengths
- Tech stocks were the strongest sector this week led by the hardware and equipment group. The top performer in the S&P 500 was JC Penney, as news that the CEO purchased $1 million of its shares helped boost sentiment on the stock.
- Consumer discretionary stocks were also notable performers, led by luxury brands such as Tiffany & Co which posted strong third-quarter earnings as well as Coach.
- Industrial sector stocks took a breather this week and finished flat. Stronger performers included Nielsen Holdings, Textron and Ingersoll-Rand, led by a better-than-expected LEI index report for October.
Weaknesses
- The energy and utilities sectors were among the worst performers as crude oil prices fell about $2 per barrel to a multi-month low of $92.78.
- The materials sector also fell more than 1 percent as investors booked profits in strong second-half year performers Freeport McMoRan and Cliff Natural Resources.
- ADT Corp was the worst performer in the S&P 500 this week falling 7.84 percent. The home security provider announced that its third largest shareholder, Corvex Management LP, would sell its stake in the company and that Corvex’s founder Keith Meister had resigned from ADT’s board of directors.
Opportunities
- 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 their way into domestic U.S. equities and out of bonds and emerging markets.
- The improving macro backdrop out of Europe and China could be the catalyst for a rally into year end.
Threats
- 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.
- The debt ceiling and government shutdown have passed, but the economic fallout will likely be felt over the next weeks and months as it negatively affects upcoming economic data releases.
