U.S. Equity Market Radar (December 9, 2013)
The S&P 500 Index was essentially flat for the week as the market rallied on Friday, closing the gap for the week. The market climbed more than one percent on Friday as nonfarm payrolls grew by 203,000, likely continuing the āgoldilocksā scenario of growth that is not too strong to invoke action from the Fed but not too weak to endanger the continuing economic recovery.
Strengths
- The utility sector was the best performer this week, led by NRG Energy, Exelon and AES.
- Technology stocks were also notable performers, led by data storage companies Western Digital and Seagate Technology, along with household names such as Intel and Yahoo.
- Forest Laboratories was the best performer in the S&P 500 this week, rising 10.91 percent. The company announced a significant restructuring to streamline operations and reduce costs. The company also announced that it would leverage the balance sheet and return cash to shareholders through share repurchases.
Weaknesses
- The telecom sector was the worst performer this week as AT&T fell nearly 2 percent.
- The consumer discretion sector also fell this week with numerous retailers reporting disappointing November sales as price competition remains intense.
- Teradata was the worst performer in the S&P 500 this week, falling 8.24 percent. A major sell side firm downgraded the IT hardware space as cloud computing continues to be a disruptive force for the industry. The company is a data storage provider and the concern is that revenue is at risk.
Opportunities
- The current macro environment remains positive as economic data appears 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 the year end.
Threats
- A market consolidation could occur in the near term after such strong performance year-to-date.
- Higher interest rates are a threat for the whole economy. The Fed must walk a fine line and the potential for policy error is large.
