U.S. Equity Market Radar (March 17, 2014)
The S&P 500 Index pulled back roughly 2 percent this week as geopolitical events and global growth concerns dominated the headlines. It was a “risk off” week with utilities, staples and telecommunication services outperforming, as Chinese economic data disappointed and the Russian/Ukraine situation continued to simmer.
Strengths
- The utilities sector rose by more than 2 percent this week as virtually all the companies in the index were higher. Bond yields fell sharply and interest-rate sensitive areas of the market rallied.
- The consumer staples sector was also a relative outperformer this week, with Tyson Foods and Archer-Daniels Midland (ADM) leading the way, both rising about 3percent. Tyson Foods reaffirmed guidance and commented that the company was able to pass on price increases to consumers. ADM is likely reacting to higher ethanol prices that continue to grind higher.
- Newmont Mining was the best performer in the S&P 500, rising 6.42 percent this week. Gold and gold mining stocks also moved higher, continuing a trend that began late last year.
Weaknesses
- The industrials sector underperformed. It was a “risk off” week and economically-sensitive areas of the economy were the hardest hit. ADT Corp., Ingersoll-Rand and Fluor Corp. were among the worst performers.
- Financials also underperformed in a broad-based selloff. Citigroup, Prudential Financial, AIG and Goldman Sachs all fell by more than 5 percent.
- General Motors (GM) was the worst performer in the S&P 500 this week, falling 9.55 percent. The company recalled 1.6 million vehicles on an ignition flaw, which has been connected to 12 deaths according to GM.
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 Federal Reserve to aggressively 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 economic situation could possibly drive equity prices well into 2014.
Threats
- A short-term market consolidation period after such strong performance over the past six months cannot be ruled out.
- Higher interest rates are a threat for the whole economy. The Fed must walk a fine line and the potential for policy error.
- A lot of good news is potentially priced into the market and the economy will need to deliver to maintain the positive momentum.
