U.S. Equity Market Radar (March 24, 2014)
The S&P 500 Index put the geopolitical events and global growth concerns to the side, rallying nicely this week. We appear to be experiencing a rotation in the market with financials, telecommunication services and consumer staples outperforming over the past month, with similar trends this week.
Strengths
- The telecommunication services sector rose by 3.57 percent this week as AT&T rose 5.57 percent. The company announced that preorders for the highly anticipated Samsung Galaxy S5 phone will begin Friday.
- The financials sector was also a strong performer this week. Federal Reserve Chair Janet Yellen’s comments that interest rates could rise as soon as spring 2015 sent short-term yields higher, which is generally positive for banks. The Fed also released stress test results for large financial institutions which were well received by the market. Index heavyweights Charles Schwab, Citigroup and JPMorgan Chase were all strong performers.
- First Solar was the best performer in the S&P 500, rising 35.79 percent this week. The company held an analyst day that was very well received on the company’s bookings outlook for 2014.
Weaknesses
- The utilities sector underperformed, essentially flat for the week.
- Within the health care sector, biotech stocks were weak virtually across the board. Biotechs have been leaders over the past year and with some rotation in the market, leaders have been sold and laggards have rallied.
- Symantec was the worst performer in the S&P 500 this week, falling 9.72 percent. The company unexpectedly fired President and Chief Executive Officer Steve Bennett.
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 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 is large.
- A lot of good news already may be priced into the market, so the economy will need to deliver to maintain the positive momentum in the market.
