U.S. Equity Market Radar (April 29, 2014)
The S&P 500 Index fell 0.81 percent on further concern over Russia/Ukraine tensions and generally uninspiring earnings reports during the week. However, the utilities, health care and energy sectors managed to post positive returns for the week.
Strengths
- The utility sector was the top performer this week as investors sought lower volatility and higher dividend paying stocks amid tensions between Russia and Ukraine. First Energy Corp, American Electric and NRG Energy led the way with gains of two percent or more.
- The energy sector continued to advance this week, maintaining its leadership among the top sectors in the S&P 500 Index. Strong individual performers included Diamond Offshore, Cabot Oil & Gas and Peabody Energy.
- Allergan Inc. was the best performer in the S&P 500 rising 25 percent this week on the heels of the takeover offer from Valeant Pharmaceuticals and Bill Ackman’s Pershing Square hedge fund.
Weaknesses
- The telecom sector was the worst performer this week, and was led lower by AT&T. Despite reporting better-than-expected first quarter results, analysts raised concern over profit margin deterioration in 2014.
- Basic materials posted the second worst returns during the week, due in part to profit taking. The materials sector had been an outperformer previously.
- Intuitive Surgical was the worst performer in the S&P 500 for the third week in a row, falling 11 percent. The company announced that sales of its robotic surgery systems fell sharply in the first quarter, coming up well short of expectations. Once again, this week’s move appears to be continued fallout from that news.
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.
- The selloff in high quality companies offers an opportunity to pick up companies with robust fundamentals at attractive prices.
- Quarterly earnings reports were generally well received by the market this week, which is good news considering expectations had lowered considerably going into earnings season.
