Index Summary
- The major market indices were higher this week. The Dow Jones Industrial Index rose 0.87 percent. The S&P 500 Stock Index gained 0.87 percent, while the Nasdaq Composite finished 1.98 percent higher.
- Barra Growth outperformed Barra Value as Barra Value finished 0.42 percent higher while Barra Growth rose 1.33 percent. The Russell 2000 closed the week with a gain of 2.99 percent.
- The Hang Seng Composite finished higher by 3.02 percent; Taiwan gained 3.10 percent, and the Kospi advanced 1.69 percent.
- The 10-year Treasury bond yield closed at 3.69 percent, up 11 basis points for the week.
Domestic Equity Market
The figure above shows the performance of each sector in the S&P 500 index for the week. The best-performing sector was materials, up 1.7 percent. Other better-performing sectors included consumer discretion and energy. Under-performing sectors were utilities, financials, and telecom services.
Within the materials sector the best-performing stock was Cliff’s Natural Resources Inc, up 10 percent. The other top-five performers included U.S. Steel Corp, CF Industries Holdings Inc, AK Steel Holding Corp, and Freeport-McMoRan Copper & Gold Inc.
Strengths
- The consumer electronics group was the best-performing group, up 27 percent, led by its single member, Harman International Industries Inc. The company reported a profit in excess of the analyst consensus estimate for its second fiscal quarter. Harman’s results were in large part due to a cost-savings program. The company said it had achieved $285 million in permanent savings thru December 31, 2009, compared to its target of $245 million.
- The leisure products group was the second-best performing group, rising 8 percent. The maker of games and toys, Hasbro Inc, reported a quarterly profit which beat the consensus estimate, and it guided to grow earnings and sales in 2010. The consensus forecast called for a decline in earnings and sales in 2010.
- The homebuilding group outperformed, gaining 8 percent. A major brokerage firm believes that housing starts increased 10.7 percent in January, ahead of the consensus forecast of 4.1 percent. The firm expects starts to rebound sharply as builders began to ramp inventory in order to have enough homes available to meet demand during the spring selling season, which is expected to be enhanced by the April 30 tax credit deadline.
Weaknesses
- The home entertainment software group was the worst performer, declining 7 percent. Its single member, Electronic Arts Inc offered a disappointing forecast for its March quarter. Also, industry sales of game software in the U.S. declined by 12 percent during the month. Analysts had expected a decline of about 5 percent
- The brewers group was the second-worst performer, falling 6 percent, led down by its single member, Molson Coors Brewing Co. The firm said that underlying net income for its fourth quarter decreased 21.6 percent from the comparable quarter a year ago. It said it saw the effect of ongoing economic pressure and unemployment on beer sales, especially in the fourth quarter
- The industrial REITS (real estate investment trust) group underperformed, down 5 percent, led by its single member, Prologis. The owner of industrial warehouses provided disappointing guidance for the 2010 year when it reported fourth quarter 2009 earnings.
Opportunities
- There may be an opportunity for gain in M&A (merger & acquisition) transactions in 2010.
- The recent decline in the market could be an opportunity to initiate positions in selected stocks with good fundamentals which had previously been considered to be overvalued.
Threats
- Should investors’ expectations for an improving economy not come to fruition on a reasonable time frame, it could be a threat to stock prices.
- As governments around the world begin to wind-down the monetary and fiscal stimulus programs put in place during the economic crisis, it will likely present a headwind for stocks.
