U.S. Equity Market (August 23, 2010)
The figure below shows the performance of each sector in the S&P 500 index for the week. Three sectors gained and seven declined. The best-performing sector was technology, up 0.7 percent. Other better-performing sectors included materials and consumer discretion. The three worst-performing sectors were energy, financials and healthcare.
Within the technology sector, the best-performing stock was Juniper Networks Inc., up 6 percent. Other top-five performers in the sector were NetApp Inc., Tellabs Inc., Agilent Technologies Inc. and Cisco Systems Inc.
Strengths
- The application software group was the best performer for the week, up 7 percent. The group's largest member, Salesforce.com Inc., reported second-quarter earnings and revenue above the consensus estimate, guided current-quarter earnings and revenue above consensus, and raised full-year earnings guidance. Intuit Inc. also rose after reporting fiscal fourth-quarter earnings and revenue above consensus.
- The home improvement retail group was the second-best performer, rising 4 percent. Home Depot Inc. reported second-quarter earnings above consensus and raised fiscal 2010 earnings guidance. Lowe's Companies Inc. reported earnings slightly below consensus, but said it still expects same-store sales to rise about 2 percent for the fiscal year, which some analysts viewed positively. The shares of both home improvement retailers rose for the week.
- The communications equipment group outperformed, gaining 3 percent on the rise in Cisco Systems Inc. and Juniper Networks Inc. In the prior week, Cisco sold off on a disappointing sales forecast and dragged down other stocks in the communications space.
Weaknesses
- The food distributors group was the worst performer, down 5 percent, led by its single member, Sysco Corp. The firm reported quarterly earnings below the consensus estimate.
- The life & health insurance group lost 4 percent. The New York Attorney General's office issued additional subpoenas this week in an investigation of what is known in the industry as "retained-asset accounts."
- The food retail group underperformed, losing 4 percent. An analyst downgraded his ratings on Safeway Inc. and Kroger Co. after a survey of retailers showed aggressive discounting. Also, BJ's Wholesale Club Inc. lowered its guidance for the year citing intense competition from Wal-Mart Stores Inc.
Opportunities
- There may be an opportunity for gain in M&A (merger & acquisition) transactions in 2010. Corporate liquidity is high, thereby providing the means to pursue acquisitions.
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.
