U.S. Equity Market Diary (September 27, 2010)

U.S. Equity Market Diary (September 26, 2010)

The figure below shows the performance of each sector in the S&P 500 Index for the week. All ten sectors gained. The best-performing sector was consumer discretion, up 3 percent. Other better-performing sectors included technology and energy. The three worst-performing sectors were financials, consumer staples and materials.

Within the consumer discretion sector the best-performing stock was CarMax, up 16 percent. Other top-five performers in the sector were Office Depot, Sears Holdings, Lennar and McGraw-Hill.

Strengths

• The aluminum group (represented by Alcoa) was the best-performing group for the week, up nine percent, led by its single member. Investor sentiment appears to have become more positive on the stock.
• Amazon.com led the retail internet group to outperform, rising seven percent. A major brokerage firm analyst reiterated his “overweight” rating and increased his target price and earnings estimates on the stock. His thesis is that the company is gaining market share within e-commerce, while e-commerce is gaining market share within retail.
• The diversified metals & mining group (represented by Freeport-McMoRan Copper & Gold) outperformed, gaining 6 percent. The prices of both copper and gold increased during the week.

Weaknesses

• The paper group was down 4 percent, led by International Paper Co. A major brokerage firm analyst reduced his profit estimates for the company and its competitors, saying he was “unwinding” his expectations for a containerboard price increase.
• The casinos & gaming group was down 4 percent on weakness in International Game Technology. The previous Friday, a brokerage firm analyst downgraded the firm’s stock, saying replacements of gaming machines are likely to remain slow over the next 18 months.
• The investment banking & brokerage group underperformed, giving up 2 percent. A major brokerage firm lowered its earnings estimates for Goldman Sachs Group and Morgan Stanley, citing weakness in third-quarter capital markets’ activity.

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 become 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.