Stocks' Half-Time Scorecard


By Sam Stovall Note: Please see required disclosures below.

Now that the first half of the year is coming to a close, it's time to take a look at how key market benchmarks -- and sectors -- have performed. One thing is apparent: While investors haven't had a lot to cheer about, they haven't had much to cry over, either.

Of the 124 subindustry indexes in the S&P Composite 1500 Index, 68 (or 55%) beat the benchmark year-to-date through June 25. On a sector basis, however, the better performances were skewed toward consumer staples, energy, and industrials, and away from information technology and materials. In addition, even though the remaining five sectors posted positive returns, they underperformed the broader market.

First-half performance (through June 25)S&P Indexes

% change

S&P SmallCap 600

8.4

S&P SmallCap 600 8.4

S&P MidCap 400

4.8

S&P Composite 1500

2.5

S&P 500

2.0

S&P 1500 Sectors

Energy

12.8

Industrials

5.9

Consumer Staples

4.7

Consumer Discretionary

1.9

Utilities

1.9

Health Care

1.5

Financials

1.4

Telecom. Svcs.

1.3

Materials

-0.2

Info. Tech.

-1.2

Best S&P 1500 Subindustries

Internet Software & Services

46.9

Internet Retail

41.7

Wireless Telecom. Services

33.7

Oil & Gas Refining/Mktg.

32.9

Motorcycle Manufacturers

29.0

Worst S&P 500 Subindustries

Aluminum

-11.1

Semiconductors

-11.5

Semiconductor Equipment

-17.2

Gold

-18.1

Broadcasting & Cable TV -18.2

On a subindustry level, it appears that investors were pleased by the earnings results of eBay (EBAY); S&P rank 4 STARS, accumulate; recent price, $93), Harley Davidson (HDI

; 3 STARS, hold; $61), and Yahoo! (YHOO

; 3 STARS; $36), as well as widening profit-margin prospects for gasoline refiners and wireless-service providers. We think investors in aluminum and gold-mining shares attempted to take profits ahead of anticipated interest rate increases.

We also think semiconductor-related share prices suffered from investment-firm downgrades, while the broadcasting group was hurt by the unexpected management change at Viacom (VIA.B

; 3 STARS; $36).

WHERE THE BUYS ARE. With the first half just about finished, what about the second? S&P maintains a positive outlook on the equity market, targeting a yearend close for the S&P 500 at 1,210 -- a 9% year-over-year price change. We see operating earnings for the S&P 500 climbing more than 20% in 2004, vs. an 18.8% gain in 2003, and rising an additional 10% in 2005. By sector, earnings increases in 2004 are likely to be the largest in the consumer discretionary (26%), health care (25%), information technology (64%), and materials (67%) groups. The telecommunications services and utilities sectors are projected to post earnings declines this year.

In all, S&P's sector group heads and analysts believe that the greatest relative number of opportunities lie in the consumer discretionary, health care, and technology sectors, and suggest that investors underweight their exposure to the rate-sensitive financials and utilities groups.

Industry Momentum List Update

For regular readers of the Sector Watch column, here's this week's list of the 11 industries in the S&P 1500 with Relative Strength Rankings of "5" (price performances in the past 12 months that were among the top 10% of the industries in the S&P 1500) and the highest STARS-ranked companies in the sub-industry index (tie goes to the largest market value) as of June 25, 2004.

Industry/Sector

Company

S&P STARS* Rank

Recent Price

Casinos & Gaming/Consumer Discretionary

Harrah's (HET)

4 STARS

$54

Catalog Retail/Consumer Discretionary

Insight Enterprises (NSIT)

Not Ranked

$17

Consumer Electronics/Consumer Discretionary

Harman International (HAR)

5 STARS

$91

Diversified Metals & Mining/Materials

Peabody Energy (BTU)

4 STARS

$55

Fertilizers & Ag. Chem./Materials

Scott's (SMG)

4 STARS

$62

Internet Retail/Consumer Discretionary

EBay (EBAY)

4 STARS

$93

Internet Software & Services/Info. Tech.

Yahoo! (YHOO)

3 STARS

$36

Motorcycle Manuf./Industrials

Harley-Davidson (HDI)

3 STARS

$61

Oil & Gas Refining/Mktg./Energy

Premcor (PCO)

5 STARS

$38

Steel/Materials

Nucor (NUE)

4 STARS

$76

Technology Distributors/Info. Tech.

Avnet (AVT)

4 STARS

$22

Wireless Telecom Svcs./Telecom Svcs.

Nextel Communications (NXTL)

5 STARS

$27

* S&P's stock appreciation ranking system for the coming 6- to 12-month period: 5 STARS (buy), 4 STARS (accumulate), 3 STARS (hold), 2 STARS (avoid), 1 STAR (sell).

Required Disclosures:

All of the views expressed in this research report accurately reflect the research analysts' personal views regarding any and all of the subject securities or issuers. No part of the analysts' compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed in this research report.

For Required Disclosure information and Price Charts for all STARS ranked companies go to http://www.spsecurities.com, click on "Investment Research", and then click on "Required Disclosures & Standard & Poor's STARS vs. Closing Prices Charts".

Additional information furnished upon request to Standard & Poor's.

Disclaimer: This material is based upon information that Standard & Poor's considers to be reliable, but neither Standard & Poor's Investment Advisory Services LLC nor its affiliates warrant its completeness or accuracy, and it should not be relied upon as such. Assumptions, opinions and estimates constitute our judgment as of the date of this material and are subject to change without notice. Past performance is not indicative of future results.

This material is not intended as an offer or solicitation for the purchase or sale so any security or other financial instrument. Securities, financial instruments or strategies mentioned herein may not be suitable for all investors. This material does not take into account your particular investment objectives, financial situations or needs and is not intended as a recommendation of particular securities, financial instruments or strategies to you. Before acting on any recommendation in this material, you should consider whether it is suitable for your particular circumstances and, if necessary, seek professional advice. Stovall is chief investment strategist for Standard & Poor's


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