Weekly Investor – December 9, 2013
Stand Alone Economy?
Market Summary:
U.S. equity markets ended the week mixed after losing ground during the first four trading days of the week despite positive economic reports. Manufacturing, construction, consumer spending, housing and employment data were all better-than-expected, providing further credibility to an accelerating recovery. In fact, the unemployment rate fell to a five year low of 7.0% and the third quarter GDP rate was revised higher to 3.6%. Shares of retail stocks were the one deterrent to the positive week as sales fell 2.7% year-over-year during the Thanksgiving shopping weekend. Looking ahead, investors await the Federal Reserve meeting minutes on December 18th to gauge any signals of “taper talk”. We continue to believe the full benefits of quantitative easing are no longer necessary and that the economy has the strength to stand alone. Moving forward, earnings growth, not asset purchases, will likely drive the market higher.
The S&P 500® was even for the week. The top-performing sectors in the S&P 500® Index included Utilities (0.8%) and Technology (0.7%), while bottom-performing sectors included Consumer Discretionary (-0.7%) and Telecommunications (-0.9%). In the fixed-income market, the 10-year Treasury yield was up during the week, ending at 2.9%.
We continue to seek those companies possessing identifiable catalysts, and focusing on those stocks with favorable odds.
Favorable Odds
The Allstate Corporation (ALL) engages in personal property and casualty insurance, life insurance and retirement and investment product businesses in the United States.
ALL’s current strategy includes a goal of improving its return on equity (ROE) to peer levels by 2014. Over the past several years, personal lines insurers have suffered high losses as a result of severe weather. In response to this phenomenon, ALL and its industry peers are raising prices for homeowners insurance. In fact, ALL’s homeowner’s insurance price increases averaged approximately 8% in 2011. We believe the industry-wide price increases will enhance the likelihood that ALL will realize its return target. Additionally, the stock currently trades at a discount to its peers and therefore represents favorable odds for our clients.
Top 10 Equity Holdings
| . | |
|---|---|
| Google, Inc. | 6.0% |
| CBS Corp. | 4.7% |
| Lowes Cos. | 4.6% |
| Forest Laboratories | 4.4% |
| Danaher Corp. | 4.1% |
| Endo Health Solutions | 4.1% |
| MasterCard, Inc. | 4.0% |
| SunTrust Banks | 3.8% |
| Amgen Inc. | 3.6% |
| Qualcomm Inc. | 3.6% |
U.S. Equity Indices
| Index | 12/06/13 | Week % Chg | YTD % Chg |
|---|---|---|---|
| DJIA | 16,020.0 | -0.4% | 22.3% |
| NASDAQ | 4,062.5 | 0.1% | 34.5% |
| S&P 500 | 1,805.1 | 0.0% | 26.6% |
| Russell 1000 G | 840.3 | -0.1% | 27.7% |
U.S. Credit Rates
| Index | 12/06/13 | 11/29/13 | 12/31/12 |
|---|---|---|---|
| 3 Month T-Bill | 0.1% | 0.1% | 0.1% |
| 5 Year T-Note | 1.5% | 1.4% | 0.8% |
| 10 Year T-Note | 2.9% | 2.7% | 1.8% |
| 30 Year T-Bond | 3.9% | 3.8% | 3.0% |
| Prime Rate | 3.3% | 3.3% | 3.3% |
This newsletter presents selected recommendations from portfolio managers of Argent Capital Management LLC, a registered investment advisor. Opinions reflect the portfolio manager’s judgment on the date above and are subject to change. A list of stocks recommended by Argent is available upon request. You should not assume that these recommendations are or will be profitable. In the course of it’s business, Argent’s client accounts may be buying and selling these stocks.
