Another flat week expected ahead for most US stocks

LAST week, enthusiasm about the Federal Reserve's interest rate reprieve was quickly superseded by fear of a Greek default.

Most Wall Street pundits had predicted that 2015 would mirror the pattern in 2014, a weak performance in the first half of the year followed by strength in the second half. Well, they were at least half right - with a week to go in the first half of the trading year, stocks are almost exactly where they started the year.

But the second half could be just as bad unless the outstanding issues of the "Grexit" and the timing of Federal Reserve rate hikes are soon resolved.

The epic Greek economic tragedy may reach catharsis on June 30, which is the deadline for a payment to the straitened nation's creditors. In January, the Greek people - sick of the dwindling social security and rising taxes that came with austerity - voted in the Syriza party.

Led by current Prime Minister Alexis Tsipras, the left-wing party campaigned on a promise to end austerity or quit the euro. At the time, European leaders feared that a Greek exit would destabilise the single currency. Since then, both sides have made concessions so that Greece might stay in the euro. Now, however, both sides seem to have reconciled themselves to the possibility of an eurozone without Athens.

"All market indicators, thus far, suggest that if there's a default, there won't be a systemic shock; in other words, the damage will be contained," said Quincy Krosby, market strategist at Prudential Financial. "That said, there's still a chance for a short-term remedy to be crafted."

In Wednesday's policy statement, Janet Yellen said, once again, that the Fed would only raise rates if the central bank saw further job market growth and inflation.

The Fed also pushed down its own projections for benchmark interest rates, hinting that it had postponed the first rate hike. Durable goods orders and home sales data this week could lead the Fed to revise its outlook yet again, however.

Both stocks and oil are effectively in a holding pattern ahead of the Fed's first move. The Standard & Poor's 500 has spent almost the entire year within 2 per cent of 2,100; the Dow Jones Industrial Average has not strayed far from 18,000, which it first reached in 2014; and oil futures have stalled at around US$60 a barrel for a couple of months after swinging between US$100 a barrel and US$40 a barrel in the preceding six months.

The bulls and the bears keep jumping in anticipation of Ms Yellen's starter's gun - but every move has proven to be a false start.

Analysts at brokerage Goldman Sachs have recommended that clients prepare for the second half of the year by rotating into cyclical sectors such as technology and financial companies because of several shifts in the big picture.

These include: "accelerating US economic growth; rising interest rates ahead of Fed hikes; and continued US dollar appreciation," said the Goldman analysts, in a note to clients.

"Info tech and financials will be the key beneficiaries of accelerating US economic growth and a corresponding rise in interest rates. Info tech has historically been the best performing sector during periods when economic growth accelerates, while financials stand to reap significant earnings benefits as interest rates rise from exceptionally low levels."

Meanwhile, the sectors that had led the way during the latter stages of the low interest rate era - such as utilities, raw materials and telecommunications stocks - are beginning to lag the broad market.

In the case of power producers and cellphone carriers, part of the problem is that they count wealthy retirees among their biggest investors. These are the people attempting to live off a "fixed income".

With rates on long-term Treasury bonds stuck around 3 per cent for several years, many of these retirees loaded their portfolios with utility and telecom stocks, many of which sport a dividend yield of 5 per cent or more.

Now, however, the utility industry could have to spend billions of dollars on new carbon emissions requirements, making the stocks a risky proposition just as bond yields are climbing to rival those of the power stocks.

Similarly, competition has intensified in the telecom industry, making the yields there less attractive to investors. Telephone carriers and cable companies are struggling to keep up with changing media habits, changes that are also drawing companies from ancillary industries into the fray.

Consumers are watching programmes on the Internet rather than on broadcast television; they are messaging one another over the Internet rather than texting over telephone companies' networks.

This intensified competition has triggered a price war between the big four carriers: AT&T, Verizon, Sprint and T-Mobile. It has also led to bidding wars on spectrum as carriers vie to offer the fastest Internet service and most the comprehensive call coverage - both in the US, where satellite television company Dish Network boldly outbid almost all the incumbents; and in Europe, where Vodafone recently paid 2.1 billion euros (S$3.2 billion) for additional spectrum in Germany.

Telecoms and utilities, two of the strongest sectors of 2014, could be the biggest losers this year.

While the healthcare sector is traditionally lumped in with the defensive sectors, there is reason to believe that its strong run will continue. That is because the health insurance industry is consolidating.

Anthem, which operates insurance companies under the BlueCross BlueShield brand, agreed to buy Cigna over the weekend for US$47 billion. The insurers are seeking scale so that they can undercut their smaller competitors on the health insurance exchanges created under the Affordable Care Act.

There could be more mega deals on the way among insurers, firing up that sector. But most US stocks are likely to have another flat week, barring a breakthrough - or a breakdown - in Greek negotiations.