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Leigh Baldwin & Co.

112 Albany Street, Cazenovia, NY 13035 | Phone: (315) 655-2964 Toll Free: 1-800-659-8044

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The Week In Review

12/3-12/7/12

December 7, 2012
Equities started the day in the black following the release of November nonfarm payrolls, which revealed an addition of 146,000 jobs. However, the optimism was short-lived and stocks surrendered their early gains after the preliminary reading of the December Michigan Sentiment fell short of estimates. The remainder of the session was relatively quiet as the S&P 500 traded near its unchanged line, the Nasdaq hovered near its lows, while the Dow spent the day climbing back to its highs. As a result, the benchmark S&P 500 index finished higher by 0.3%. This morning, House Speaker Boehner and Minority Leader Pelosi both spoke before the media in Washington, but their message remained the same. During his remarks, Speaker Boehner said that no progress has been made in negotiations and the White House "has wasted another week." Meanwhile, Representative Pelosi reiterated that Democrats stand ready to extend Bush-era tax cuts for all but top 2% of earners. Financials have outperformed after Wednesday's announcement from Citigroup (C 37.64, +0.62) indicated the company will dismiss more than 11,000 employees. Citigroup advanced 1.7% today and most majors saw comparable gains. However, Goldman Sachs (GS 116.57, -0.63) and Wells Fargo (WFC 33.23, +0.09) missed out on the sector-wide rally. Earlier, the Commodity Futures Trading Commission ordered Goldman Sachs to pay a $1.5 million civil monetary penalty to settle charges stemming from failure to diligently supervise its employees in late 2007. Although domestic financials advanced, their European counterparts were relatively weaker. Spain's Banco Santander (SAN 7.59, -0.05) and Germany's Deutsche Bank (DB 44.82, -0.67) settled lower by 0.7% and 1.5%, respectively. The tech sector was the biggest laggard and Apple (AAPL 533.25, -13.99) continued its weakness. The largest tech component lost 2.6% during today's session, and is down near 10.0% since Monday. Elsewhere in technology, networking stocks were generally lower and Cisco Systems (CSCO 19.33, -0.14) shed 0.7%. Earlier, the company held its Analyst Day where Chief Executive Officer said Cisco has "gone too long" without making an acquisition. Major hard drive manufacturers have enjoyed a strong week. Since Monday, Seagate (STX 28.34, -0.19) has added over 12.0% while Western Digital (WDC 37.60, +0.50) has rallied more than 11.0%. Today, the two headed in opposite directions. Seagate slipped 0.7% while Western Digital gained 1.4%. In notable analyst action, 3D Systems (DDD 45.61, +1.07) advanced 2.4% after BB&T Capital Markets initiated coverage with a 'Buy' rating and a $60 price target. The GEO Group (GEO 32.00, +2.56) was the second-best S&P 500 component. The correctional facility operator surged 8.7% after the company authorized a special dividend of $350 million, and announced it has taken critical steps towards its planned conversion to a Real Estate Investment Trust. As a REIT, the company is expected to generate between $215 and $225 million in 2013 funds from operations. Peer Corrections Corporation of America (CXW 35.48, +1.37) gained 4.0%. Last evening, Smith & Wesson (SWHC 9.92, -0.93) reported earnings in-line with the November preannouncement. The company's strong quarter was punctuated by upside third quarter and full-year earnings and revenue guidance. In addition, the Board of Directors has approved a $20 billion share repurchase program which is scheduled to run through June 30, 2013. The stock was up as much as 3.0% in pre-market trade, but settled lower by 8.6% Meanwhile, peer Sturm, Ruger (RGR 51.44, -2.00) lost 3.7%. Nonfarm payrolls came in at 146K versus the 90K expected by the Briefing.com consensus. The prior reading was revised down to 138K from 171K. Nonfarm private payrolls added 147K against the 120K consensus. The unemployment rate was reported at 7.7%, ahead of the Briefing.com consensus which called for the figure to come in at 8.0%. Hourly earnings rose by 0.2% while the expectations called for an uptick of 0.1%. Lastly, average workweek was reported at 34.4, which was in-line with the Briefing.com consensus. The preliminary University of Michigan Survey for December came in at 74.5, which is lower than the 82.7 that was posted in the prior month, and worse than the reading of 82.4 that had been expected by the Briefing.com consensus. According to the Federal Reserve, consumer credit increased by $14.2 billion in October. This follows prior month's reading of a $11.4 billion increase, and is higher than the $9.9 billion that had been broadly expected among economists polled by Briefing.com.

December 6, 2012
Today's session opened with initial uncertainty before the major averages staged a climb to their respective highs. Overseas, Standard & Poor's lowered Greece's long term credit rating to 'Select Default' from 'CCC.' Meanwhile, Germany's DAX closed at its highest level in nearly five years. Domestically, trade was confined to a narrow range, but late-day buying lifted the S&P 500 to a slim gain of 0.3%. The technology sector was the top performer, and the SPDR Technology Select Sector ETF (XLK 28.91, +0.16) advanced 0.6%. Apple (AAPL 547.24, +8.45) was down as much as 3.0% in early trade, but after marking its session low at $518.63, the stock reversed and finished higher by 1.6%. Elsewhere, Akamai Technologies (AKAM 39.06, +3.56) surged 10.0% after the company announced a global strategic alliance with AT&T (T 33.65, -0.26). The newly forged partnership will allow Akamai to deploy CDN servers on the AT&T network in order to improve content routing and its delivery. Remaining in the sector, major hard drive makers enjoyed their third strong session in a row. Seagate (STX 28.53, +0.93) and Western Digital (WDC 37.10, +1.07) both added near 3.0%. Financials registered slim gains and the SPDR Financial Select Sector ETF (XLF 15.90, +0.05) tacked on 0.3%. Citigroup (C 37.02, +0.56) was the top performer among the majors. The stock settled higher by 0.9% to extend yesterday's 6.3% rally sparked by the announcement of plans to dismiss more than 11,000 employees. Looking at European financials, Deutsche Bank (DB 45.49, -0.58) slid 1.3% after reports from Reuters indicated the bank may have hid up to $12 billion in losses in order to avoid having to accept a government bailout. Also of note, HSBC Holdings (HBC 51.75, -0.12) shed 0.2% after Reuters reported the company may be facing a $1.8 billion money-laundering fine. The industrial sector was the weakest performer and manufacturers of building products weighed. Lennox International (LII 51.07, -0.49) and Masco (MAS 15.78, -0.43) fell 1.0% and 2.7%, respectively. Elsewhere, UTi Worldwide (UTIW 12.88, -1.15) slid 8.2% after reporting disappointing earnings. During the third quarter, the supply chain manager earned $0.16, which was $0.09 worse than the Capital IQ consensus estimate. Meanwhile, its revenue of $1.13 billion also missed expectations. When commenting on its past performance and the future outlook, company management said, "Macroeconomic and freight conditions remained weak throughout our fiscal 2013 third quarter, and we see no real catalysts to drive increases in the foreseeable future." The Dow Jones Transportation Average underperformed and shed 0.1%. Most transportation stocks were on the decline and CH Robinson (CHRW 60.64, -1.27) was the biggest laggard. The freight carrier finished lower by 2.1% and other truckers registered losses as well. With crude oil settling lower by 1.7%, airlines outperformed. Delta Air Lines (DAL 10.02, +0.31) gained 3.2% and was the best performing carrier. Earlier, the company has finalized its agreement with Bombardier Aerospace, which will allow Delta to continue renovating its domestic fleet by replacing its least efficient jets. The latest weekly initial jobless claims count totaled 370,000, which is lower than the 382,000 that had been expected by the Briefing.com consensus. The tally is below the revised prior week count of 395,000. As for continuing claims, they fell to 3.205 million from 3.305 million. November Challenger Job Cuts rose by 34.4% year-over-year after the prior month's reading pointed to an 11.6% increase. In tomorrow's economic data, November nonfarm payrolls, nonfarm private payrolls, unemployment rate, hourly earnings, and average workweek will all be released at 8:30 ET. In addition, December Michigan Sentiment and October consumer credit will be reported at 9:55 ET and 15:00 ET, respectively.

December 5, 2012
Stocks finished the session on a higher note, but gave up a large portion of their gains in the final half-hour of the session. The major averages showed notable divergence as the Dow led with a gain of 0.6% while Nasdaq lost 0.8%. The tech-heavy index lagged the broader market due to considerable weakness in shares of Apple (AAPL 538.79, -37.05), which fell 6.4% and saw their largest one-day drop in four years. Meanwhile, the S&P 500 held near its session high for the majority of the afternoon before late-day selling trimmed its gain to 0.2%. Even though Apple lagged significantly, other large cap technology stocks saw narrower losses. Google (GOOG 687.82, -3.21) slipped 0.5% and International Business Machines (IBM 188.65, -0.71) shed 0.4%. Elsewhere in tech, Pandora Media (P 7.80, -1.65) plunged 17.5% after reporting its earnings. Although the internet radio operator beat on earnings and revenue, the company guided fourth quarter top and bottom lines below consensus. In addition, the company said its November 2012 audience has increased 58% year-over-year. Nokia (NOK 3.88, +0.44) surged 12.8% after the smartphone maker signed an agreement with China Mobile to sell its Widows-based Lumia 920 device. Financials led the broader market and the SPDR Financial Select Sector ETF (XLF 15.85, +0.19) advanced 1.2%. Citigroup (C 36.46, +2.17) rallied 6.3% after the company announced plans to reduce expenses and improve efficiency. As part of the plan, Citigroup will dismiss more than 11,000 employees. In addition, the 2012 pre-tax charges are expected to total $1 billion. Looking at other majors, Bank of America (BAC 10.46, +0.63) advanced 5.7% and JPMorgan Chase (JPM 41.20, +0.63) added 1.6%. Last evening, the Wall Street Journal reflected on the ongoing build-up in car dealer inventories. The article also pointed to large incentives offered by automakers in order to provide relief to inventories and entice new customers. General Motors (GM 25.00, -0.41) has been a notable standout among those offering cash discounts. The company has attempted to jump-start sales by offering between $2,900 and $3,500 in incentives. Automakers and auto parts store operators underperformed today. General Motors shed 1.6% while AutoZone (AZO 360.27, -6.53) and Pep Boys (PBY 9.48, -0.09) lost near 1.5% each. Homebuilders were broadly weaker and the SPDR S&P Homebuilders ETF (XHB 25.65, -0.64) shed 2.4%. As a result of the industry-wide weakness, major builders lost in excess of 2.0%. PulteGroup (PHM 16.20, -0.89) and Lennar (LEN 36.42, -1.36) saw respective losses of 5.2% and 3.6%. In addition to individual builders, home improvement stocks also underperformed. Whirlpool (WHR 98.62, -1.80) settled lower by 1.8% and Leggett & Platt (LEG 27.17, -0.68) slid 2.4%. In M&A news, Freeport McMoRan (FCX 32.16, -6.12) slumped 16.0% after the company confirmed it will acquire Plains Exploration & Production (PXP 44.50, +8.45) and McMoRan Exploration (MMR 15.82, +7.36) in transactions totaling $20 billion. Looking at today's economic data, the weekly MBA Mortgage Index pointed to a 4.5% rise in new mortgage applications during the past week. Today's reading followed prior week's decline of 0.9%. According to today's ADP National Employment Report, employment in the nonfarm private business sector rose by 118K in November. This was above the 125K increase expected by the Briefing.com consensus. Productivity data for the third quarter showed an increase of 2.9%, which was better than the 1.9% increase that had been reported in the preliminary reading. It was also better than the 2.7% increase that had been broadly expected. Unit labor costs for the third quarter were revised lower to reflect a 1.9% decrease after they had reportedly slipped 0.1% in the preliminary reading. Economists polled by Briefing.com had expected that unit labor costs would tick down in the revised reading to reflect a decrease of 0.8%. October factory orders showed an increase of 0.8%, which was better than the Briefing.com consensus of a 0.1% decrease. Today's reading follows last month's 4.8% increase. The November ISM Services Index was reported at 54.7, which is ahead of the 53.7 forecast by the Briefing.com consensus, and down from October's reading of 54.2.

December 4, 2012
Today's session was confined to a narrow range as the S&P 500 opened near its flat line, and spent the entire day within points of the unchanged level. At midday, Bloomberg TV aired an interview with President Obama, but his remarks were in-line with recent statements. The market did not receive notable economic data and sentiment-driving headlines were limited as well. As such, the benchmark index ended the choppy day with a loss of 0.2%. Technology stocks underperformed the broader market and the SPDR Technology Select Sector ETF (XLK 29.04, -0.05) slipped 0.2%. Apple (AAPL 575.84, -10.34) weighed on the sector and settled lower by 1.8%. Even though tech stocks were generally weak, semiconductor manufacturers outperformed. The PHLX Semiconductor Index gained 0.7% and bellwether Intel (INTC 19.92, +0.38) advanced 2.0%. Elsewhere, Netflix (NFLX 82.32, +6.32) surged 8.3% after the company announced a multi-year premium pay-TV window agreement with Walt Disney (DIS 49.30, +0.01). Besides lifting Netflix to session highs, the announcement had a negative impact on Coinstar (CSTR 47.37, +0.39) and Liberty Media (LMCA 105.56, -5.49). The two names fell to their respective lows as investors considered the possibility of increased competition. Coinstar is the operator of Redbox video rental kiosks. The stock was able to shake-off the intraday weakness, and close higher by 0.8%. Meanwhile, Liberty Media, which holds a stake in Starz and Encore, recovered a portion of its losses and ended lower by 4.9%. The consumer discretionary sector lagged as weak guidance from Darden Restaurants (DRI 47.40, -5.02) weighed on restaurant operators. Darden slumped 9.6% after issuing downside earnings guidance for the second quarter. In addition, the company lowered its full-year earnings and revenue guidance as well. Following the update, Bank of America/Merrill Lynch and Cowen both downgraded the stock. Among other restaurant operators, Buffalo Wild Wings (BWLD 72.30, -0.96), Cheesecake Factory (CAKE 32.80, -1.26), and Brinker (EAT 29.45, -0.41) all fell between 1.3% and 3.7%. Note that Brinker also lowered its second quarter guidance on October 24. Select Chinese stocks were weaker after the Securities and Exchange Commission announced charges against the Chinese affiliates of Big 4 accounting firms. The charges raise concern over the quality of financial statements of U.S.-listed Chinese stocks. Casino operators Asia Entertainment (AERL 3.00, -0.37) and Melco Crown Entertainment (MPEL 14.18, -1.18) saw respective losses of 11.0% and 7.7% as investors were reluctant to buy Chinese ADRs. The Dow Jones Transportation Average added 0.3%. As most components registered gains, trucking stocks underperformed. The group has encountered a soft patch recently, and the weakness continued today. JB Hunt (JBHT 58.13, -0.55) and Landstar (LSTR 49.25, -0.60) both slid near 1.0%. The market will receive a full slate of economic news tomorrow. The weekly MBA Mortgage Index and the November ADP Employment Change will be released at 7:00 ET and 8:15 ET, respectively. In addition, revised third quarter productivity and unit labor costs will be reported at 8:30 ET. Lastly, October factory orders and November ISM Services will hit the wires at 10:00 ET.

December 3, 2012
Equities began the day on a positive note as an upbeat European trade paved the way for a higher open. However, the strength was short-lived as the S&P 500 marked its session high during the opening minutes, and headed back towards its flat line once the November ISM Index was reported below expectations at 49.5 (51.2 Briefing.com consensus). By the close, the major averages sold off closing near the lows of the day. The materials sector was the biggest laggard as chemical producers saw broad weakness. In addition, utility and industrial stocks underperformed as well. The telecom space was the only advancer as defensive trade took hold. Telecom and technology stocks are resisting broad market pressure as the two sectors trade higher by 0.2%. Among telecoms, sector giant Verizon Communications closed unchanged on an upgrade from Nomura to a 'Buy' from 'Neutral. The other major providers also closed unchanged. Looking at technology, Apple rose modestly after announcing the iPhone 5 will be available in South Korea on December 7, with more than 50 additional countries being added in December, including Brazil, Russia and Taiwan. The stock is attempting to regain its 200-day moving average at $600. In notable analyst action, Dell surged 4% after Goldman Sachs upgraded the stock to 'Buy' from 'Sell.' Also of note, Computer Sciences rose 3% after Equifax agreed to purchase certain credit service business assets of Computer Sciences. In addition, Cowen has upgraded CSC to 'Outperform' from 'Neutral.' SunCoke Energy dropped 8% after the company elected to defer the proposed initial public offering of the equity of its subsidiary, SunCoke Energy Partners. The offering is expected to be initiated once market conditions improve. Elsewhere, Newmont Mining fell 3%. Earlier, the company announced that President and Chief Operating Officer Gary Goldberg will become President and Chief Executive Officer. In addition, Mr. Goldberg will join the company's board of directors on March 1, 2013. Not a good day for materials, industrials, energy, and transports. Risk off day for sure.