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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

1/7-1/11/13

January 11, 2013
The major averages saw little change during today's session, and the S&P 500 remained at its five-year high. However, equities slipped out of the gate as data out of China indicated the country's consumer price index rose by 2.5% year-over-year. The news put a damper on expectations for future stimulus and China's Shanghai Composite lost 1.8%. Domestically, traders looked to Wells Fargo (WFC 35.10, -0.30), which was the first financial to report its fourth quarter results. The financial sector was the weakest performer and Wells Fargo lost 0.9%. The bank's quarterly report topped the Capital IQ earnings and revenue forecast, but turned out to be less upbeat below the surface. During the fourth quarter, Wells Fargo saw its margins compress to a multi-year low. In addition, mortgage originations dropped from $139 billion in the third quarter to $125 billion during the most-recent reporting period. Elsewhere, American Express (AXP 61.24, +0.45) added 0.7% after the company pre-announced better-than-expected fourth quarter earnings. Additionally, American Express has announced plans to cut over 5,000 jobs. The materials sector lagged due to underperformance from miners and steelmakers following hotter-than-expected Chinese inflation data. Earlier, BHP Billiton (BHP 76.66, -2.03) and Rio Tinto (RIO 55.65, -1.64) were both downgraded to 'Neutral' from 'Outperform' at Macquarie. The two miners settled lower by 2.6% and 2.9% respectively. The consumer staples space was the top performing sector and the SPDR Consumer Staples Select Sector ETF (XLP 35.92, +0.16) ended higher by 0.5%. Though most components were mixed, tobacco stocks led the sector higher. Philip Morris (PM 89.23, +1.94) was the top industry performer after Goldman Sachs added the stock to its Conviction Buy List. Philip Morris gained 2.2% and other cigarette producers saw strength as well. Reynolds American (RAI 42.62, +0.36) and Lorillard (LO 117.02, +0.93) both gained near 0.9%. With the holiday shopping season in the rearview mirror, the market has been receiving early reports concerned with holiday spending. Yesterday, Aeropostale (ARO 12.38, -0.86) lowered its earnings guidance which weighed on rival teen retailers. Though the stock proved to be resilient during yesterday's session, it ended lower by 6.5% today. Earlier, Piper Jaffray downgraded the stock to 'Neutral' from 'Overweight.' Additionally, Imperial Capital has cut its price target for Aeropostale to $15 from $18. Looking at peers, American Eagle Outfitters (AEO 19.14, -0.80) and Buckle (BKE 43.85, -0.33) lost 4.0% and 0.8% respectively. Elsewhere, Best Buy (BBY 14.21, +2.00) surged 16.4%. This morning, the electronics retailer reported flat domestic comparable store sales while international sales declined by 6.4% year-over-year. With lowered expectations going into the holiday period, the market is receiving today's update as better-than-feared. Overnight, aircraft manufacturer Boeing (BA 75.16, -1.93) returned to the headlines. Overnight reports from Reuters indicated that two more Dreamliner 787 jets have experienced structural issues. In response to the rash of recent issues, the United States Federal Aviation Administration has ordered a review of the aircraft's electrical systems. A handful of economic data points were reported today. The trade deficit widened to $48.7 billion during November after a downwardly revised prior month deficit of $42.1 billion. Economists polled by Briefing.com had expected that the deficit would come in at $41.8 billion. Export prices, excluding agriculture, decreased by 0.2% in December after they had decreased by 0.7% during the prior month. Excluding oil, import prices decreased by 0.1%, which follows the 0.2% decrease experienced in the prior month.

The December Treasury Budget showed a deficit of $260 million, which was narrower than the deficit of $1.0 billion expected by the Briefing.com consensus. The report has mattered little to market participants as equity indices did not respond to the news.

January 10, 2013
Equities began today's session on a positive note after China's trade surplus expanded to $31.6 billion due to strong export growth. The upbeat open was followed by a late-morning stumble, but the S&P 500 showed resilience and climbed to fresh highs. The benchmark index ended with a gain of 0.8%. The financial sector paced the advance, and the SPDR Financial Select Sector ETF (XLF 17.15, +0.21) settled higher by 1.3%. The financial sector proxy ETF ended at a fresh 52-week high with most majors scheduled to announce their fourth quarter earnings next week. Tomorrow morning, Wells Fargo (WFC 35.40, +0.69) will be the first notable sector component to report. The Capital IQ consensus expects the bank to reveal earnings of $0.89 on $21.26 billion in revenue. An in-line report would indicate healthy year-over-year bottom line growth of nearly 22.0%. Looking at other majors, Bank of America (BAC 11.78, +0.35) gained 3.1% and Morgan Stanley (MS 20.34, +0.72) advanced 3.7%. The technology sector spent the majority of the session in the red, but late-day strength in the shares of Apple (AAPL 523.51, +6.41) saw the stock rise by nearly $10, and pushed the tech sector higher. The notable bid followed comments from Apple's chief of marketing who said the company "is not interested" in making cheap, low-profit products. The largest tech company was in the news earlier this morning when Reuters reported Chief Executive Officer Tim Cook met with the chairman of China Mobile (CHL 58.75, +1.45) to talk about "matters of cooperation." China Mobile, which has over 700 million subscribers, does not currently offer Apple products on its network. Among names reacting to analyst comments, Microsoft (MSFT 26.46, -0.24) shed 0.9% after Morgan Stanley downgraded the stock to 'Equal-Weight' from 'Overweight.' Teen retailers lagged the broader market after Aeropostale (ARO 13.24, -0.13) issued downside earnings guidance due to disappointing holiday sales. Aeropostale shed 0.9% and peer American Eagle Outfitters (AEO 19.94, -0.69) settled lower by 3.3%. Elsewhere, Tiffany (TIF 60.40, -2.86) slumped 4.5% after the jewelry retailer said it expects its fourth quarter earnings to be near the low end of its prior guidance range. Peers Blue Nile (NILE 36.58, -0.57) and Coach (COH 57.49, -0.47) both lost near 1.0%. The latest weekly initial jobless claims count totaled 371,000, which was worse than the 364,000 that had been expected by the Briefing.com consensus. The tally was above the revised prior week count of 367,000. As for continuing claims, they fell to 3.109 million from 3.236 million. In tomorrow's economic data, November trade balance, export prices ex-agriculture, and import prices ex-oil will all be reported at 8:30 ET. Lastly, the U.S. Treasury will release its December budget at 14:00 ET.

January 9, 2013
Stocks began the day on a positive note after Alcoa (AA 9.08, -0.02) kicked off the fourth quarter earnings season with a strong top line result. With no notable economic data, the remainder of the session was largely uneventful as the key indices retreated off their respective highs, ending with just a portion of their early gains. The S&P 500 added 0.3%. Financials lagged the broader market, and the SPDR Financial Select Sector ETF (XLF 16.94, -0.03) shed 0.2%. Bank of America (BAC 11.43, -0.55) lost 4.6%, and was a notable underperformer. This morning, Credit Suisse downgraded the stock to 'Neutral' from 'Outperform.' In addition, Bank of America is taking part in a two-day hearing on its successor liability over the Countrywide legacy assets. Also of note, multiple reports have indicated Morgan Stanley (MS 19.62, -0.03) will cut 1,600 jobs in its institutional securities business. The expected layoffs would amount to about 6.0% of the company's workforce within the investment banking unit. Looking at other majors, Citigroup (C 42.04, -0.42) slipped 1.0% and Goldman Sachs (GS 134.32, +1.27) added 1.0%. For-profit education names saw general weakness after Apollo Group (APOL 19.32, -1.62) reported its quarterly results. Although Apollo beat on earnings and revenue, its full-year revenue guidance was a disappointment. Following the earnings report, Morgan Stanley downgraded the stock to 'Equal-Weight' from 'Overweight.' Apollo Group sank 7.8% and peers DeVry (DV 24.00, -1.24) and Strayer Education (STRA 52.70, -4.47) both lost in excess of 4.5%. A handful of tech companies advanced after issuing upbeat guidance. Interactive Intelligence (ININ 39.02, +6.12) surged 18.6% after the company guided its fourth quarter and full-year revenue ahead of the consensus estimate. Elsewhere, Seagate (STX 33.48, +2.09) advanced 6.6% after raising its second quarter revenue guidance above analyst estimates. Peer Western Digital (WDC 43.80, +1.82) gained 4.3%. Also of note, Apple (AAPL 517.10, -8.21) dropped 1.6%. Last evening, the Wall Street Journal published reports which indicated the tech company may launch a lower-end iPhone during the second half of the year. Among industrials, Boeing (BA 76.76, +2.63) added 3.6% to rebound from recent weakness which followed concerns about mechanical issues with the company's new Dreamliner 787 jet. Note that earlier reports out of Japan have indicated an All Nippon Airways flight was cancelled due to an issue with the plane's braking system. Today's economic data was limited to the MBA Mortgage index, which pointed to an 11.7% week-over-week increase in mortgage applications. This followed the prior week's decline of 10.4%. Looking at tomorrow's economic data, weekly initial and continuing claims will be reported at 8:30 ET.

January 8, 2013
The S&P 500 ended lower by 0.3% after spending the duration of the session in the red. With little economic data of note and below-average volume, the key indices traded in range bound fashion ahead Alcoa's (AA 9.10, 0.00) earnings report, which will kick-off the fourth quarter earnings season. Consumer discretionary stocks were in focus after Yum! Brands (YUM 65.04, -2.85) reaffirmed its full-year 2012 earnings guidance, but lowered the same-store sales estimates for its China division. As a result of the disappointing outlook, Yum! Brands slid 4.2% and other quick service restaurants traded lower as well. Darden Restaurants (DRI 45.31, -0.23) and Wendy's (WEN 4.74, -0.05) both shed near 0.7%. Elsewhere in the discretionary sector, Signet Jewelers (SIG 58.70, +4.87) surged 9.1% after the company guided its fourth quarter earnings near the high end of its prior range. In addition, Signet reported a 3.3% increase in holiday sales. Other high-end retailers saw strength as well. Coach (COH 57.33, +1.70) and Zale (ZLC 4.26, +0.08) settled higher by 3.1% and 1.9% respectively. Also of note, GameStop (GME 23.19, -1.56) fell 6.3% after the company reported disappointing holiday sales. The company expects its fourth quarter earnings per share to be at the low end of its current guidance range. Video game publishers Electronic Arts (EA 13.77, -0.68) and Take-Two Interactive (TTWO 11.78, -0.36) were pressured by the news, and ended lower by 4.7% and 3.1% respectively. The materials sector advanced as the space resisted the broad market pressure. The sector was supported by Monsanto (MON 98.50, +2.56), which reported upbeat quarterly result this morning. During the first quarter, the chemical producer earned $0.62, which was well ahead of the $0.26 expected by the Capital IQ consensus. In addition, Monsanto's revenue of $2.94 billion was also ahead of expectations. The Dow Jones Transportation Average slipped 0.4%. Airlines have shown notable strength since the start of December, but major carriers saw mixed performance after Deutsche Bank changed its rating on two carriers. Southwest Airlines (LUV 11.03, +0.12) was a bright spot, gaining 1.1% after being upgraded to 'Buy' from 'Hold.' On the downside, JetBlue Airways (JBLU 5.94, -0.03) shed 0.5% after the stock was downgraded to 'Hold' from 'Buy.' Additionally, afternoon reports have indicated an international Japan Airlines flight was forced to return to its gate at Boston Logan International Airport due to a fuel leak. This marks the second time in two days that a Boeing (BA 74.13, -2.00) Dreamliner jet has suffered structural issues. As a result, Boeing lost 2.6%, and settled near its session low. The telecom sector was the biggest laggard and the iShares Dow Jones US Telecom (IYZ 24.55, -0.38) lost 1.5%. Major carriers AT&T (T 34.35, -0.59) and Verizon Communications (VZ 43.10, -1.07) saw respective losses of 1.7% and 2.4%. The sector underperformed notably despite AT&T reporting having sold over 10 million smartphones during the fourth quarter of 2012. In addition, earlier reports have suggested Verizon Communications may purchase Vodafone's stake in Verizon Wireless. Shares of Vodafone, listed on the FTSE, gained 1.7% in response to the buyout speculation. According to the Federal Reserve, consumer credit increased by $16 billion in November. This follows the prior month's $14.2 billion increase, and is higher than the $10.6 billion that had been broadly expected among economists polled by Briefing.com.

January 7, 2012
Stocks registered modest losses during today's quiet session. With no economic data or notable earnings to dictate the tone, the major averages were trapped in a relatively narrow range. The S&P 500 opened in the red, and traded near its opening levels for the duration of the session. As a result, the benchmark index finished lower by 0.3%. The Nasdaq outperformed and shed 0.1% after Apple (AAPL 523.90, -3.10) recovered the bulk of its early losses to ended lower by 0.6%. The SPDR Energy Select Sector ETF (XLE 73.22, -0.57) shed 0.8% despite little change in the price of crude oil. Several energy companies lagged after receiving downgrades from Howard Weil. Among the most notable names, Phillips 66 (PSX 51.36, -1.78) was downgraded to 'Sector Perform' and Tesoro (TSO 40.22, -2.32) was cut to 'Sector Outperform.' Phillips 66 lost 3.4% and Tesoro fell 5.5%. Financials performed in-line with the broader market after the Federal Reserve announced the results of the Independent Foreclosure Review. As a result of the review, ten major banks will be required to provide $3.3 billion in payments and $5.2 billion in other assistance to affected homeowners. The settlement comes after banks engaged in deficient practices in mortgage loan servicing and foreclosure processing. Looking at individual financials, Wells Fargo (WFC 34.57, -0.37) and US Bank (USB 32.92, -0.30) lost 0.5% and 0.9% respectively. Also of note, Bank of America (BAC 12.09, -0.02) announced it has reached a settlement with Fannie Mae to resolve agency mortgage repurchase claims on loans originated and sold directly to Fannie Mae through December 31, 2008. The settlement is expected to reduce Bank of America's fourth quarter pretax income by about $2.7 billion. The health care sector registered gains thanks to the strength of health care tech companies. Allscripts Healthcare (MDRX 9.71, +0.34) rose by 3.6% after Avondale upgraded the stock to 'Outperform.' Elsewhere, Quality Systems (QSII 18.21, +0.82) gained 4.7% after NextGen Healthcare Information Systems, which is a wholly owned subsidiary of QSII, announced it has entered into a strategic agreement with Medline Industries to expand its integrated solutions. The Dow Jones Transportation Average slipped 0.4% as railroads underperformed. Earlier, Kansas City Southern (KSU 86.42, -2.40) was downgraded to 'Equal Weight' from 'Overweight' at Stephens. CSX (CSX 20.46, -0.48) and Kansas City Southern were two of the weakest rail operators, and both lost in excess of 2.0%. On the upside, airlines saw relative strength. A weekend article published in Barron's discussed the industry's valuation and pointed to Delta Air Lines (DAL 12.99, +0.01) as one of top airline stocks. For-profit education names were pressured after ITT Education (ESI 15.57, -3.72) announced it expects to record an after-tax charge of about $13.2 million to its fourth quarter net income. The charge stems from a settlement with Sallie Mae, and is expected to reduce ITT's fourth quarter bottom line by about $0.56. ITT Education slumped 19.3% on the news, and its peers underperformed as well. Strayer Education (STRA 57.69, -3.17) and New Oriental Education & Technology (EDU 19.50, -0.50) lost 5.2% and 2.5% respectively. Tomorrow's economic data will be limited to November consumer credit, scheduled for a 15:00 ET release. The U.S. Treasury will auction off $32 billion in 3-yr notes.