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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

2/18-2/22/13

February 22, 2013
The S&P 500 gained 0.9% to rebound from its two-day slide which saw the index drop just under 2.0%. However, despite today's rally, the benchmark average was unable to register a higher close for the week, thus snapping its streak of seven consecutive weekly gains. Stocks began the session on a positive note amid upbeat European trade. The bullish bias across the old continent was attributed in part to a better-than-expected Ifo Business Climate Survey out of Germany. With no domestic economic data of note, attention was centered mostly on earnings as several notable companies reported their results. Hewlett-Packard (HPQ 19.20, +2.10) jumped 12.3% after beating on earnings and revenue. The company also issued upbeat second quarter earnings guidance, but it should be noted the stock was trading near its all-time lows as recently as late November. That multi-year weakness has caused analysts to lower their expectations for the computer company. Elsewhere in tech, semiconductor manufacturers outperformed after begin one of the weakest groups yesterday. Contributing to the strength was Texas Instruments (TXN 34.18, +1.70), which climbed 5.2% after hiking its quarterly dividend by 33% to $0.28 and announcing the authorization of an additional $5 billion in funds aimed at repurchasing company stock. Meanwhile, the broader PHLX Semiconductor Index gained 2.1%. Financials also finished among the leaders. American International Group (AIG 38.45, +1.17) advanced 3.1% after beating bottom line estimates on revenue below consensus. Also of note, the materials sector underperformed throughout the week but was today's top advancer. On Tuesday, basic materials settled in the red despite a broad market advance. As stocks sold off on Wednesday and Thursday, the sector led to the downside amid weakness in industrial and precious metals. As a result, the space is now registering the slimmest gains of the year among the 10 sectors. Although cyclical stocks outperformed, this was not the case with consumer discretionary shares. Retailers saw relative weakness and the SPDR S&P Retail ETF (XRT 67.31, 0.00) ended flat. Abercrombie & Fitch (ANF 46.86, -2.19) settled as the weakest S&P 500 component after beating on earnings ex-charges and announcing plans to shutter up to 50 stores. With consumers adjusting to lower spending power resulting from the expiration of the payroll tax cut, profit warnings from consumer companies have become more frequent. This morning, Darden Restaurants (DRI 46.23, +1.49) issued downside third quarter earnings guidance with higher payroll tax as well as rising gasoline prices cited as the reason. Reviewing today's S&P 500 sector performance, materials (+1.3%), technology (+1.2%), financials (+1.2%), and utilities (+1.1%) led the way. On the downside, health care (+0.4%), consumer staples (+0.5%), and consumer discretionary (+0.6%) registered slimmer gains than the broader market. Today's volume was below average as less than 690 million shares changed hands on the floor of the New York Stock Exchange. This suggests the rally may not have been built on the same conviction as the recent sell off, which saw the two highest volume sessions of 2013. There is no economic data scheduled to be released on Monday. However, it should be noted that the closely-contested Italian general election is scheduled to take place on Sunday and Monday of next week.

February 21, 2013
The S&P 500 settled lower by 0.6% after today's session saw an extension of yesterday's selling. Equities began the day in the red and continued sliding into the afternoon when bargain hunters stepped in and lifted the major averages off their lows. The S&P 500 managed to hold the psychologically important 1500 level, avoiding its first close below that mark since February 4. Meanwhile, the Dow shed 0.3%, and registered slimmer losses than the other two averages. The outperformance was largely due to the strength of Wal-Mart (WMT 70.26, +1.05), which gained 1.5% after beating on earnings. However, the company issued first quarter guidance which was on the low end of analyst expectations. In addition, Wal-Mart expects its comparable store sales to be flat during the first quarter. This suggests the worries regarding consumer spending, expressed in an internal email last week, have some credence to them. Wal-Mart also contributed to the strength of consumer staples which finished with a gain of 0.3%. The defensively-oriented sector also received support from Hormel Foods (HRL 36.51, +0.39) and Safeway (SWY 22.97, +2.84), both of which climbed on earnings. Hormel reported quarterly results in-line with the Capital IQ consensus while Safeway eclipsed its earnings expectations by $0.19. As staple stocks held strong for the bulk of the session, telecoms joined in during afternoon trade and settled higher as well. Verizon Communications (VZ 45.12, +0.20) advanced 0.5% after displaying relative strength in the face of broad selling pressure. With defensive sectors ending in the black, cyclical stocks were among the biggest laggards. Materials led to the downside for a large portion of the day, and finished as the day's weakest sector. Chemical producers underperformed after Dow Chemical (DOW 30.84, -0.80) was ordered to pay $400 million in a case involving price fixing. The materials sector was yesterday's biggest laggard as well. Today's intraday weakness caused it to surrender all of its year-to-date gains, but late-afternoon buying helped the space climb back into the black for 2013. However, its 2013 advance has been trimmed to just 0.1%. Elsewhere, the tech space followed closely behind materials. This occurred despite the slight outperformance from its largest component, Apple (AAPL 446.06, -2.79). Tech shares saw some notable pressure from chipmakers as Rubicon Technology (RBCN 4.92, -0.85) plunged 14.7% on disappointing earnings and cautious guidance. Meanwhile, the broader PHLX Semiconductor Index fell 1.8%. As a result of today's selling, the CBOE Volatility Index (VIX 15.42, +0.74) jumped for the second day in a row. The near-term volatility measure has now risen to its highest close of the year. Reviewing S&P 500 sector performance, materials (-0.9%), technology (-0.9%), financials (-0.9%), and industrials (-0.9%) led to the downside while consumer staples (+0.3%) and telecoms (+0.2%) outperformed. Volume was above average once again as 814 million shares changed hands on the floor of the New York Stock Exchange. Today's economic data was plentiful with most reports falling largely in-line with expectations. Weekly initial claims rose to 362,000 which placed the figure right back in the 350,000-400,000 range seen for much of last year. Meanwhile, consumer prices saw no change in January while core CPI ticked higher by 0.3%, slightly ahead of expectations. January existing home sales were reported at an annualized rate of 4.92 million which was just a shade below the 4.94 million expected by the Briefing.com consensus. Leading indicators for January increased by 0.2%, slightly worse than the Briefing.com consensus which had expected an uptick of 0.3%. Today's figure followed the prior month's rise of 0.5%. Lastly, the February Philadelphia Fed Survey fell to -12.5 to follow January's reading of -5.8. Economists polled by Briefing.com had expected that the Survey would improve to 1.5.

February 20, 2013
The S&P 500 settled lower by 1.2% after spending the entire session in negative territory. Equities began the day on a lower note amid mixed housing data and hovered near their lows ahead of the Fed's minutes. Stocks then fell to fresh lows after the minutes indicated Committee members saw little change to the economic outlook. Along those lines, memberswith the exception of Esther Georgemaintained their support for the continuation of highly accommodative policy. Homebuilders were under pressure after Toll Brothers (TOL 33.56, -3.34) reported its quarterly results this morning. The builder missed on earnings and revenue, but saw an increase to its backlog. In addition, the company raised its full-year 2013 gross margin guidance during its earnings call. Homebuilders sold off in reaction to Toll's earnings and afternoon weakness pushed builder stocks further into the red. Peers PulteGroup (PHM 18.60, -1.35) and D.R. Horton (DHI 21.92, -1.37) were off 6.8% and 5.9% respectively. Elsewhere among discretionary shares, Office Depot (ODP 4.18, -0.84) and OfficeMax (OMX 12.09, -0.91) announced the completion of their stock-for-stock merger. Competitor Staples (SPLS 13.60, -1.05) fell 7.2% on the news. As a result of today's selling, six of 10 S&P 500 sectors lost over 1.0%. Energy and materials were the weakest performers in early trade, and continued lower during the afternoon. The energy sector saw some pressure from crude oil, which fell 2.4% and settled just under $95.00. Elsewhere, materials underperformed as industrial and precious metals displayed notable weakness for the second consecutive session. In addition, chemical producer CF Industries (CF 207.07, -11.46) fell 5.2% after missing on the top line. The tech space was another notable laggard. The largest sector component, Apple (AAPL 448.85, -11.14) lost 2.4% after reports indicated Foxconn, which assembles Apple products, has instituted a hiring freeze. However, the initial report was followed by stories suggesting the hiring freeze may not be related to changes in demand for Apple products. Instead, Foxconn could be making adjustments to better suit other companies it conducts business with. The first half of the session saw outperformance from defensively-oriented consumer staples, telecoms, and utilities. Though these sectors succumbed to broad pressure in afternoon trade, they settled with slimmer losses than the broader market. Today's sell-off stirred up some demand for downside protection. This was reflected by the CBOE Volatility Index (VIX 14.62, +2.31), which surged over 15.0%. In the futures market, VIX contracts saw buying interest as well with the largest moves apparent in front-month contracts. Volume was well above average today as 816 million shares changed hands on the floor of the New York Stock Exchange. Taking a final look at the day's S&P 500 sector alignment, materials (-2.8%), energy (-1.8%), consumer discretionary (-1.6%), and technology (-1.5%) stocks were among the biggest laggards. Meanwhile, consumer staples (-0.1%), telecoms (-0.2%), and utilities (-0.2%) withstood the brunt of the selling. Looking back at today's economic data, January housing starts were reported at an annualized rate of 890,000 units, which fell short of the 914,000 expected by the Briefing.com consensus. However, the prior month's reading saw a substantial upward revision. Additionally, building permits beat expectations and rose to 925,000. This report is seen as a leading indicator suggesting demand for new homes remains intact. Tomorrow's economic data will be plentiful. At 8:30 ET, weekly initial and continuing claims, January CPI, and core CPI will all be released. Meanwhile, January existing home sales, leading indicators, and February Philadelphia Fed Survey will all be reported at 10:00 ET.

February 19, 2013
At midday, the S&P 500 trades higher by 0.5%. Including today's gain, the benchmark index has added over 7.0% since the start of the year. The major averages began the holiday-shortened week with an upbeat open assisted in part by a strong German ZEW Economic Sentiment Survey. The key indices then held their levels despite a disappointing NAHB Housing Market Index, which slipped to 46 from its prior reading of 47. Although the report had little effect on the broader market, homebuilders have faced increased selling pressure since the release crossed the wires. The iShares Dow Jones US Home Construction ETF (ITB 23.08, -0.42) is lower by 1.8%. Elsewhere in the discretionary space, office supply store operators are outperforming after weekend reports indicated Office Depot (ODP 4.99, +0.40) and OfficeMax (OMX 12.92, +2.17) are discussing a stock-for-stock merger agreement. Additionally, Staples (SPLS 14.23, +1.28) is surging 9.9% as the company stands to benefit from more rationalized competition. The merger talks have contributing to the outperformance of the SPDR S&P Retail ETF (XRT 68.30, +0.83), which trades higher by 1.2%. In addition to discretionary stocks, materials are trading lower. The SPDR Materials Select Sector ETF (XLB 39.24, -0.11) is off by 0.3% amid weakness in industrial metals. Aluminum, copper, and nickel are all down between 1.5% and 1.7%. Also of note, health care providers are underperforming after Centers for Medicare & Medicaid Services proposed lower Medicare co-payments for 2014. Dow component UnitedHealth Group (UNH 56.34, -0.98) is sliding 1.7% on the news. Over the weekend, the G20 summit in St. Petersburg did not produce much news of note. A statement released by the group stressed the importance of avoiding competitive devaluation of currencies, but did not single out any particular country.

February 18, 2013
Closed for President's Day