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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

7/1/13-7/5/13

The major averages entered the weekend on a positive note. The S&P 500 settled higher by 1.0% as nine of ten sectors posted gains.

Equities opened in the green after the June nonfarm payrolls report handily beat expectations (195K actual, 166K Briefing.com consensus). However, the details of the report took some shine off the headline number as individuals working part-time for economic reasons increased by 322,000, the number of discouraged workers was up by 206,000 from the year-ago period; the percentage of long-term unemployed workers (i.e. 27 weeks or longer) was still too high at 36.7%; and the U6 unemployment rate, which accounts for unemployed and underemployed workers, rose to 14.3% from 13.8%.

Notably, the better-than-expected headline number gave investors enough reason to believe the Federal Reserve may begin modifying the pace of its asset purchases sooner rather than later. To that end, Treasuries sold off aggressively and spent the remainder of the session on their lows. The benchmark 10-yr yield jumped 22 basis points to end at 2.72%, its highest level since August 2011.

Today's jobs report also gave a notable boost to the dollar, sending the Dollar Index to a three-year high amid all-around greenback strength. In turn, dollar strength pressured industrial and precious metals as copper futures tumbled 3.2% to $3.072 per pound while gold futures slumped 3.1% to $1212.50 per troy ounce.

However, crude oil jumped 1.9% to end on its high at $103.19 per barrel. The energy component rallied throughout the day amid ongoing clashes between the Egyptian army and pro-Morsi crowds following the removal of the former President.

Stocks slid from their morning highs as rate-sensitive sectors weighed on the broader market. The S&P briefly dipped into the red one hour into the session before staging a reversal amid thin volume. The benchmark average managed to close above its 50-day moving average after its previous three attempts were rejected sternly.

The jump in yields contributed to weakness in the utilities sector, which ended lower by 0.5% after spending the entire day in negative territory. Two other rate-sensitive groups, consumer staples (+0.2%) and telecom services (+0.5%) spent some time in the red, but rallied into the close.

Higher rates also exerted pressure on homebuilders and real estate investment trusts. Lennar (LEN 33.93, -1.42) and DR Horton (DHI 20.28, -0.68) ended with respective losses of 4.0% and 3.2% while the broader iShares Dow Jones US Home Construction ETF (ITB 21.97, -0.45) fell 2.0%. Meanwhile, iShares Dow Jones US Real Estate ETF (IYR 65.86, -0.70) ended lower by 1.1%.

On the flip side, the financial sector settled higher by 1.8% after spending the entire session atop the leaderboard.

The industrial sector also registered a strong gain (1.5%) as transportation-related names drove the sector higher. The Dow Jones Transportation Average advanced 1.5% as all 20 components rallied.

The health care sector (+1.3%) also finished among the leaders as biotech companies outperformed. The iShares Nasdaq Biotechnology ETF (IBB 182.22, +3.47) ended higher by 1.9%.

Today's volume was well below average as only 625 million shares changed hands on the floor of the New York Stock Exchange. The final tally was more than 100 million shares below the 200-day average.

Week in Review: Stocks Climb Amid Thin Holiday Volume

This week proved to be a technical affair as the S&P 500 tested its 50-day moving average on Monday and Tuesday. In addition, the benchmark average was not able to hold above its 20-day average and closed below that level on Monday, Tuesday, and Wednesday.

On Monday, the S&P 500 advanced 0.5% to begin the third quarter on an upbeat note. Although the S&P registered a solid gain, the index closed almost 12 points below its session high. Stocks climbed at the open, taking a cue from gains in major markets across the world. Global investors favored equities despite mixed PMI data out of China as the country's Manufacturing PMI declined to 50.10 from 50.80 (50.00 expected) and the HSBC Manufacturing PMI remained in contraction with a downtick to 48.2 from 48.3 (48.3 forecast).

Tuesday's session saw the S&P 500 shed 0.1%. Contributing to the weakness was the situation in Portugal where the country's foreign minister resigned after the finance minister, who constructed the country's EU/IMF bailout, submitted his resignation on Monday. The resignations of two key figures put the spotlight on Prime Minister Pedro Passos Coelho, who said he does not plan to step down. The uncertainty pushed the Portuguese 10-yr yield higher by nine basis points to 6.42%.

Wednesday's shortened session ended with a gain of 0.1% for the S&P 500. In Egypt, President Mohammed Morsi was removed from his post through a military coup after he failed to answer the demands of protesting crowds within the timeframe specified by the country's armed forces. Elsewhere, Portugal returned to headlines after reports indicated two more ministers (agriculture and social security) are set to resign. As a result, the country's benchmark 10-yr yield spiked 85 basis points to 7.31%. In addition Portugal's PSI index fell 5.3%. The concerns regarding the country's future spilled over to other peripheral economies. Italy's 10-yr yield climbed 11 basis points at 4.51% while Spain's benchmark 10-yr yield jumped 14 basis points to 4.70%. Some of the concerns were allayed the following day after Portugal's Prime Minister Pedro Passos Coelho said the ruling coalition had reached an agreement to maintain the current government.