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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

7/12/13

The major averages registered gains after a final hour rally pushed the S&P 500 and Nasdaq to their highs. For its part, the Dow ended flat.

Quarterly earnings were in focus this morning after JPMorgan Chase (JPM 54.97, -0.17) and Wells Fargo (WFC 42.63, +0.74) announced their results. Both banks reported bottom-line beats on in-line revenues. However, JPMorgan Chase saw a 7.0% quarter-over-quarter decrease in mortgage originations while Wells Fargo reported a 2.7% increase. The results provided support for other bank shares and the financial sector settled atop the sector leaderboard with a gain of 0.5%.

Discretionary shares also outperformed the broader market as online retailers displayed strength. Amazon.com (AMZN 307.55, +7.89) jumped 2.6% and shares of the online auction site eBay (EBAY 57.04, +1.16) advanced 2.1%. However, traditional retailers did not fare as well and the SPDR S&P Retail ETF (XRT 80.81, -0.20) shed 0.3%.

Equities slipped to their lows following comments from Philadelphia Fed President Charles Plosser, who said the Federal Reserve should begin reducing the pace of its asset purchases in September and end the program by year's end. Mr. Plosser followed those remarks by saying the Fed does not "want to create another housing boom."

Shortly after Mr. Plosser's comments, St. Louis Fed President James Bullard reiterated his opposition to dialing down the stimulus. It should be noted Mr. Bullard is a voting member of the Federal Open Market Committee this year while Mr. Plosser will not have a vote until next year.

Early afternoon action saw the health care sector jump to fresh highs after Bloomberg reported Roche Holdings (RHHBY 64.00, -0.12) is seeking financing for a potential takeover of Alexion Pharma (ALXN 114.26, +12.82). The news also provided a boost to biotech names, sending the iShares Nasdaq Biotechnology ETF (IBB 193.03, +4.66) to its session high.

On the downside, the industrial sector was pressured by the underperformance of two large components. United Parcel Service (UPS 86.12, -5.33) fell 5.8% after issuing cautious second quarter and full year earnings guidance due to a slowing US industrial economy. This also weighed on the Dow Jones Transportation Average, which slumped 0.6%.

In addition, Dow component Boeing (BA 101.87, -5.01) tumbled on heavy volume after a fire took place aboard a 787 Dreamliner at London's Heathrow Airport. Shortly after the news broke, separate reports indicated a Florida-bound 787 was forced to return to its home port in Manchester, U.K. due to a technical issue.

The materials sector also finished among the laggards after pacing yesterday's advance. Steelmakers underperformed and the Market Vectors Steel ETF (SLX 39.06, -0.78) fell 2.0%.

Today's economic data revealed the largest increase in producer prices since September 2012 due to an unexpected jump in energy prices. June PPI rose 0.8%, up from a 0.5% gain in May, and well above the Briefing.com consensus expectation of a 0.3% rise. The energy index rose 2.9% in June after increasing 1.3% May. That is the biggest monthly increase since February. The pickup in energy costs was due to a 7.2% increase in gasoline prices.

Excluding food and energy, core prices remain on a weak trend. Prices increased 0.2% in June after increasing 0.1% in both April and May. The consensus expected these prices to increase 0.1%.

The preliminary reading of the July University of Michigan Consumer Sentiment Index softened a bit and fell from 84.1 in June to 83.9 (85.0 Briefing.com consensus). While employment levels have generally strengthened over the past few weeks, recent volatility in the stock market coupled with increases in oil and gasoline prices likely reduced overall sentiment levels.

The Current Conditions Index rose to 99.7 in July from 93.8 in June. That is the highest level since July 2007. Meanwhile, consumers became more concerned about the future. The Expectations Index fell to 73.8 in July from 77.8 in June.

On Monday, June retail sales, retail sales ex-auto, and the July Empire Manufacturing Index will be reported at 8:30 ET while the May business inventories report will cross the wires at 10:00 ET.

Week in Review: S&P 500 and Dow Climb to New All-time Highs

On Monday, the S&P 500 settled higher by 0.5% as eight of ten sectors ended in the green. Stocks registered the bulk of their gains in the opening minutes and the S&P 500 notched its session high within the first hour of action before spending the remainder of the day in a six point range. The upbeat open was aided by a strong showing in Europe where major averages overlooked disappointing German industrial production data (-1.0% actual, -0.5% expected) and rallied on indications the next tranche of Greek aid will be approved by Eurozone officials. While most sectors were able to hold their opening gains, technology and telecom services underperformed from the start and pressured the tech-heavy Nasdaq. Chipmakers ended broadly lower after Evercore downgraded Intel (INTC 23.90, -0.09) to 'Underweight' from 'Equal Weight.' Shares of Intel fell 3.6% while the broader PHLX Semiconductor Index slid 2.0%.

Tuesday's session saw the S&P settle higher by 0.7%. Growth-oriented groups paced the advance even after the International Monetary Fund cut its 2013 global growth outlook to 3.1% from 3.3%. The materials sector gained 1.6% as steelmakers and gold miners outperformed. The Market Vectors Steel ETF settled higher by 1.5% while miners displayed strength as gold futures added 0.9% to almost $1250 per ounce. Also of note, Dow component Alcoa (AA 8.10, 0.00) shed 0.1% after its slim earnings beat was overshadowed by a 1.9% year-over-year decline in revenue. In addition, the aluminum producer reaffirmed its global aluminum demand growth forecast at 7.0%.

On Wednesday, the major averages ended in mixed fashion. The Dow shed 0.1%, Nasdaq added 0.5%, and the S&P 500 ended flat. Equities held their levels into the afternoon as market participants awaited the Minutes from the June 18/19 meeting of the Federal Open Market Committee. Most notably, the Minutes indicated several members judged a reduction in asset purchases would be warranted 'soon.' However, the Minutes were overshadowed by Ben Bernanke's speech after the close, which contributed to a sharp rally on Thursday.

Following the comments from Chairman Bernanke, the major averages saw gains between 1.1% and 1.6% with the Dow Jones and S&P 500 closing at fresh record highs. Equities registered the bulk of their advance at the open after remarks from the Fed Chairman created some push back against the idea the Fed may begin slowing the pace of its asset purchases at the September meeting. Mr. Bernanke commented on the economic landscape by saying the current employment level is overstating the health of the job market and that rates may be kept low even after the previously mentioned unemployment threshold of 6.5% is reached. The comments caused market participants to shift into risk assets and away from the U.S. dollar. Elsewhere, Treasuries received a solid bid, sending the 10-yr yield lower by 11 basis points to 2.572%.