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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

7/29-8/2/13

The S&P 500 ended today's session with a modest gain of 0.2% after spending the entire day in a slow climb off its opening lows. The opening slip took place as investors reacted to a weaker-than-expected July jobs report.

Nonfarm payrolls added 162,000 jobs after adding a downwardly revised 188,000 (from 195,000) in June. The Briefing.com consensus expected 175,000 new payrolls. The report proved to be a disappointment as not only did payroll growth come in below expectations, but the average workweek dropped to 34.4 hours from 34.5 and average hourly earnings declined 0.1%. Altogether, aggregate wages fell 0.3%, which will put substantial downside pressure on retail sales growth.

Meanwhile, the unemployment rate dropped to 7.4% from June's rate of 7.6%. The consensus expected the unemployment rate to fall to 7.5%. However, the labor participation rate fell to 63.4% from June's 63.5%, causing about half of the decline in the unemployment rate.

Although stocks moved lower initially, the S&P erased almost all of its early losses as participants fell back on the Federal Reserve's pledge to provide support to the markets for as long as economic data continues to paint a lukewarm picture.

Treasuries appeared to be in agreement with this assessment as the benchmark 10-yr yield fell 12 basis points to 2.60%, erasing all of yesterday's spike.

The recovery effort in equities was assisted by the relative strength of consumer discretionary, materials, and technology sectors. The three groups gained between 0.5% and 0.7% with the discretionary space in the lead as home builders displayed broad strength. Ryland Group (RYL 41.14, +1.82) was the top performer among major builders while the broader iShares Dow Jones US Home Construction ETF (ITB 22.71, +0.44) advanced 2.0%.

Elsewhere, the materials sector rose 0.6% as steelmakers rallied. The Market Vectors Steel ETF (SLX 41.44, +0.24) added 0.6% to extend its climb off late June lows to 13.7%.

Technology shares traded in-line with the broader market at the open, but the sector's daylong climb off lows helped the Nasdaq outperform with a gain of 0.4%. The top sector (and Nasdaq) component, Apple (AAPL 462.54, +5.86), did its part in the rebound, climbing 1.3%. However, chipmakers sat out the tech rally and the PHLX Semiconductor Index dropped 0.7%.

While the S&P 500 managed to erase its opening losses, the index was held back from additional gains by the underperformance of the energy sector, which dropped 0.6% as crude oil slid 1.1% to $106.74 per barrel. On the earnings front, Dow component Chevron (CVX 124.95, -1.49) fell 1.2% after missing on earnings and revenue.

In today's remaining data, June personal income increased 0.3% while the Briefing.com consensus expected income levels to increase 0.5%. Separately, spending increased 0.5% in June against the consensus expectation of a 0.4% increase. The personal income and spending data for June were already incorporated in the Q2 2013 GDP data. None of these data will have any impact on future revisions.

On Monday, the July ISM Services report will cross the wires at 10:00 ET.

Week in Review: S&P 500 Overtakes 1,700

On Monday, the S&P 500 settled lower by 0.4% as eight of ten sectors registered losses. Equities began the session in negative territory after the third consecutive decline in Japan's Nikkei contributed to the cautious sentiment. With few earnings of note and no market-moving economic data, the session proved to be relatively quiet as investors prepared for an active week of economic data.

Tuesday's session saw little change in the S&P 500 while the Nasdaq advanced 0.5%. The S&P notched its high at the open before spending the rest of the session in a steady retreat. The selling intensified during afternoon action, sending the S&P into the red as participants displayed caution ahead of Wednesday's advance second quarter GDP report and the latest policy statement from the Federal Reserve. Energy and materials lagged from the open, and they finished behind the remaining cyclical sectors.

The S&P 500 ended Wednesday flat after being unable to clear the 1,700 level, which has presented stern resistance over the past few sessions. Stocks held slim gains into the afternoon when the latest policy directive from the Federal Open Market Committee sent the Nasdaq and S&P to fresh highs. The two indices were unable to maintain those levels into the close as broad-based weakness pressured the major averages to their lows. The FOMC policy statement did not offer many surprises. As expected, the Committee decided to maintain its current policy stance in order to continue supporting the economic recovery. The Committee also said it expects a pick-up in growth from the recent pace, and that inflation below the Fed's 2.0% target could present a risk to economic performance. On a related note, the advance second quarter GDP report surpassed expectations with a reading of 1.7% against a downwardly revised first quarter growth rate of 1.1%. The Briefing.com consensus expected the second quarter reading to come in at 1.1%.

On Thursday, the major averages settled near their highs as better-than-expected Manufacturing PMI data out of China (50.3 actual, 49.9 expected), the eurozone (50.3 actual, 50.1 expected), and the U.S. (53.7 actual, 53.1 expected) helped entice investors into bidding up global equities. The S&P 500 jumped above 1,700, a level the index had struggled with in the past few sessions, and registered a record high close of 1706.81. After jumping above 1,700 shortly after the opening bell, the S&P spent the remainder of the session trading in a seven-point range. Growth-oriented sectors displayed broad strength with financials and industrials pacing the advance.