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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

9/13/13

The S&P 500 added 0.3% to extend its weekly gain to 2.0%. Today's session was very quiet as participants displayed tepid demand for equities ahead of next week's highly-anticipated FOMC meeting where a tapering announcement may occur.

Excluding a brief dip during the opening hour, the major averages were confined to narrow ranges. The early weakness took place after it was reported that the University of Michigan Consumer Sentiment Index dropped to its lowest reading since April (76.8) in the preliminary September reading. That was down from 82.1 in August and well below the consensus expectation of a drop to only 82.0. Typically, consumer sentiment follows trends in employment, equity prices, oil prices, and media reports.

Since the end of August, the Syria debate has caused oil prices to increase; and the most recent August employment gains were much weaker than expected. Equity prices, however, have been moving higher.

Despite the temporary slide into negative territory, the key indices were able to reclaim and hold their early highs into the close.

The Nasdaq (+0.2%) trailed behind the other indices as major tech names lagged. Apple (AAPL 464.90, -7.79), Google (GOOG 889.07, -4.00), and Oracle (ORCL 32.46, -0.33) lost between 0.5% and 1.7%. Intel (INTC 23.44, +0.81) outperformed, gaining 3.6% with a Jefferies upgrade to 'Buy' from 'Hold' contributing to the strength.

Other cyclical sectors ended mixed. Energy (+0.1%), financials (+0.2%), and industrials (+0.2%) lagged; discretionary shares (+0.3%) ended in-line; and materials (+0.7%) outperformed.

In the materials sector, fertilizer names like Mosaic (MOS 45.99, +1.61) and Potash (POT 32.49, +0.71) spiked to highs after reports indicated Russian investor Vladimir Kogan purchased Suleiman Kerimov's stake in Uralkali for $3.7 billion.

Similar to cyclical sectors, defensive groups were mixed. Telecom services (+0.2%) lagged while consumer staples (+0.8%) and utilities (+0.8%), outperformed. For its part, the health care sector (+0.3%) ended in-line with the S&P.

Like other asset classes, Treasuries were very quiet. The benchmark 10-yr note added five ticks and its yield slipped two basis points to 2.89%.

Trading volume was well below average as only 569 million shares changed hands on the floor of the NYSE.

As mentioned earlier, Tuesday and Wednesday of next week will bring the FOMC policy meeting where many expect the Fed to announce a reduction in the size of its asset purchases.

The taper talk began after Fed Chairman Ben Bernanke mentioned, during his June 19 press conference, that barring a downturn in the economy, the Fed could scale back the size of its purchases later in the year. Following the press conference, participants began looking to the September meeting as a possible start date for tapering.

Stocks slumped in the immediate reaction, sending the S&P lower by nearly 5.0% over the course of four days. The market has been quite resilient since then and the S&P notched fresh all-time highs on August 2. Although the S&P 500 has slipped from its record levels, it remains 2.2% above its level at the start of the June 19 session and only 1.3% below its all-time best.

Looking back at today's economic data, the retail sales and PPI reports conveyed a familiar message of modest growth and low inflation. August retail sales came in below expectations (0.2% v. 0.4% Briefing.com consensus), but the July reading was revised higher to reflect an increase of 0.4% (0.2% prior).

Separately, total PPI jumped 0.3% (Briefing.com consensus 0.2%) while core PPI, which excludes food and energy, was flat (Briefing.com consensus 0.1%).

Total business inventories rose 0.4% in July after increasing an upwardly revised 0.1% (from 0.0%) in June. The Briefing.com consensus expected business inventories to increase 0.3%. Manufacturer (0.2%) and merchant wholesaler (0.1%) inventories were known prior to the release. The only new information was that retailer inventories increased 0.8% in July after increasing 0.1% in June.

On Monday, the September Empire Manufacturing survey will be released at 8:30 ET while August industrial production and capacity utilization will be reported at 9:15 ET.

Week in Review: Stocks Climb Ahead of FOMC Meeting

The S&P 500 began the week with a Monday gain of 1.0% as trade managed to regain its 50-day moving average (1666/1667) for the first time in two weeks. Equities climbed from the open, bolstered by reassuring economic reports out of China and Japan, headlines suggesting a strike against Syria could possibly be avoided, and the notion that the relatively disappointing employment report on Friday has lowered the probability of a big tapering announcement at the September 17-18 FOMC meeting. Growth-sensitive sectors paced the advance with materials ending in the lead. The sector rose 1.5% as steelmakers rallied in reaction to the data from Asia. The Market Vectors Steel ETF (SLX 45.15, -0.15) jumped 2.8%. Fertilizer names also registered solid gains after Russian President Vladimir Putin said the ongoing potash dispute with Belarus needs to be resolved. Mosaic ended higher by 5.1%.

Tuesday's session saw the S&P 500 climb 0.7% with all ten sectors settling in positive territory. Stocks registered the bulk of their gains during the opening hour after more upbeat economic data from China combined with Syria's agreement to put its chemical weapons under international control lured participants into equities. Goldman Sachs (GS 164.00, +0.65), Nike (NKE 67.91, -0.17) and Visa (V 189.00, +3.94) posted gains after it was announced the trio will enter the Dow Jones Industrial Average following next Friday's close. The trio will replace Alcoa (AA 8.08, -0.08), Bank of America (BAC 14.49, +0.01), and Hewlett-Packard (HPQ 22.07, +0.11) in the price-weighted index.

The key indices ended Wednesday in mixed fashion as the Nasdaq shed 0.1% while the S&P 500 added 0.3% to register its seventh consecutive advance. The tech sector was pressured by Apple, which sank 5.4% after the company's overnight product refresh event in China did not reveal a deal with China Mobile (CHL 56.15, +0.59) as many investors had expected. The underperformance of Apple kept the Nasdaq and the technology sector (-0.5%) in the red throughout the day while the S&P was able to shake off the opening weakness.

On Thursday, the S&P 500 registered its first September decline, shedding 0.3% as nine of ten sectors ended in the red. Stocks slipped as several of top September performers fell victim to some profit-taking. Financials, industrials, and materials led to the downside with losses ranging between 0.5% and 1.0%. The financial sector was pressured by the underperformance of most large banks as investors attempted to gauge the impact of a slowdown in the mortgage industry after US Bank (USB 37.14, +0.27) announced that its mortgage revenue fell roughly 20% in the third quarter.