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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

9/20/13

The S&P 500 settled lower by 0.7%, but managed to end the week with a solid gain of 1.3%. The major indices spent the entire session in a steady retreat off their opening levels with industrials and materials leading to the downside.

Sellers remained in control throughout the day amid divisive headlines from Washington. The House of Representatives passed a continuing resolution bill to fund the government through December 15, but the inclusion of a provision to defund Obamacare means the bill will most likely be voted down in the Senate.

In addition, participants heard from two Fed officials whose remarks reflected quite a bit of static on the Fed's open line of communication with the market. During a morning interview on Bloomberg TV, St. Louis Fed President James Bullard said the Fed could taper at its October meeting, but added that the current low rates of inflation suggest the central bank should be patient in its assessment of Quantitative Easing.

Meanwhile, Kansas City Fed President Esther George expressed some disenchantment that the Fed did not taper at the September meeting despite believing the markets were ready. Ms. George added that she thinks the Fed lost some credibility by not following through with the taper.

Although all ten sectors ended in the red, nine finished the week with a gain while today's weakest performer (telecom services) closed the week flat.

Elsewhere, the industrial sector (-1.4%) weighed on the broader market as defense contractors lagged after Rockwell Collins (COL 70.00, -4.28) issued downside guidance for fiscal year 2014. The broader PHLX Defense Index fell 1.7%.

Also of note, the materials sector (-1.2%) finished among the laggards as steelmakers and miners slumped. The Market Vectors Steel ETF (SLX 45.81, -1.01) slid 2.2% after AK Steel (AKS 4.08, -0.36) said it expects a larger third quarter loss than what analysts had estimated. Miners lagged as gold fell 3.2% to $1326.10 per troy ounce. The Market Vectors Gold Miners ETF (GDX 25.76, -1.60) tumbled 5.9%.

With the stock market ending on its lows, only financials (-0.5%) and health care (-0.2%) outperformed while technology (-0.7%) and discretionary shares (-0.7%) ended in-line. In the technology sector, Visa (V 198.83, +4.12) added 2.2% ahead of its entry into the Dow Jones Industrial Average along with Goldman Sachs (GS 169.75, +1.97) and Nike (NKE 69.37, -0.37). The three names will replace Alcoa (AA 8.29, -0.15), Bank of America (BAC 14.44, -0.17), and Hewlett-Packard (HPQ 21.22, -0.09) in the price-weighted index.

In stock-specific news, Blackberry (BBRY 8.72, -1.80) plunged 17.1% after cutting its second quarter guidance well-below consensus estimates. The company also announced plans to cut its global workforce by 40%.

Treasuries ended near the middle of their range with the benchmark 10-yr yield slipping two basis points to 2.74%.

Aided by quadruple witching, trading volume was strong as 2.06 billion shares changed hands on the floor of the New York Stock Exchange.

There is no economic data scheduled to be reported on Monday, but global markets will be reacting to the results of the German federal election. While Chancellor Angela Merkel is not expected to lose her seat, the anti-euro party has been polling close to the 5.0% threshold needed to enter parliament.

Week in Review: Taper Schmaper

On Monday, the S&P 500 added 0.6% after a pair of weekend headlines provided an opening boost to equities. Stocks began the session sharply higher after Larry Summers, who was thought to be the hawkish frontrunner, withdrew his name from consideration to be the next chairman of the Federal Reserve. In addition, news that Russia and the United States have signed an agreement to decommission Syria's chemical weapons within a year also contributed to the early bid. With Larry Summers out of the running, bonds and equities rallied while the dollar slipped. The benchmark 10-yr note was up close to a point before surrendering most of its gain into the close. The 10-yr yield ended lower by two basis points at 2.87%.

There wasn't much to be said about the trading action in the stock market on Tuesday because there wasn't a whole lot of trading action. Volume at the NYSE totaled a piddly 577 million shares versus an average of 661 million shares. The light volume reflected a wait-and-see mindset ahead of Wednesday's highly-anticipated announcement from the FOMC on whether it has decided to begin curtailing its asset purchase program.

On Wednesday, the S&P 500 jumped 1.2%, closing at a record high of 1,725.52 after the Federal Open Market Committee failed to announce plans to reduce the pace of its asset purchases, as many had expected. Although the Federal Reserve did not make a tapering announcement, the policy statement did contain updated economic projections. Notably, the forecast for 2013 and 2014 GDP was lowered with the Committee expecting this year's growth between 2.0% and 2.3% (2.3%-2.6% June forecast) and 2014 growth ranging between 2.9% and 3.1% (3.0%-3.5% June projection). During his press conference, Mr. Bernanke said economic data received since June has not been strong enough to justify scaling back asset purchases just yet. The Fed Chairman also said that recent tightening of financial conditions, as well as the ongoing fiscal uncertainty, played a part in the decision to maintain asset purchases at a pace of $85 billion per month ($40 billion in mortgage-backed securities, $45 billion in Treasuries). Similar to equities, Treasuries and precious metals welcomed the lack of a tapering announcement. The 10-yr note rallied more than a point, pushing its yield down 14.5 basis points to 2.71%. This marked the lowest close for the benchmark yield since August 12.

Thursday's session did not generate many headlines as the S&P 500 shed 0.2% while the tech-heavy Nasdaq added 0.2%. After spiking to new record highs on Wednesday, the Dow, S&P 500 and Russell 2000 spent the entire session in a slow retreat off their opening levels. Seven of ten sectors finished in the red while industrials (+0.1%), technology (+0.2%), and discretionary shares (+0.01%) posted modest gains. The discretionary sector received support from retailers as the SPDR S&P Retail ETF (XRT 82.30, -0.42) added 0.2%.