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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

9/27/13

Equities ended the week on a lower note with the S&P 500 shedding 0.4%. The index widened its loss for the week to 1.1% as participants exhibited caution ahead of the weekend given the uncertainty associated with the ongoing budget showdown.

Earlier today, the Senate passed a funding bill that would keep the government running through November 15. The bill passed with a 54-44 vote after the provision to defund Obamacare was removed from the language. However, the bill will now head back to the House of Representatives where the defunding provision originated. President Obama weighed in during the late afternoon, saying it is up to Congress to keep government operating and that the G.O.P. is blocking the process.

Concerns over the budget debate have weighed on sentiment throughout the week, contributing to the weakness in the S&P. Meanwhile, the Nasdaq displayed relative strength and finished the week with a slim gain of 0.2%.

The Nasdaq outperformed today as biotechnology overshadowed the underperformance of the tech sector (-0.6%). The iShares Nasdaq Biotechnology ETF (IBB 210.73, +0.57) added 0.3%, also contributing to the relative strength of the health care sector, which tacked on 0.1%.

Another pocket of relative strength could be found among discretionary shares (+0.1%). Even though homebuilders lagged and the iShares Dow Jones US Home Construction ETF (ITB 22.38, -0.29) lost 1.3%, the sector received support from apparel manufacturers. Dow component Nike (NKE 73.64, +3.30) rallied 4.7%, notching a fresh record high after reporting better-than-expected earnings and above-consensus worldwide futures orders.

Elsewhere, traditional tech companies lagged with top-weighted names like Apple (AAPL 482.75, -3.47), Google (GOOG 876.39, -1.78), and Intel (INTC 22.98, -0.43) posting losses between 0.2% and 1.8%. Microsoft (MSFT 33.27, +0.50) outperformed, climbing 1.5% amid reports Ford (F 17.05, -0.22) Chief Executive Officer Alan Mulally may become the next CEO of the tech company.

On the earnings front, shares of Accenture (ACN 74.09, -1.78) lost 2.4% after the company's cautious first-quarter revenue guidance outweighed its mixed earnings.

The industrial sector (-0.6%) also weighed on the S&P amid broad weakness. Transportation-related names were pressured by airlines with United Continental (UAL 30.91, -3.16) tumbling 9.3%. The broader Dow Jones Transportation Average lost 0.6% even as crude oil posted a modest decline (-0.3% at $102.68/bbl).

Treasuries climbed steadily and the benchmark 10-yr yield slipped two basis points to 2.63%.

Below-average volume plagued the market throughout the week, and today's session saw 647 million shares change hands on the floor of the New York Stock Exchange.

The final reading of the September University of Michigan Consumer Sentiment Index was revised up to 77.5 from 76.8 in the advance report. The Briefing.com consensus expected the Consumer Sentiment Index to increase to 77.3. Even though sentiment was revised higher in the final release, the index is still well below the final August reading of 82.1. The month-to-month drop in sentiment was in-line with the Conference Board's Consumer Confidence Index, which dropped to 79.7 in September from 81.8 in August.

Consumer sentiment levels normally follow trends in equity prices, gasoline prices, media reports, and unemployment trends. Even though the initial claims level is clearly showing an improvement in labor conditions, consumers still believe that the labor market is not improving. That negative response offset strong gains in the equity market.

Separately, August personal income increased 0.4% after increasing an upwardly revised 0.2% in July. The Briefing.com consensus expected personal income to increase 0.3%. As expected from the August employment report, wages rose a solid 0.4% in August after declining 0.2% in July.

The weakness in the equity market in August reduced personal income receipts on assets by 0.2%. Gains in the equity market in July were the sole reason why income growth was positive in July. On Monday, the September Chicago PMI will be reported at 9:45 ET.

Week in Review: Budget Battle Weighs on Markets

Monday's session saw the major averages start the week on a lower note as the S&P 500 shed 0.5%. Stocks spent the first half of the session in a steady retreat, but managed to regain a portion of their losses during afternoon action. Concerns about the lack of progress in budget negotiations contributed to the decline with participants keeping one eye on Washington throughout the week. Seven of ten sectors finished in the red while technology (+0.3%), telecom services (+0.1%), and utilities (+1.2%) outperformed. The technology sectorand the Nasdaqreceived an opening boost from the shares of Apple after the largest sector component reported strong weekend demand for two of its latest devices. As a result of better-than-expected sales, the company said it expects fourth quarter revenue to come in near the top end of analyst estimates. Apple settled higher by 5.0% and component suppliers like Cirrus Logic (CRUS 22.97, -0.28) and Skyworks Solutions (SWKS 24.77, -0.24) also displayed strength.

On Tuesday, the S&P 500 settled lower by 0.3%, registering its fourth consecutive loss. Small caps outperformed the benchmark average as the Russell 2000 added 0.2%. Stocks slipped during the opening hour in reaction to a below-consensus consumer confidence report for September. Despite the opening slip, the S&P recovered swiftly, but was unable to hold the 1,700 level into the close as financials and technology weighed. The financial sector (-0.6%) underperformed for a second consecutive day with JPMorgan Chase (JPM 52.24, +0.35) leading to the downside. The stock fell 2.2% after The New York Times revealed the Department of Housing and Urban Development sought a $20 billion settlement in a mortgage-backed securities issuance case against the bank.

The S&P 500 shed 0.3% on Wednesday, extending its losing streak to five sessions. Stocks endured a sloppy session as the S&P made two unsuccessful attempts at holding the 1,700 level. After opening just above its flat line, the S&P 500 slipped into the red before recovering swiftly with the help of energy (-0.1%) and materials (+0.2%). The financial sector (+0.5%) also fueled this morning's rebound after losing roughly 3.5% during the past four sessions.

On Thursday, the S&P 500 added 0.4%, snapping its five day losing streak that saw the index surrender almost 2.0%. Although the benchmark average settled in the green, it was unable to maintain all of its early gain or register a close above the 1,700 level. In general, some of the Thursday's price action mirrored that of Wednesday with the S&P making two unsuccessful runs at 1,700. The Nasdaq ended in the lead (+0.7%), benefitting from the outperformance of biotech as the iShares Nasdaq Biotechnology ETF climbed 1.6%.