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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

10/11/13

The S&P 500 added 0.6% to extend its weekly gain to 0.8%. The Nasdaq outperformed with an advance of 0.8%, but finished the week with a loss of 0.4%.
Stocks climbed amid morning reports indicating a new proposal has been put forth by Republicans that would end the government shutdown and avoid a Treasury default. However, the subsequent White House meeting failed to produce a concrete agreement and Senator Orrin Hatch, who took part in the meeting, said the president expressed some concern over the duration of the proposed debt limit extension. Senator Hatch also said President Obama articulated the need for new revenues to be part of a long-term deficit reduction. In the end, the two sides did not appear to be much closer to an agreement as the shutdown is set to enter its third week.
Even though a solution to the deadlock has yet to be found, equities cheered the mere presence of some form of discussion. All ten sectors registered gains with energy (+1.0%) ending in the lead. The sector posted a solid gain even as crude oil fell 1.0% to $101.92 per barrel.
Meanwhile, the other commodity-related sectormaterials--underperformed as miners weighed. The Market Vectors Gold Miners ETF (GDX 23.05, -0.50) fell 2.1% while gold futures tumbled 2.1% to $1269.80 per troy ounce. Most of the decline in gold took place about an hour before the opening bell with the yellow metal falling more than $20 in under two minutes.
Elsewhere among cyclical sectors, discretionary shares (+0.8%) finished ahead of the broader market with homebuilders contributing to the strength. The iShares Dow Jones US Home Construction ETF (ITB 21.91, +0.37) advanced 1.7% as all major builders rallied.
Also of note, the financial sector (+0.6%) ended in-line with the S&P after JPMorgan Chase (JPM 52.51, -0.01) and Wells Fargo (WFC 41.43, -0.01) reported their quarterly results. JPMorgan Chase beat on earnings and revenue while Wells Fargo reported a bottom-line beat on below-consensus revenue.
Treasuries ended unchanged with the benchmark 10-yr yield at 2.69%.
Trading volume was on the light side as 634 million shares changed hands on the floor of the New York Stock Exchange.
Looking back at today's economic data, the University of Michigan Consumer Sentiment Index dropped to 75.2 in the preliminary October reading from 77.5 in September. The Briefing.com consensus expected the index to fall to 74.5.
The drop in the index was most likely due to negative feedback from the government shutdown and the debate over the debt ceiling. If the government reopens soon and the debt ceiling is not breached, consumer sentiment is likely return to its September levels by the end of the month.

Week in Review: Stocks Dance to Washington's Tune

On Monday, the S&P 500 fell 0.9% as the equity market began the week on a shaky note and the same thing could have been said for politics in Washington. The two were inextricably linked as stock market participants were put off by some revelations from House Speaker Boehner over the weekend that made it sound as if partisan positions are hardening and not easing the closer we get to the October 17 debt limit deadline. In particular, Mr. Boehner told ABC's George Stephanopolous that: (1) the House does not have the votes to pass a clean continuing resolution; (2) the votes are not in the House to pass a clean debt limit increase; (3) and the US is on a path to default because President Obama won't negotiate over the debt ceiling. Mr. Boehner's viewpoints were decried by his opponents as reckless rhetoric, but the bottom-line for the market, however, was that nothing has been done yet with respect to the budget and debt ceiling. That understanding in turn left many participants sticking to the sidelines on concern that a deal may wait until the last minute.

Tuesday's session saw the S&P 500 continue its slide with a 1.2% retreat. Once again, the budget/debt ceiling impasse in Washington was largely to blame. The Nasdaq Composite was the biggest loser of the day, slumping 2.0% on the back of pronounced weakness in many of the market's favorite momentum stocks. The cracks in leading names like LinkedIn (LNKD 226.62, -0.93), Priceline.com (PCLN 1010.63, -2.56), Tesla (TSLA 178.70, +5.77) and Facebook (FB 49.11, +0.06) provided an added cue for buyers to stick mostly to the sidelines.

The S&P 500 added 0.1% on Wednesday, but was unable to regain its 100-day moving average (1662) after flirting with that level throughout the afternoon. The tech-heavy Nasdaq underperformed throughout the session, sliding 0.5%. Equities began the session with slim gains amid reports President Obama was set to nominate Janet Yellen as the next Chairwoman of the Federal Reserve. However, given the expected nature of the announcement, the early boost faded quickly. The major averages appeared on their way to another losing session, but found support during late-morning trade when the Dow Jones Industrial Average tested its 200-day moving average for the first time this year. The price-weighted Dow built the subsequent rebound on the relative strength of top-weighted names like Nike (NKE 73.46, +0.02), IBM (IBM 186.16, +1.39), and Goldman Sachs (GS 160.00, +1.99).

On Thursday, the S&P 500 jumped 2.2%, turning its October loss into a gain of 0.7%. Equities registered the bulk of their gains at the open amid indications the budget stalemate may be getting a bit closer to a resolution. Participants rushed into risk assets after House Republicans proposed extending the debt limit by six weeks in order to allow for a broader discussion on spending. However, the Republican plan did not call for ending the partial government shutdown, which was met with an initial pushback from the White House. The S&P 500 settled on its high and managed to regain both its 50- and 100-day moving averages even as the day ended without a clear response to the Republican proposal from the White House.