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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

12/20/13

The major averages capped a solid week with a broad advance. The S&P 500 added 0.5%, extending its weekly gain to 2.7%.
Equities spent the entire session in a steady climb after the final reading of third quarter GDP sparked a broad-based rally. The report pointed to growth of 4.1%, which was the strongest reading since the economy expanded by 4.9% in the fourth quarter of 2011, and well above the 2.5% gain reported in the second quarter. Real final sales, which exclude inventory growth, increased 2.5%. That was up from a 1.9% gain reported in the second estimate, and was the largest gain since a 3.4% increase was observed in Q4 2011.
Even though all the key indices rallied, the small-cap Russell 2000 (+1.9%) had the best showing. Meanwhile, the S&P 500 posted a more modest gain as nine of ten sectors finished in the green.
The largest S&P 500 sector, technology (+0.9%) played a significant part in the rally. The group received support from large-cap names like Apple (AAPL 549.02, +4.56), Google (GOOG 1100.62, +14.40), and Microsoft (MSFT 36.80, +0.55). Chipmakers also chipped in as the PHLX Semiconductor Index gained 0.8%.
On a related note, the tech sector's strength contributed to the outperformance of the Nasdaq (+1.2%), which also received noteworthy support from biotechnology. The iShares Nasdaq Biotechnology ETF (IBB 223.70, +5.71) surged 2.6%.
In turn, biotechnology gave a boost to the health care sector (+0.5%), which kept pace with the S&P 500 throughout the session.
Another influential group, financials (+0.5%) lagged for the majority of the session, but caught up to the broader market in the late afternoon.
Although most sectors had a strong showing, energy (+0.1%) and materials (+0.3%) struggled to gain traction. The energy sector underperformed as two large members, Chevron (CVX 122.78, -0.44) and Exxon Mobil (XOM 98.68, -0.75) spent the day in the red. The pair of Dow components also factored into the underperformance of the Dow Jones Industrial Average (+0.3%).
On the downside, the telecom services sector (-0.6%) was the lone decliner.
Today's participation was well above average as nearly two billion shares changed hands on the floor of the New York Stock Exchange. The final tally was aided by additional activity associated with quadruple witching and quarterly rebalancing that took place today.
Treasuries ended on their highs after staging an intraday reversal. The 10-yr yield tested resistance earlier this morning at 2.95% (September closing high). Despite the stronger-than-expected Q3 GDP revision, the 10-yr came barreling back in a surprising manner that probably stirred some short-covering activity that has exacerbated today's gains. The 10-yr note settled higher by 11 ticks with its yield down four basis points at 2.89%.
On Monday, November personal income, personal spending, and core PCE prices will all be reported at 8:30 ET while the final reading of the Michigan Consumer Sentiment Survey will be released at 9:55 ET.

Nasdaq +35.9% YTD
Russell 2000 +35.0% YTD
S&P 500 +27.5% YTD
DJIA +23.8% YTD
Week in Review: Taper Arrives But Stocks Party On

On Monday, the S&P 500 settled higher by 0.6%, snapping its four-day losing streak. The bulk of the advance occurred shortly after the open as the Dow, Nasdaq, and S&P 500 notched their highs during the initial 30 minutes. Small-caps were a notable exception as the Russell 2000 (+1.2%) climbed throughout the day, trimming its month-to-date loss to 2.0%. Nine of ten sectors registered gains with cyclical groups maintaining their lead throughout the session. The energy sector (+1.0%) displayed strength from the open after its largest component, Exxon Mobil, was upgraded to 'Buy' from 'Neutral' at Goldman Sachs. Crude oil, which added 0.9% to $97.47/bbl, also played a part in the sector's strength.

Equities spent the bulk of the Tuesday session in the red, but afternoon buying interest helped the major averages end just below their respective flat lines. The S&P 500 shed 0.3% as eight of ten sectors registered losses. Meanwhile, the Dow (-0.1%) traded ahead of its peers all session long as some of its top components provided support. 3M (MMM 136.72, +0.31) and Boeing (BA 136.67, +1.50) posted respective gains of 2.9% and 0.9% after both increased their quarterly dividends. The price-weighted index also received notable support from its top member, Visa (V 215.97, -0.11), which advanced 2.7%.

Wednesday saw equities settle on their highs after dovish forward guidance from the Federal Reserve offset the immediate impact of a tapering announcement. Although the Federal Open Market Committee reduced the size of its monthly asset purchases from $85 billion to $75 billion, it pledged to keep the target Fed Funds Rate near its current levels 'well past the time that the unemployment rate declines below 6.5%.' The dovish guidance was also the likely reason for Treasuries retracing all of their post-announcement losses. The benchmark 10-yr yield ended with a five basis point gain at 2.89%, which is essentially where it traded before the afternoon announcement.

The stock market followed the Wednesday surge with a quiet Thursday session, which featured the added news that the Senate passed the two-year budget agreement. After some early gyrations, the major indices held to pretty tight trading ranges throughout the session and ended the day little changed. All in all, it was a pretty good showing given the scope of Wednesday's advance and considering the yield on the 10-yr note went as high as 2.95% before settling back down to 2.93%. A lack of concerted leadership and some buying exhaustion were to blame for the inability to log another record closing high for the S&P 500. It challenged Wednesday's high on two occasions, but each time it was greeted with renewed selling interest that held it in check. The Dow, though, eked out another record close.