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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

4/25/14

The major averages spent the last session of the week in a steady retreat despite receiving a round of better than expected earnings from the technology sector. The Nasdaq lost 1.8%, widening its April decline to 2.9%, while the S&P 500 fell 0.8%, swinging to a month-to-date loss to 0.5%. The benchmark index notched a session low not far above its 50-day moving average (1858) and closed just north of its 20-day moving average (1862).
Market participants received an avalanche of earnings since yesterday's closing bell, with a large portion coming from companies that belong to the technology sector (-1.4%). Even though 32 of 40 tech companies met or beat expectations, the broader sector was the second-weakest performer, finishing only ahead of the consumer discretionary sector (-1.7%).
In large part, the discretionary space was pressured by the shares of Amazon.com (AMZN 303.83, -33.32), which fell 9.9% after the online retail giant missed earnings estimates by one cent and issued cautious guidance. Amazon.com factored into the underperformance of the Nasdaq, while noteworthy losses in high-beta names like Netflix (NFLX 322.08, -21.99) and Priceline.com (PCLN 1157.24, -59.79) also weighed on the index and the discretionary sector.
Staying on the momentum theme, high-beta tech components like Facebook (FB 57.71, -3.16), FireEye (FEYE 41.18, -3.27), LinkedIn (LNKD 158.17, -13.42), and Yelp (YELP 57.63, -5.07) endured a forgettable session, falling between 5.2% and 8.1%.
Today's weakness in high-growth names resembled the aggressive selling that took place at the start of the month, which is likely to invite concerns that the sell-off seen a few weeks ago has not run its full corrective course.
The recent sell-off featured significant weakness in the biotech space and that was the case once again today. The iShares Nasdaq Biotechnology ETF (IBB 223.96, -5.66) lost 2.5%, ending right above its 200-day moving average (221.37), which has acted like a magnet for the past couple weeks. Interestingly, the health care sector (-0.7%) held up relatively well, ending just ahead of the broader market.
While the losses in biotech and other high-beta areas fueled the early selling, dip-buyers were reluctant to step in amid continued worries about the situation in Ukraine. Earlier, Ukrainian officials demanded a statement from Russia, explaining the purpose of its troops massed at the border of the two countries. Additionally, President Obama spoke with his counterparts from France, Germany, Italy, and the UK, agreeing to introduce another round of sanctions against Russia for failure to observe the Geneva accord that was signed last Thursday.
The geopolitical concerns did fuel some safe-haven flows as Treasuries and gold futures posted gains. The 10-yr note added four ticks, pressuring its yield to 2.67%, while gold futures added 0.5% to $1290.80/ozt.
With stocks ending near their lows, the CBOE Volatility Index (VIX 14.12, +0.80) climbed 6.0%, suggesting participants hedged their bets.
Participation was a bit below average as less than 700 million shares changed hands at the NYSE.
Today's economic data was limited to the final reading for the April University of Michigan Consumer Sentiment Index, which was revised up to 84.1 from a preliminary reading of 82.6. The Briefing.com consensus expected the Consumer Sentiment Index to remain at 82.6. Consumer sentiment increased to its highest level since July 2013 when the index reached 85.1. Layoff trends and equity prices both improved over the second half of the month, which contributed to the overall improvement in sentiment. The Current Conditions Index was revised up to 98.7 in the final reading from 97.1 in the preliminary report. That is up from 95.7 in March. The Expectations Index was also revised up, to 74.7 from 73.3.

On Monday, the Pending Home Sales report for March will be released at 10:00 ET.

S&P 500 +0.8% YTD
Dow Jones Industrial Average -1.3% YTD
Nasdaq Composite -2.4% YTD
Russell 2000 -3.3% YTD
Week in Review: Nasdaq Remains Volatile

The trading action in the stock market on Monday left a lot to be desired, yet that didn't stop the market from finishing the day higher. Led by the health care (+1.2%), energy (+0.7%), and technology (+0.4%) sectors, the S&P 500 jumped 0.4% and closed the session with its fifth consecutive gain -- a first in 2014. The U.S. market reopened after the three-day Easter weekend, but for all intents and purposes, it continued to operate in holiday mode. Trading conditions were thin, no doubt kept that way by the lack of activity out of Europe where markets remained closed for the Easter holiday. NYSE volume totaled just 591 mln shares, which was well below a recent average of 725 mln shares.

Equity indices strung together a daylong rally on Tuesday, giving the S&P 500 its sixth consecutive advance. Some selling during the final hour of action pressured the indices from their highs, but they still ended with the bulk of their gains. The benchmark index added 0.4% with eight sectors finishing in the green, while the Nasdaq (+1.0%) outperformed throughout the session. Although the stock market began the day on a flat note, the major averages quickly took the lead from two heavily-weighted sectorsconsumer discretionary (+0.8%) and health care (+1.0%)that displayed strength out of the gate. The health care sector spent the entire session in the lead due, in part, to the relative strength of biotechnology. M&A activity also contributed to the sector's outperformance as Allergan surged 15.3% after Valeant proposed a merger for $48.30 in cash and 0.83 shares of Valeant for each share of Allergan.

The stock market finished the Wednesday session on a modestly lower note, but it is worth mentioning the retreat took place after six consecutive gains. The Dow Jones Industrial Average (-0.1%) and S&P 500 (-0.2%) settled not far below their flat lines, while the Nasdaq Composite (-0.8%) lagged throughout the session. Equity indices started the day in the red, with the Nasdaq showing early weakness as large cap tech names and biotechnology weighed. The technology sector (-0.9%) slumped amid profit-taking in listings like Apple , Google, Microsoft, and Intel, while biotech names retreated following quarterly reports from three major industry players.

On Thursday, the major averages posted modest gains, but not before enduring a morning dip into the red, which took place in reaction to reports indicating Russia has commenced military exercises on the Ukrainian border. The news from Europe knocked the key indices from their early highs, while giving a boost to safe-haven assets like gold futures (+0.5% to $1290.80/ozt), Treasuries (10-yr yield -1 bps to 2.69%), and the Japanese yen (102.30 vs USD); however, the morning spike in safety flows was retraced partially, while equities rallied off their lows with the technology sector (+1.1%) setting the pace. Tech shares (and the Nasdaq) received significant support from the shares of Apple, which surged 8.2% after the top-weighted tech company handily beat earnings expectations. In addition, Apple increased its share buyback to $90 billion and announced a 7:1 stock split, which will go into effect on June 2.