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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

10/10/14

The stock market finished a defensive week on a cautious note. The S&P 500 lost 1.2% while the Nasdaq Composite (-2.3%) lagged throughout the session. The two indices ended the week with respective losses of 3.1% and 4.5%.

The key indices were pressured from the start amid big losses in the semiconductor space after Microchip Technology (MCHP 39.96, -5.59) issued a revenue warning, which was coupled with the company's nettlesome view that an industry correction is at hand. Part of Microchip's view was formed from the understanding that its business in China, which is traditionally the strongest in the third quarter and accounted for 29% of net sales in fiscal 2014, saw a sequential decline in sales this time around. Shares of MCHP sank 12.3%.

The comments led to broad weakness among chipmakers with the PHLX Semiconductor Index plunging 6.9%. The index dove below its 200-day moving average (594.27) and was down as much as 7.7% before finishing the day near April lows. The top-weighted index componentIntel (INTC 31.91, -1.71)lost 5.1% while Cree (CREE 30.77, -0.09) withstood the bulk of the selling. That being said, the stock entered today's session with an October loss 24.6%.

Meanwhile, the remainder of the tech sector showed few signs of strength. Apple (AAPL 100.73, -0.29) shed 0.3%, but other heavyweights like Facebook (FB 72.91, -3.00), Google (GOOGL 555.19, -15.62), and Microsoft (MSFT 44.03, -1.82) lost between 2.9% and 4.0%.

Outside of technology, the materials sector (-1.5%) also lagged throughout the day with steelmakers pacing the slide. The Market Vectors Steel ETF (SLX 40.97, -1.15) lost 2.7%. Similarly, industrials (-1.5%) were unable to catch up to the broader market amid weakness in transport stocks. The Dow Jones Transportation Average fell 2.0% to cap a rough week that saw the bellwether complex lose 6.9%.

The remaining cyclical sectors showed some intraday strength, allowing the S&P 500 to make a short-lived appearance in the green. However, the index slumped to new lows over the course of the afternoon.

Likewise, the Dow Jones Industrial Average (-0.7%) spent some time in the green, but the intraday strength among blue chips faded into the close. The index was able to finish ahead of the broader market thanks to gains in consumer names like Coca-Cola (KO 44.47, +0.60), Procter & Gamble (PG 84.69, +1.03), and Wal-Mart (WMT 78.29, +0.43). For its part, the consumer staples sector added 0.5% to match the gain in the utilities sector. Despite its outperformance, the Dow surrendered its 2014 advance.

Also of note, the Dollar Index (85.90, +0.38) rose 0.4%, posting its second consecutive advance. However, today's rally could not save the index from registering a 0.9% loss for the week.

Treasuries spent the bulk of the day near their flat lines before rallying into the close. The 10-yr yield slipped two basis points to 2.29%.

Once again, participation was above average with more than 920 million shares changing hands at the NYSE.

Investors received just one economic report this morning:

Export prices, excluding agriculture, decreased 0.2% in September after decreasing 0.2% in the prior reading
Excluding oil, import prices ticked down 0.1%, which followed last month's unchanged reading
There is no economic data of note on Monday's schedule.

S&P 500 +3.1% YTD
Nasdaq Composite +2.4% YTD
Dow Jones Industrial Average -0.2% YTD
Russell 2000 -9.3% YTD
Week in Review: Growth Concerns Send Stocks Lower

On Monday, the stock market enjoyed a good start and that was about it. The major indices hit their best levels of the session within fifteen minutes of the opening bell and then spent the rest of the morning retracing those gains. The afternoon session produced a half-hearted rebound try, yet the major indices couldn't stake a position on positive ground when the closing bell rang. M&A activity failed to stir broad-based buying interest and a surprise announcement indicating Hewlett-Packard (HPQ) will split into two companies did not help either.

The market ended Tuesday on the lows after spending the entire day in negative territory. The Russell 2000 led the way, sliding 1.7%, while the S&P 500 lost 1.5% with all ten sectors ending in the red. Equity indices were pressured from the start with the early weakness being attributed to a disappointing Industrial Production report from Germany (-4.0%; expected -1.5%), which represented the largest drop in activity in almost six years. Growth concerns were also on the mind of IMF economists as the Fund lowered its 2015 global growth forecast to 3.8% from 4.0%. Fittingly, the macroeconomic worries weighed on most cyclical sectors, while energy (-1.3%) tried to withstand the broad pressure. The sector, which lost 3.8% during the previous week, displayed modest intraday strength, but slumped in the afternoon amid a noteworthy drop in crude prices (-1.7% to $88.81/bbl).

Equities rallied broadly on Wednesday with the S&P 500 spiking 1.7% after the release of the FOMC minutes from the September meeting. The key indices began the day near their flat lines following another reminder about slowing global growth. To that point, China's HSBC Services PMI slipped to 53.5 from 54.1 (expected 53.8), but remained above 50.0, which marks the difference between expansion and contraction. Despite the shaky start, stocks soared after the FOMC minutes crossed the wires. Most notably, the minutes acknowledged that growth concerns overseas could have an impact on the U.S. through a strengthening dollar, which would lead to a decline in inflation expectations. This was viewed as an indication that the Fed would not rush to raise the fed funds rate, but instead maintain its accommodative policy stance. Treasuries spiked from lows to new highs in response (10-yr yield -3 bps to 2.31%) while the Dollar Index (85.27, -0.40) slumped to a two-week low.

Stocks followed Wednesday's sharp rally with an even sharper slide that clipped all ten sectors. The S&P 500 lost 2.1% and slid back below its 100-day moving average (1962.28) while the Russell 2000 tumbled 2.7%. Equities began the trading day with modest losses, but the energy sector (-3.7%) was a notable laggard from the start once again. That prevented the broader market from turning positive while the relative weakness among most of the remaining cyclical sectors allowed for the selling to feed on itself. The energy sector registered its largest one-day loss since surrendering 4.0% in April 2013 with crude oil contributing to the weakness. West Texas Intermediate crude plunged 2.4% to $85.22/bbl while Brent crude slipped below the $90.00/bbl level for the first time in more than two years.