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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

10/24/14

The major averages capped a strong week with a rally that sent the S&P 500 higher by 0.7%. The benchmark index gained 4.1% for the week while the Nasdaq Composite (+0.7%) extended its weekly advance to 5.3%.

Equity indices endured a shaky start with a handful of concerns factoring into the cautious posture in the early going:
Contagion concerns stemming from news that a New York doctor who exhibited Ebola-like symptoms yesterday tested positive for the disease
Disappointing economic data from China that revealed a 1.3% year-over-year drop in New Home Sales and featured monthly declines in all 70 cities, and
Below-consensus results from Amazon.com (AMZN 287.06, -26.12)
After spinning their wheels through the opening hour, the key indices were able to pull away from their flat lines with help from influential sectors. In addition, investor sentiment was boosted by news from the National Institute of Health indicating Dallas Presbyterian nurse Nina Pham has recovered from Ebola.

Coincidentally, the health care sector (+1.4%) settled in the lead with significant support from Bristol-Myers (BMY 53.63, +1.13) and Shire (SHPG 194.49, +9.51). The two names posted respective gains of 2.2% and 5.1% in reaction to upbeat quarterly results while the iShares Nasdaq Biotechnology ETF (IBB 288.77, +5.15) jumped 1.8%.

Similar to health care, the remaining three countercyclical sectors ended ahead of the broader market with gains between 0.8% and 1.0%.

Meanwhile, the cyclical groups ended in mixed fashion with respect to the S&P 500. Financials (+0.9%) and industrials (+0.9%) outperformed, while consumer discretionary (-0.1%) and energy (-0.3%) lagged.

The consumer discretionary sector was pressured by an 8.3% loss in the shares of Amazon.com while also enduring weakness among carmakers. Ford (F 13.78, -0.62) lost 4.3% after surpassing bottom-line estimates on below-consensus revenue. On the flip side, media names and restaurant stocks displayed relative strength.

For its part, the energy sector stumbled in the morning amid weakness in crude oil. The energy component climbed off its worst level of the day, but still ended lower by 1.2% at $81.03/bbl.

Also of note, the technology sector (+0.8%) traded in-line with the market for the bulk of the session before joining the leaders in the afternoon. Dow component Microsoft (MSFT 46.13, +1.11) advanced 2.5% after beating earnings and revenue estimates while chipmakers drew strength from KLA-Tencor (KLAC 75.90, +4.90). The stock soared 6.9% in reaction to in-line results, combined with a special dividend of $16.50 and an increased buyback program. The broader PHLX Semiconductor Index rose 1.1%.

Treasuries ended flat after sliding from their overnight highs. The 10-yr yield ended at 2.27%.

Participation was roughly in-line with long-term averages as 700 million shares changed hands at the NYSE floor.

Economic data was limited to the New Home Sales report for September, which revealed a 0.2% increase to 467,000 from a revised rate of 466,000 (from 504,000). However, that was below the Briefing.com consensus, which expected a reading of 475,000. Most notably, the large downward revision to the August figures took away what had been the strongest monthly reading since May 2008.
Prices for new homes fell 4.0% year-over-year, which was the first such decline since April and the largest drop since a 7.7% tumble in January 2012.
Monday's data will be limited to the 10:00 ET release of the Pending Home Sales report for September (Briefing.com consensus 0.5%).
Nasdaq Composite +7.4% YTD
S&P 500 +6.3% YTD
Dow Jones Industrial Average +1.4% YTD
Russell 2000 -3.8% YTD
Week in Review: Stocks Rebound From Recent Slide

Equity indices finished the Monday session near their highs with the Nasdaq Composite (+1.4%) leading the way. The S&P 500 (+0.9%) settled a bit behind the tech-heavy index while the Dow Jones Industrial Average (+0.1%) struggled to turn positive. The price-weighted Dow spent the bulk of the session in the red as IBM (IBM) weighed. The stock fell 7.1% and surrendered its standing as the second-largest Dow component after reporting disappointing results that featured revenue declines across all key segments and all geographic regions in which the company operates. Despite IBM's miss, the technology sector kept pace with the broader market, thanks in part to the relative strength of Apple (AAPL). The top-weighted sector component jumped 2.1% ahead of its earnings report. Similarly, chipmakers contributed to the advance with the PHLX Semiconductor Index climbing 1.5%.

The market enjoyed another broad-based advance on Tuesday with the S&P 500 (+2.0%) posting its fourth consecutive gain. The benchmark index made its biggest jump in more than a year and recaptured its 200-day moving average (1906.95) while the Nasdaq Composite (+2.4%) outperformed throughout the session. Equities began on an upbeat note with a set of better than expected results contributing to the early strength. However, the futures market received a separate overnight boost from a Reuters report suggesting the European Central Bank will look to begin buying corporate bonds. That report was followed by headlines from the Financial Times indicating the ECB has no plans to implement the aforementioned buying program at this time. The denial did not stop European equities from ending on their highs while the U.S. market built on its early strength throughout the day. For the second day in a row, the Dow Jones Industrial Average (+1.3%) could not keep pace with the broader market, which was once again due in part to the relative weakness in the shares of IBM. The third-largest index component lost 3.5% while only two other Dow members finished in the red. To that point, Coca-Cola (KO) and McDonald's (MCD) registered respective losses of 6.0% and 0.6% in reaction to cautious guidance from both consumer companies.

The stock market ended the midweek session on a lower note, causing the S&P 500 (-0.7%) to snap its four-day winning streak. The benchmark index slumped into the red during afternoon action while the Dow Jones Industrial Average (-0.9%) underperformed once again. Stocks displayed modest gains in the early going, but that advance took place despite the lack of concerted leadership. The underperformance of several influential sectors weighed on the market and led to a midsession retreat. Five of six cyclical sectors ended behind the broader market with energy (-1.7%) showing the largest decline. The growth-sensitive sector displayed intraday strength, but slumped in the afternoon amid weakness in crude oil. The energy component spent the morning near its flat line, but plunged in the afternoon to end lower by 2.4% at $80.49/bbl. Greenback strength acted as a bit of a headwind with the Dollar Index (85.75, +0.45) rising 0.5%.

Equities finished the Thursday session with solid gains. The Russell 2000 (+1.8%) led the way while the S&P 500 settled higher by 1.2% with eight sectors in the green. The key indices surged at the start of the trading day after the overnight session featured upbeat economic data from overseas. On that note, Manufacturing PMI readings from China, Japan, and the Eurozone surpassed estimates, but the headline figures masked some weakness below the surface. For instance, China's HSBC Manufacturing PMI (50.4; expected 50.3) came in ahead of estimates, but the output and employment indices contracted. Additionally, a set of better than expected quarterly results from several large cap names also provided a measure of support.