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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

10/31/14

The stock market finished the month of October with a broad rally that sent the S&P 500 higher by 1.2%. The benchmark index extended its October advance to 2.3% and ended at a fresh record high, while the Nasdaq Composite (+1.4%) outperformed to end October with a 3.1% gain.

Stocks soared out of the gate after the Bank of Japan boosted its asset purchasing program to JPY80 trillion from JPY50 trillion. The central bank said it will now target average maturities between seven and ten years (up from 7 years) and buy ETFs up to an annual amount of JPY3 trillion (up from JPY1 trillion).

The developments sent the yen into a tailspin with the dollar/yen pair surging to a session high just below the 112.50 level. The pair retreated into the 112.25 area by the end of the session, but that still represented a 2.7% advance for the dollar at the expense of the yen.

The greenback strength boosted the Dollar Index (86.87, +0.72) past its September high to its best level since the middle of 2010. This weighed on crude oil, but the energy component was able to narrow its loss to 0.6% by the close. WTI crude ended the pit session at $80.53/bbl after dipping below the $80/bbl level in the morning.

Meanwhile, the energy sector (+2.0%) began the session in the red, but was able to end the day ahead of the broader market. Better than expected earnings from Chevron (CVX 119.95, +2.75) and ExxonMobil (XOM 96.71, +2.26) sent both stocks higher by 2.4%, but the advance could not keep the growth-sensitive sector from ending the month with a 3.0% decline.

Similar to energy, the top-weighted technology sector (+1.8%) ended well ahead of the broader market amid broad strength. LinkedIn (LNKD 228.96, +26.06) and GoPro (GPRO 77.10, +8.85) surged 12.8% and 13.0%, respectively, after reporting above-consensus earnings while chipmakers also provided a significant boost. The PHLX Semiconductor Index jumped 3.9% to wipe out its October loss after being down nearly 15.0% for the month on October 15.

Interestingly, the strength in one high-beta area did not translate into comparable gains in the biotech space. The iShares Nasdaq Biotechnology ETF (IBB 296.62, -0.08) was up 2.2% at the start of the session, but a steady retreat throughout the day caused the ETF to settle just below its flat line.

Also of note, the financial sector (+1.2%) ended ahead of the broader market with Citigroup (C 53.53, +0.38) climbing 0.7% despite news indicating the company will adjust its Q3 results to reflect a $600 million legal charge. The sector added 2.9% for the month.

Treasuries ended in the red with the 10-yr yield up three basis points at 2.33%.

Participation was ahead of average with more than a billion shares changing hands at the NYSE.

Economic data included Personal Income/Spending, Core PCE Prices, Employment Cost Index, Chicago PMI, and Michigan Sentiment:
"Personal income increased 0.2% in September, down from a 0.3% increase in August, while the Briefing.com consensus expected an increase of 0.3% "Personal spending declined 0.2% in September after increasing 0.5% in August, while the consensus expected an increase of 0.1%
"Core PCE prices rose 0.1%, which is what the Briefing.com consensus expected.

"Employment Cost Index rose 0.7% in Q3 2014 after increasing by the same amount in the second quarter, while the Briefing.com consensus expected an increase of 0.5% "Wages and salaries accelerated, up 0.8% in the third quarter after a 0.6% gain in the second quarter o Benefits spending rose 0.6% in Q3 after increasing 1.0% in Q2

"Chicago PMI for October slipped to 60.5 from 60.5, while the Briefing.com consensus expected a decrease to 60.0
"The University of Michigan Consumer Sentiment report for October came in at 86.9, while the Briefing.com consensus expected the reading to be hold at 86.4
Monday's data will be limited to the September Construction Spending report (Briefing.com consensus 0.7%) and the ISM Index for October (consensus 56.2). Both data points will cross the wires at 10:00 ET.
"Nasdaq Composite +10.9% YTD
"S&P 500 +9.2% YTD
"Dow Jones Industrial Average +4.9% YTD
"Russell 2000 +0.8% YTD
Week in Review: Stocks Reclaim October Losses

The stock market began the last week of October on a cautious note. The S&P 500 slipped below its 100-day moving average (1962) and settled lower by 0.2% while the Dow Jones Industrial Average (+0.1%) outperformed throughout the session. Equity indices faced selling pressure at the start, but the source of the early weakness was isolated to the two commodity-linked sectors that spent the entire session at the bottom of the leaderboard. The energy sector (-2.0%) suffered from a Goldman Sachs downgrade of several major industry players, which stemmed from expectations that crude oil would trade between $70-$80/bbl. On that note, the energy component fell below the $80/bbl level in the morning, but narrowed its decline to just 0.1% by the pit close ($80.94/bbl).

Equities rallied on Tuesday with the S&P 500 climbing 1.2%. Small cap names had an even better showing, sending the Russell 2000 higher by 2.9%. The key indices climbed steadily throughout the day with the S&P 500 turning positive for the month of October. The index ended the day with an October gain of 0.6% after being down as much as 5.6% for the month on October 15. All ten sectors finished in the green with Monday's laggardenergy (+2.3%)ending in the lead. The sector enjoyed a relief rally with support from BP (BP) after the industry giant reported a bottom-line beat.

The market ended the midweek session on a modestly lower note. The Nasdaq Composite (-0.3%) was the weakest performer while the S&P 500 shed 0.1% with seven sectors ending in the red. The benchmark index held a slim gain at the start, but spent the day in a slow retreat that featured a brief afternoon spike to lows after the Federal Open Market Committee released its latest policy statement. As expected, the statement called for the final $15 billion taper, thus putting a stop to scheduled purchases of Treasuries and mortgage-backed securities. Meanwhile, the commentary on rates was little changed from previous directives with the Fed maintaining its reference to keeping the fed funds rate at its current level for a 'considerable time.' Minneapolis Fed President Kocherlakota was the lone dissenter, voting to keep the asset purchase program intact. Equities handled the initial impact of the announcement relatively well with the S&P 500 finishing about two points above its pre-FOMC levels. Treasuries, meanwhile, ended mixed. The FOMC announcement sent the complex to lows, but the 30-yr bond surged to new highs ahead of the close to pressure its yield one basis point to 3.05%. The 2-yr note settled near its low with its yield higher by six basis points at 0.49%.

The major averages ended the Thursday session on a higher note with the Dow Jones Industrial Average (+1.3%) spending the entire day in the lead. However, the strength among blue chips masked the underperformance of high-beta chipmaker and transport stocks. Furthermore, defensively-oriented health care (+1.8%) and utilities (+2.1%) finished in the lead, suggesting a lack of strong conviction. Shortly before the open, the advance reading of Q3 GDP revealed growth of 3.5% while the Briefing.com consensus expected an increase of 3.0%. The news contributed to a rebound in the futures market, which had been pressured by early weakness in European equities. However, markets across Europe were able to erase their losses before ending for the day. The Dow held the lead from the start thanks to a surge in its top-weighted component. Shares of Visa (V) soared 10.2% in reaction to a bottom-line beat and news of a $5 billion buyback.