Closing Recap 4:10PM EST

Friday, September 26, 14

Index Up/Down % Last
DJ Industrials 167.16 0.99% 17,112
S&P 500 16.83 0.86% 1,982
Nasdaq 45.45 1.02% 4,512
Russell 2000 9.09 0.78% 1,119


Equity Market Recap
Equity markets recover (and how) after yesterdays more than -1.5% decline, getting a boost
early from stronger GDP data for Q2, as well as positive earnings from Nike (NKE), Blackberry
(BBRY) and Micron (MU), which were all higher (NKE added over 70 points to Dow). However, the
story of the day was shocker in bond land, after Pimco founder Bill gross quit to go to Janus
Capital. The dollar surges further (new 4-year highs), pressures commodities, and bonds down
slightly; Europe mixed, while Asia declined. Markets were steadily higher most of the morning,
only to surge in afternoon trade into the weekend, on no specific news, just buying the dip again!
The S&P was lower 4 of last 5 sessions heading into today (but all 10 S&P sectors higher today);
Energy, Technology and Consumer Discretionary winners; the Dow Industrials registered triple
digit moves all five days this week (twice up, three times down)
FX headwinds; several analysts note potential FX headwinds for EPS given the strong appreciation
in the dollar: Barclays said believe many companies will likely face FX headwinds including EFI,
EMC, IBM, HPQ, IM, LXK and TECD; BoFa was reducing estimates for multinationals in Consumer
Staples sector; JPM lowered ests for KO citing weaker Q3 volumes and FX

Economic Data
The U.S. economy grew at a 4.6% annual pace in Q2, its best performance since the recession
ended in mid-2009, as real GDP was revised up from 4.2% (helped by higher exports and business
investment). Consumer spending was unchanged at 2.5% growth (after rising 1.2% in Q1). The
rise in exports was also raised to 11.1% from 10.1%, marking the biggest increase in three years
(recall GDP fell -2.1% in prior quarter). GDP price index rose 2.1% in 2Q after rising 1.3% prior
quarter and Core PCE q/q rose 2.0% in 2Q after rising 1.2% prior quarter
U.S. consumer sentiment rose to 84.6 (14-month high) in the final September reading (in-line
with preliminary) above August reading of 82.5 in August. Strength was in the economic outlook
index, which improved to 75.4 from Augusts 71.3; current conditions index dipped to 98.9 from
the 99.8 in August


Commodities
Gold prices dropped $6.50 to settle at $1,215.40 an ounce, declining for a fourth consecutive
week, as the dollar further advanced to fresh 4-year highs after better economic data. December
silver also declined 10c, or 0.6%, to $17.48 an ounce. Other metals were also hit, with December
palladium falling $18.65 to $783.55 an ounce and October platinum falling $12.20 to $1,302 an
ounce. High-grade copper for December delivery slid 3c to $3.03 a pound
WTI crude oil prices capped its biggest weekly gain in a month (up 1.2%), narrowing its discount
to Brent to a one-year low, helped today after reports the U.S. economy expanded in the second
quarter at the fastest rate since the last three months of 2011. Brent dropped for a third week
(down -1.4%) in four on ample supplies. Gasoline tumbled after reaching this months high
yesterday. Oil prices held up despite a surging US dollar this week

Currencies
The dollar index advanced for an 11
th
consecutive week, maintaining its upward momentum
after the stronger than expected GDP reading for Q2 (rising 4.6%), best performance since the
recession ended in mid-2009. The dollar index jumps another 0.46 to 85.66 (4-year highs notes
touched high of above 88 in July 2010 before plunging to about 73.0 in April 2011); euro falling
daily (low of 1.2678 today) vs. the dollar (dropping to lowest levels since mid-2012), while USD
jumps back above 109 against yen (highest since 2008) very volatile currency markets these
days (dollar index up 11 consecutive weeks)

Bond Market
Bond markets were down slightly, falling on better economic data (GDP) and surprising news
this morning that Bond King Bill Gross left PIMCO and will join Janus Capital starting next
Monday; bond prices under modest pressure early, with yields modestly higher late morning; the
10-year inched higher to 2.537%, while 30-year up at 3.221% (5-yr yield back above 1.8%)

Macro Up/Down Last
WTI Crude 1.01 93.54
Brent 0.00 97.00
Gold -6.50 1,215
EUR/USD -0.0068 1.2683
JPY/USD 0.68 109.43
10-Year Note +0.026 2.537%

Sector News Breakdown
Consumer
In retail news; footwear apparel mixed, with NKE a winner after strong beat across the board, as
Q1 EPS/revs/margins/futures orders all top ests (futures orders up 14% vs. 10% est.); though FINL
disappoints as Q2 eps/sales/comps all miss consensus views, but reaffirms year eps; UA
upgraded to buy at Deutsche Bank (FL, DSW, BWS up in sympathy); THO results mixed, shares
dip; weakness in shares of JCP and SHLD; LITB jumped on raised revenue forecast; RSH jumped
after investor Standard General LP said it was continuing talks on getting fresh financing
Gaming & Casino movers; Las Vegas Strip Casino gambling revenue falls 6.08% in Aug. but
group seeing a relief rally early, with gains in casinos (WYNN, MGM, LVS), as well as other
operators (BYD, PNK)
Consumer Staples; Tobacco sector comments at Bank America moving names as MO upgraded
neutral to buy and raise tgt to $50 from $44 amid and downgrade PM to neutral from buy and
cut tgt to $87 due to FX headwinds; other news, DMND rises as Q4 eps/revs beat, but did guides
FY15 below ests.; CQB and Fyffes agree to revised merger terms



Energy
Coal stocks mentioned cautiously; Goldman Sachs said Met coal price to see downside risk in
2015/2016 partially due to slower growth in Chinese steel, economy (says to sell ANR, BTU; buy
CNX, SXC); UBS cuts targets on ACI, WLT, ANR, CNX, BTU and CLD citing weaker sentiment, the
weak Australian dollar, and reports Q4 met coal benchmark price was set at $119/mt (down $1
from Q3)
Oil drillers relief rally on day, no positive news, but getting a lift (RIG, NE, ESV bounces); SDRL
rises despite Goldman Sachs downgrading to sell saying 2016 dividend may be cut; oil service
names also bouncing, with SLB, BHI, WFT rising

Financials
In the biggest story of the day, PIMCOs Bill Gross said to leave, joining Janus Capital (JNS) on
September 29
th
to manage Bond Fund; also notes the moves in other asset managers following
the Gross news, with moves in BLK, LM, BEN, TROW, FII, WDR
Bloomberg notes the big moves in PIMCO related funds following the news that Bill Gross was
leaving to join Janus Capital (JNS); Bloomberg noted shares of BOND, PGP, PHK, PTY, PCI, PDI,
PKO, PFL, PFN, PCN, and PMF
Mortgage Finance changes at Bank America as upgrades IVR to buy and HTS raised from
underperform to neutral saying the flat curve is the new nemesis (said to be selective in mREITs
with preference for commercial & hybrid) watch ARI, ACRE, STWD, TWO; STWD also
announced $250 share buyback

Industrials & Materials
Aerospace & Defense movers; Deutsche Bank upgraded NOC to buy and raise tgt to $145 and
raised tgts for LMT, RTN, GD, and HII saying there is a strong case to be made that defense
budgetary stability may be approaching; Air Berlin cancelled $5B BA aircraft order on cost cuts;
LLL disclosed accounting revisions and lowered aerospace guidance
Transport movers; Transport index recovers (19 of 20 components fell in yesterday sell-off
today most components higher); airlines mentioned positively at Morgan Stanley saying still has
potential upside to 4Q consensus, which is a key driver; YRCW rises on credit pact agreement
Multi industry/Industrial movers; ATU cut to market perform at FBR Capital; TXT was upgraded to
buy at Stifel; POWL falls after cutting its 2014 EPS/rev outlook citing productivity issues; PHG
upgraded to Overweight at Morgan Stanley; paper and packaging stocks up (PKG upped at
Davidson to buy IP, MWV also higher)
Metals & Mining; Steel sector changes at Citigroup resumed STLD with neutral (from buy) and cut
tgt to $20 from $24, AKS resumed with sell and CMC upgraded to buy; CLF has drawn interest for
its Australian mines (valued as much as $1B) from producers including Mineral Resources Ltd.
and Mount Gibson Iron, people with knowledge of the matter said http://goo.gl/BD885t

Technology, Media & Telecom
Tech in general relatively quiet, recovering a portion of yesterdays near 2% drop in the Nasdaq,
as AAPL shares nearly recover the 3% decline yesterday; BBRY shares recovered after posting a
smaller than expected quarterly loss
Semi movers; MU price targets raised by several analysts after Q4 results/outlook beat ests.
(shares of SNDK up in sympathy); LED chip names rise after AIXG upgraded at Morgan Stanley
(rose yesterday on largest ever MOCVD order)


Internet movers; high beta names fell yesterday, partially recovering today; LNKD upgraded to
Outperform at Cowen; YHOO and AOL jumped after letter from Starboard Value to YHOO CEO
says believes a combination between Yahoo's core search and display businesses and AOL could
result in up to $1B of synergies http://goo.gl/kJS2w5 ; BABA options start trading on Monday
Digital security products; DGLY gets U.S. military base order valued at about $200,000, with
follow-on orders expected (follows strength in TASR Wednesday after a Texas order); GPRO
shares still very volatile (up 240% since IPO in June)









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