Closing Recap 4:10PM EST

Monday, October 27, 14

Index Up/Down % Last
DJ Industrials 12.27 0.07% 16,817
S&P 500 -2.96 0.15% 1,961
Nasdaq 2.22 0.05% 4,485
Russell 2000 -1.50 0.13% 1,117


Equity Market Recap
After weeks of volatility, with triple digit swings in the Dow Industrials the norm (12 of last 16
trading days), a much different picture Monday, with the S&P 500 trading against key technical
levels (in a narrow range), in a lackluster trading session . Dow Industrial average flattish, while
transports outperformed (though note six Dow components posted all-time highs today including
NKE, TRV, MMM, PG, HD, and UNH) market seems to be in holding pattern ahead of FOMC
meeting this Wednesday earnings tonight from AMGN, TWTR, CLF, BWLD, HIG
Brazilian markets dropped current President Dilma Rousseff won re-election in her run-off with
challenger Aecio Neves (seen as more pro-business choice); Brazilian market fell over 6% early,
led by shares of PBR, BBD, VALE, GOL, CIG, TSU, ABEV, ERJ among losers (Brazil ETF EWZ was
down nearly 10%); the Brazilian Real dropped 2.6% to close at 2.5223
European markets ended lower; top stories were: 1) Twenty-five lenders failed a stress test led
by the European Central Bank, which found the biggest capital hole in the regions banking
system in Italy (nine banks of the 24 that failed were Italian); 2) German IFO Institute fell to 103.2
after 104.7 in the previous month. This marked the sixth straight decline in the lead indicator and
was also below analysts' expectations of 104.5
Emerging-market stocks and bonds only received $1B in October, the lowest inflow so far in
2014 and down from $10.5B in September, according to data released by the Institute of
International Finance. The move was largely driven by selling in emerging-market equities, which
saw $9.2B in outflows, while emerging-market bonds actually received $10B inflows

Commodities
More volatility in energy markets, with oil prices opening much lower (WTI touched new low
since June 2012 at $79.44), only to recover throughout the session, closing flat (near the highs);
the same fears day after day weigh too much supply, no OPEC production intervention despite
20%+ drop in prices, slowing global growth fears; Brent ended down 30c to $85.83
Gold prices end lower by $2.50, settling at $1,229.30 an ounce, in what was a very quiet session,
narrow trading range throughout; silver fell 2c to $17.16 an ounce ahead of FOMC meeting this
Wednesday (largely expected to end their asset purchase program)


Copper prices rise; WSJ reported a single buyer has snapped up more than half the copper held
in London Metal Exchange warehouses, giving it control over a crucial source of supply and
raising concerns among traders about the potential for higher prices http://goo.gl/Ffotz5
Why have weaker oil prices been perceived as a negative for markets? Obviously lower prices are
a positive for consumers (saving on gas pump/gas bills etc., more money in your pocket), but bad
news is the potential impact this could have on job growth (as booming shale growth has helped
provide many jobs in the U.S., and a reduction in drilling will likely hurt hiring). Also seeing the
recent glut of inventory a possible sign of slowing economies (namely Europe and China)

Currencies
The dollar fell against other currencies, with the index (DXY) off -0.26 to 85.48, while the euro
bounced back above 1.27 (as ECB bank stress tests fade), while the yen trades at 107.80.Pares
gains after last week increase, ahead of FOMC decision on Wednesday

Bond Market
Bond markets rose amid pullback in equity markets, weakness in Brazil/energy markets, and
general market uncertainty; slightly weaker Pending Home sales data also added to bond
strength early; 30-yr yield falls first time in 4-days, while 10-yr yield dips for a 2
nd
session (2.25%)

Economic Data:
U.S. September Pending Home Sales rise 0.3%, below estimate for a 1.0% increase; Northeast
and South both up, while Midwest and West fell
U.S. Oct. Dallas Fed Manufacturing reported at 10.5, below est. 11.0 and prior moth 10.8
U.S. flash Markit PMI services index fell to 57.3 in October from 58.9 in September and 59.5 in
August. This is the lowest reading since April

Macro Up/Down Last
WTI Crude -0.01 81.00
Brent -0.30 85.83
Gold -2.50 1,229.30
EUR/USD 0.0038 1.2708
JPY/USD -0.44 107.72
10-Year Note -0.015 2.255%

Sector News Breakdown
Consumer
Auto movers; TEN Q3 eps beats/revs miss as shares fall (hits supplies names LEA, AXL, BWA);
TSLA shares fell after WardsAuto.Com reported Tesla sales off 26% through September YoY and is
offering incentives among slowing U.S. sales; NHTSA investigate Chrysler process of Ram pickup
recalls
Housing stocks/building products; homebuilders (PHM, TOL, LEN) fall after pending home sales
data missed expectations; AWI falls after guidance mid-point short of views; TREX Q3 eps and
revs top views
Apparel retailers; LB to neutral at Bank America; ANF positive mention at FBR; DECK recovers
after recent pullback
Staples; KO cut to neutral at Buckingham (after earnings), while stock also mentioned cautiously
in Barrons; Cutrale-Safra to acquire CQB for $14.50 per share in cash, in deal valued at about
$1.3B http://goo.gl/OIZZ4r ; SODA gives back a bulk of gains from Friday (was up on report SODA
to test some PEP branded products); PG extends Fridays gains on earnings (new all-time high)
Casinos/Gaming; SGMS/BYI declined on Bloomberg report that SGMS said to pull $3.2B bridge
loan offer http://goo.gl/2Nb8vF; casinos WYNN, LVS, MPEL shares weaker



Energy
Energy space a laggard given the drop in oil prices this morning, weakness across the board, with
big declines in E&P space: CRZO, CHK, PVA, PXD, NFXdrillers DO, NE, ESV, RIGservices HAL,
WFT, SLB, BHIand majors XOM, CVX, HES, MUR
Oil E&P sector downgraded to neutral at Goldman Sachs saying WTI oil prices at $70-$80/bbl can
slow shale growth by ~400k-500k b/d over 2 years; cuts rating on EPE, LPI, PE on funding
gap/equity concerns and cuts APC/CLR on outperformance; EOG/RRC remain conviction buy and
says still prefers shale scale winners PXD, CXO, COG; E&P names cut at Stifel citing downside risk
to oil prices; cut rating on AXAS, CXO, DNR, GDP, JONE, PDCE, SM, SN, SYRG, WLL to hold
Oil services sector cut too cautious from attractive at Goldman Sachs saying group has more
downside risk if WTI crude drops to $70/bbl; sees customer capital spending dropping 6% next
year vs prior view up 9% (cuts PTEN, PES, EMES, BAS and DOremoves HAL/PTEN from CL list)
News; CLR agrees to sell 49.9% of its 44K-acre stake, including interests in 37 producing wells, in
its Northwest Cana Woodford natural gas assets in Oklahoma to South Koreas SK E&S for
~$360M as part of a new joint venture
Pipeline/MLP; WMB, WPZ and ACMP announced merger agreement with an approximately $50B
total transaction value http://goo.gl/BllHKV

Financials
Over the weekend twenty-five lenders failed a stress test led by the European Central Bank,
which found the biggest capital hole in the regions banking system in Italy (none of Europes
largest banks found lacking). The ECB identified a total gap of 25B euros as of the end of 2013,
most of which has now been raised by banks
Outside of the ECB headlines, very quiet in the financial sector, with bank earnings largely behind
the group for the quarter, but insurance space gets some action this week
Analyst changes; Regional banks at Sterne Agee; BBT upgraded neutral to buy - diversified
revenue stream and lower risk balance sheet is unique among the regional banks and should
drive multiple expansion over the next year/PNC downgraded buy to neutral; HLSS downgraded
to Neutral at Citi due to regulatory fears around its related company OCN; FNFG no bounce after
weak earnings Friday (upgraded at Wells Fargo today/cut at RBC)
Other news; BEN beats eps by 9c/revs miss; insurance stocks LNC, AFL, PRU positive mention in
Barrons over the weekend; SCHW CFO said low interest rates will continue to pressure earnings
in Q4/investment spending on hold

Healthcare
Large cap Pharma/generics; AGN rises on reports VRX ready to raise bid to at least $200 (vs.
current bid $179/$53.25B) http://goo.gl/f2iMrR (AGN also reports better EPS); MRK Q3 eps beats
by 2c but narrowed year eps forecast/year revs low end; AMGN reports after the close
Analyst changes; ICLR cut to Equal Weight at Barclays after the company's 3Q earnings report
that increased concern around customer concentration (recommends PRXL and Q); distributor
stocks outperform on analyst comments (ABC, CAH, MCK)
Movers; SRPT says additional data required for eteplirsen as part of NDA submission; now
believes that it will be able to submit the NDA by mid-year 2015 (shares of RNA rise in reaction);
PTIE/DRRX plunge as PFE decided to discontinue its agreement to develop and commercialize
Remoxy pain pill; NVAX said plans to start phase 1 Ebola vaccine study in December/also
presented data yesterday at clinical trials conference; CEMI said it would develop point-of-care
diagnostic tests for Ebola and febrile illness
Small cap earnings; LGND Q3 eps 5c better/revs beat on mixed Q4 results; EXAS Q3 EPS misses by
7c; VNDA Q3 revs top views


Industrials & Materials
Chemicals; HUN Q3 revs miss views; Goldman said U.S. ethylene producers margins likely peaked
on 3Q due to unusual industry outages; expect contract ethylene prices to decline with drop in
Brent oil prices cuts estimates for DOW, LYB and WLK
Transport index advanced, led by airlines (ALK, UAL, AAL, DAL), while package delivery giant UPS
adds to gains Friday post earnings; not much news in space
Multi industry names little changed, though MMM and WCC extend gains post earnings; ROP
little changed despite boosting year forecast
Tanker/Shipping news; DSX & SALT downgraded buy to hold citing lowered Dry Bulk demand
assumptions and lowered price targets for both; NMM revs miss; Baltic Dry Index rises 7.8% to
1,285 points; BALT upgraded to buy at Canaccord

Technology, Media & Telecom
Semis; Semi Index (SOX) advances to 613.16, back around the level it was prior the MCHP
warnings on 10/9 after that day, the index fell as low as 545.27 10/15, but has since recovered
despite mixed earnings news in space (ALTR/NXPI/BRCM/LLTC); MU announces $1B stock
buyback most of the major chip names have reported earnings this quarter
PC/Hardware/disk drives; STX Q1 eps beats by 9c on stronger revs and boosted its rev forecast;
IBM bounces after recent selling pressure post earnings; software names mostly lower
Payment services; PAY gained as Barrons called it (along with NXPI and SYNA) potential winners
if Apple Pay gains traction; Drug stores CVS and RAD disabled Apple Pay (AAPL) technology in
their stores
Internet; TWTR reports after the close tonight (FB tomorrow night); NQ files form 20-F for year
13 and regains full compliance; BABA initiated buy and $118 tgt (rises for a 6
th
day IPO high
was $99.70 on Sept 19
th
intraday); AMZN cautious Barrons article





Want a free trial to The Hammerstone Report 4x Daily ? Sign-up for a trial today at www.
thehammerstonereport.com

















***DISCLAIMER/LIMITATION OF LIABILITY: Hammerstone Inc. (the Report) provides information and data and does NOT provide any individual investment advice or money management
assistance and does NOT attempt to influence the sale or purchase of securities. The Report is intended for informational purposes only and does not claim to be actionable for investment
decisions. The information contained in the Report has been obtained from sources deemed to be reliable but is not represented to be complete, and it should not be relied upon as such. The
Report does not purport to be a complete analysis of any security, issuer, or industry and is not an offer or a solicitation of an offer to buy or sell any securities. The Report is prepared for
general information purposes only and does not consider the specific investment objectives, financial situation, and particular needs of any individual subscriber, person, or entity