Closing Recap 4:05PM EST

Monday, December 1, 14

Index

Up/Down

Last

DJ Industrials

-51.31

0.29%

17,776

S&P 500

-14.12

0.68%

2,053

Nasdaq

-64.28

1.34%

4,727

Russell 2000

-16.59

1.41%

1,156

Equity Market Recap

Equity markets end lower, though commodity prices staged a huge squeeze higher, despite fact
that the fundamental landscape has not changed (oil spiked 4%, gold up 4% as well reversing
earlier declines). Oil prices plunged Friday after OPEC signaled last week it would leave it to the
market to reduce a global glut and keep production status quo. The Nasdaq Composite (which
was about 5% from all-time closing highs coming into the day), the Russell 200 Index and the
Dow Jones Transport Index all underperformed, while Healthcare and Utilities rallied. Energy was
mixed, while Consumer Discretionary lagged on mixed Thanksgiving retail sales data. Volumes
remain light. Macro landscape still dominating market moves
Federal Reserve Bank President Dudley said growth in 2015 is unlikely to disappoint, nor
astonish, and forecasts for a mid-year rate hike "seem reasonable." As for the recent big drop in
energy prices, it's a boon for the economy, he says, and he cautions against overstating the risks
to the domestic oil and gas industries

Economic Data
ISM Manufacturing Index for Nov inched higher to 58.7 vs. est. at 58.0; said New orders rose to
66 from 65.8 last month, Employment dipped to 54.9 from 55.5 last month, inventories fell to
51.5 from 52.5 last month and Prices paid fell to 44.5 from 53.5 last month
Markit Economics said U.S. manufacturing purchasing managers index for November fell to 54.8
from 55.9 in Oct. (lowest reading since Jan. 2014)
Data overnight overseas was weaker: 1) HSBC China PMI fell to a six-month low of 50.0 in
November from 50.4 in October; 2) Final Eurozone manufacturing PMI came in at 50.1 (vs. the St
50.4), while France (48.4), Germany (49.5), and Italy (49) readings all below 50 expansion level

Commodities
Precious metals surge; an extremely active sector today, with gold prices spiking $42.60, or 3.6%
to settle at $1,218.40 an ounce (first settlement above $1,200 since Oct 29th). The sharp move
came after gold prices dropped more than 2% in the overnight session (fell as low as $1,141.70),
after Swiss voters overwhelmingly rejected an initiative that would have forced the countrys
central bank (SNB) to hold a fifth of its assets in gold. Silver futures even a bigger swing as soars
17% from intraday lows (biggest swing on record as per ZeroHedge) up as much as 8.1% after
falling 9% overnight ended up $1.14, or 7.3% to $16.69 an ounce (overnight low $14.15)
Energy futures end near the highs; WTI crude ends at $69 per barrel, rising $2.85, after touching
low of $63.72 earlier. Just a massive surge (squeeze) in commodity prices today, helped by
pullback in dollar (minimal though), but this is a sector that has been beaten up for weeks! The
bounce in oil comes after Fridays near -10% drop in prices after OPEC production standstill news
and also down about -40% from June highs. CNBC noted that gasoline pump prices have now
fallen 67 consecutive days, with national average about $2.76 a gallon
Copper prices were up 1% at 2.873 per pound, after recovering from the low of 2.779 earlier. The
metal recovered as the US dollar index retreated (prices down initially amid a slowdown in
Chinese and the Eurozone manufacturing activity)

Currencies
The dollar index fell (DXY -0.41 to 87.94), as euro bounces near 1.25 level, and yen pares recent
weakness; economic data today in U.S. mostly in-line, but weaker foreign manufacturing data.
Initially a weak US dollar pushed gold to the upside, but as the greenback stabilized, gold prices
continued its upward momentum

Bond Market
Treasury markets higher early/reverse midday, with yields inching higher. Since the yield on 10year broke below the 2.3% level 2 weeks ago (first break of 2.3%-2.38% range in over a month),
bonds have extended gains, but today, yields inched little higher to 2.21% (off low around
2.15%). Yields also rose after Feds Dudley in New York speech discussed potential for falling
energy prices to support U.S. households and global growth, allowing inflation to accelerate.
Note the bond market has been telling us different story than equity market of late

Retail Breakdown/Black Friday/Weekend Sales data

Retail spending over the Thanksgiving weekend fell 11%, its second straight annual decline,
according to the National Retail Federation. Total spending from Thursday through Sunday sank
to $50.9 billion, as shoppers spent an average $380.95, down 6.4% from $407.02 a year earlier
Online shoppers spent an average of $135.33 with their PCs on Thanksgiving and Black Friday
versus $116.02 for those using tablets and smartphones, according to the IBM Digital Analytics
Benchmark
ShopperTrak estimates that sales for Thanksgiving Day & Black Friday (Nov. 28th & 29th) were
down ~0.5% YoY with traffic up 27% on Thanksgiving Day & down 5.6% on Black Friday

Macro

Up/Down

Last

WTI Crude

2.85

69.00

Brent

2.55

72.70

Gold

42.60

1,218.10

EUR/USD

0.0025

1.2476

JPY/USD

-0.32

118.32

10-Year Note

0.02

2.220%

Sector News Breakdown

Consumer
Retailers fall after reports of slowing sales over the Thanksgiving Day holiday; Sterne Agee said
traffic was strongest at KSS, followed by JCP and M for the Dept stores; and for the discounters,
WMT & TGTTelsey said believes believe Black Friday outperformers were BBY, DECK, KORS, LB,
and M, while the underperformers were ANN, COH, and PLCECanaccord said Tepid Black Friday
traffic suggests another promotional holiday season
Autos; TSLA fell, on reports BMW is not interested in an ownership stake in Tesla reported
German weekly magazine WirtschaftsWoche; autos mixed ahead of monthly sales data
tomorrow morning (GM/F)
Restaurants were mostly trading better with Casual Diners (DRI, EAT) leading early; HABT
extends gains after recent IPO
Lodging/Leisure; in lodging, IHG downgraded to sell at UBS; LQ upgraded neutral to OW and raise
tgt to $26 from $22 on attractive free cash flow at JPM, but downgraded STAY to neutral from
OW and cut tgt to $20 from $27 on lower growth expectations; in cruise lines CCL analyst
downgrade weighed on group
In gaming sector, Macau's November gaming revenue fell 20%, the second-biggest drop of the
year (but mostly in-line with expectations) shares of WYNN, MPEL, MGM, LVS fell
The White House is expected to ask Congress to appropriate about $200M in response to the
events in Ferguson, Missouri, according to The Wall Street Journal; sent shares of DGLY, TASR off
the lows initially on report
Energy
Energy stocks were volatile, with some names bouncing off recent lows (CVX/XOM led in the
DJIA), but other sectors continue to be routed amid concerns of slowing production due to
inventory oversupply; dividend cuts/cap-ex fears/ending buyback fears all weighing on group
Energy analyst changes; E&P/drillers at Guggenheim as downgraded CAM, FTI, FI, TESO, and SSE
to neutral from buy as expects U.S. E&P cap-ex and rig count to fall 14% and 9%, respectively
next year; Ladenburg downgraded EXXI to neutral and cuts tgt on several names on reduced oil
price forecasts; WEX downgraded at Sterne Agee; Wolfe downgraded E&P sector to MarketWeight and cuts APA, SU, CNQ, MUR, MRO; Simmons downgrades ROSE, QEP, SN, VLO, WNR to
neutral from overweight; SDRL cut at Wells Fargo; GDP cut at KeyBanc
Energy construction stocks CBI, FLR, PRIM and PWR all cut to hold from buy at BB&T on reality of
lower crude prices
Story movers; WFT to sell its oilfield-chemicals and drilling-fluids business to Berkshire unit
Lubrizol for at least $750M; LPI increases 4Q14 production guidance from 3.2-3.5MMBoe to 3.43.6MMBoe
Sand fracking/ceramic plays in absolute freefall the last few weeks, with massive drops in EMES,
HCLP, SLCA, and ceramics play CRR
MLPs sector; group coming off week where the Alerian MLP Index (AMZ) dropped (-6.02%) to
487.05. The move came after crude oil decreased to $66.15/bbl (12.79% decrease), while natural
gas decreased by 3.85% for the week to $4.24/Mmbtu index gets hammered again on oil prices,
with biggest laggards BBEP, HCLP, APL, EVEP, ARP, NGLS down -10% (AMZ -24 points to 462).
Simmons earlier said expects lower crude prices to have negative impact on growth outlooks,
especially for oil-oriented MLPs that own gathering, transportation and storage assets
Solar stock extend recent losses; adding to the steep Friday losses they saw after OPEC declined
to cut production, sparking a huge selloff in oil prices and anything energy/commodity-related;
note oil only accounts for a small percentage of global electricity production (solar ETF TAN down
34% from March high of $51.07); FSLR, SPWR, SCTY, SUNE, SOL, CSIQ fall

Financials
Not much news in financial sector, with major banks lagging on the day (XLF lower); major banks
JPM, C, BAC, DB lower; earlier in research, UBS raised its U.S. Bank sector to Overweight from
neutral but cut the Canadian Bank Sector cut to Neutral from Overweight; brokers weaker as
volumes have slowed markedly in recent weeks
Healthcare
Healthcare as a whole stronger, as Pharma Dow components MRK and PFE helped keep Index
steady; NVS said a phase III study in primary progressive multiple sclerosis (PPMS) didnt meet
primary endpoint; biotech little weaker (few outliers); UNH making new highs in HMO sector
Biotech; GILD shares rise/inks deal with MYL for manufacture and distribution of TAF; REGNs
Eylea injection gets priority review in new use; POZN/SNY agree to terminate their agreement for
commercialization of investigational products PA8140 and PA32540 effective Nov. 29; EXAS falls
as UNH medical policy now says fecal DNA testing for colorectal cancer screening and/or
monitoring is unproven and not medically necessary
Other movers; HSP cautious mention in Barrons; VRTX tgt raised to $148 from $122 at Maxim;
Industrials & Materials
Ag sector; DE upgraded by three analysts today after the company issued a downbeat FY15
outlook that may signal trough earnings; Barrons said AGCO, POT, DE and SYT among ag-related
shares poised to continue to underperform
Industrials; overall generally weaker with energy sell-off; DOV cut at JPM to Underweight; GE,
CAT and BA among worst performers in the Dow Industrial Index
Metals & Mining; Metals & Mining names mixed; gold miners surge (NEM, ABX, GG, KGC) after
reversal to upside in gold futures, after falling more than 2% overnight after Swiss referendum
vote; industrial metals like copper fall, as FCX drops to lowest level in 5-year; weaker China PMI
data weighing on miners/iron ore (steels X, AKS, STLD fall); AA was upgraded to buy w/$21 tgt
at Citigroup on improving profits from the company's upstream businesses
Transports drop (DJ Transport Index falls over 2%); Railroads down for a second day, a group that
has been hit hard given the drastic drop in oil prices over the last week; shares of CSX, NSC, KSU,
UNP all fall; also another big drop in rail car stocks (GBX, ARII, TRN, RAIL)
Airlines at Bank America; firm says with OPEC not defending oil prices, raises estimates to reflect
the current futures curve and expects U.S. airline pre-tax earnings to rise 50% (from 20%) and
says valuation is still attractive; upgrades shares of AC, AAL, HA and JBLU; downgrade ALK, DAL
Emerging technologies comments at Jefferies as notes the recent downdraft in oil prices implies a
flatter petrochemical cost curve, less demand for NGVs, a downshift in energy infrastructure
capex, and a margin tailwind for downstream chemicals; downgrades ECL, LYB and WPRT to hold
from buy; but upgrading ASH to buy and raise tgt to $147 from $123

Technology, Media & Telecom

High beta tech stocks standout to the downside on no specific stories, but big moves early in
names like AAPL (fell as much as 6%), BABA, AMZN, GOOGL, YHOO, FB, TWTR, GPRO, TSLA,
TRIP, as well as Chinese Internet names (BIDU, QUNR, QIHU, CTRP); MSFT a standout today,
helping keep the Industrial Average afloat
Internet movers; GRPN upgraded to buy at Bank America as says analyst day shows turnaround
progress (tgt to $9.50); fire tablet sales on AMZN were up over 3x year over year this Black Friday
(shares hit later after Moodys lowered its outlook to negative from stable on the company
announcing a sizable debt offering); QIHU downgraded to neutral at JP Morgan
Semiconductors; MU and SNDK both mentioned positively at Pacific Crest and JPM; WSJ reports
INTC to replace TXN as processor in new Google Glass in coming year; ONNN approves $1B share
buyback program over 4-years
Media; DWA downgraded to Underperform at FBR Capital noting Penguins missed at the box
office so lowers domestic box by $80m to $116m; Dalian Wanda Group Co. is in talks to acquire a
stake in film studio LGF its chairman Wang Jianlin said http://goo.gl/NKcz1E ; NYT shares rose 6%
early, no specific story, but note few articles about buyouts of certain employees to cut costs
Other tech stories; Barrons positive mention on ACN; note the Credit Suisse Technology
Conference began today (4-day conference)

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