Closing Recap 4:10PM EST

Monday, December 8, 14

Index

Up/Down

Last

DJ Industrials

-105.28

0.59%

17,853

S&P 500

-15.02

0.72%

2,060

Nasdaq

-40.06

0.84%

4,740

Russell 2000

-15.25

1.29%

1,167

Equity Market Recap

U.S. equity markets ended lower, led by weakness in the energy complex once again, with the VIX
index jumping over 18%. Defensive sectors outperformed with Utilities, Telco, and Healthcare
leading (financial also held up well), while Energy lead underperformer, along with Industrials
and Materials. While there was no new real specific reason on the futures spike lower, energy
clearly remains a major culprit of mkt weakness, especially in commodities/industrials (on lower
cap-ex spending). The Dow laggards were XOM, CVX, MCD, and CAT, while UTX led
The S&P 500 Energy sector stocks are down over 12% YTD, off more than 3% today (nearly 2year lows. The spread (or risk) of high-yield energy credits surged again today, breaking above
850bps for the first time (according to ZeroHedge). The overall high-yield credit market is being
dragged wider by this contagion as hedgers try to contain the collapse that is possible

Economic Data
Fed dove Lockhart spoke today: He said low inflation is a sign that the U.S. economy may
remain slack, but even he sees a rate "liftoff" in 2015. He sees broad evidence that labor markets
are improving, but lack of wage growth is a concern. Lockhart also concurs that slowdowns in
Japan and Europe pose a risk to the U.S. forecast. Comments later saying the Fed is not in a rush
to drop considerable time phrase and liftoff is not carved into stone if inflation is flat, gave
gold prices a late day boost

Commodities
Energy futures crushed again, as WTI crude plunges over 4% to lowest level since July 2009,
settling at $63.05 per barrel. There wasnt a new reason for the extended losses in oil prices, as
same over supply fears/stronger dollar fears remain in place, but energy futures broke to fresh 5year lows on lower economist forecasts, and technical selling. Brent also ended sharply lower
Morgan Stanley cut its 2015 Brent forecast, saying prices could average as little as $53/bbl
although its base case scenario was for $70; the firm's earlier outlook saw oil at $98

 Gold markets ended higher by $4.50, or 0.4% to settle at $1,194.90, but futures advanced after
Fed Lockhart said the Fed is not in a rush to drop considerable time phrase and liftoff is not
carved into stone if inflation is flat, gave gold prices a late day boost. The comments (after gold
market closed), sent futures up another 1%. The bounce today helped erase losses Friday after a
stronger payroll report (but still ended the week up over 1%)

Currencies
The dollar index (DXY) pares recent gains (off 7-year highs), down -0.29 to the 89 level; the euro
bounced back above the 1.23 level after falling last week, while the yen pared recent losses
against the US dollar (120.60)

Bond Market
Well that was quick; after selling off Friday on the stronger jobs report, bonds rallied today,
sending yields lower once again. The yield on the benchmark 10-yr dropped back to the 2.25%
level after rising near 2.35% Friday on the better monthly jobs data (300K plus jobs added
above views and 10th month of 200K+ job creation). But equities were weaker today, and saw a
rotation back into bonds for the day (10-yr still unable to get back above the 2.38% level for
about two-months now); the 30-yr yield at 2.9%, 5-yr 1.67%

Macro

Up/Down

Last

WTI Crude

-2.79

63.05

Brent

-2.82

66.25

Gold

5.50

1,195.90

EUR/USD

0.0041

1.2325

JPY/USD

-0.95

120.50

10-Year Note

-0.052

2.257%

Sector News Breakdown

Consumer
Retailers were mixed, which follows 2-weeks of mixed earnings/guidance in the sector; apparel
names lagging early
Restaurants; MCD leads restaurants lower after posting Nov global comps fell (-2.2%) vs. est. (1.7%), while U.S comps also miss at (-4.6%) vs. est. (-1.9%); at Goldman Sachs resumes sector at
neutral, with CMG Buy and $790 tgt and SBUX at conviction list buy and $95 tgt; says PNRA and
YUM to names to sell
Casino & Gaming downward momentum continues, with shares of LVS, WYNN and MPEL (new
52-week lows for them); Leisure stocks mixed, with lodging names up early (LHO analyst
upgrade); cruise stocks mixed (RCL/CCL) names continued benefit from lower energy prices;
MYCC falls as says wont convert to REIT and sees 2015 revs topping ests
Other movers; CTP falls following secondary offering (CEO selling shares) and discrimination
claims against the company; TASR downgraded after analyst downgrade; in education, ESI fell;
said in filing entered into $100m financing agreement with Cerberus; ADT was downgraded to
Underweight at Barclays, hitting shares

Energy
Energy shares continued downward momentum; lower oil prices leading drillers (DO, RIG, NE),
majors, E&P names lower (DVN, EOG, APC); nat gas related suppliers/distributors (EQT, RRC,
SWN, CHK); service stocks drop (HAL, SLB, SPN, WFT), equipment, (CAM, NOV, DRQ), and major
oil companies (XOM, CVX, HES)
Late day, Bloomberg reported REP said to revive talks with TLM over possible deal/said to weigh
purchase of TLM assets, whole company. Repsol said falling crude and North Sea ops to be
hurdles. http://goo.gl/d1ecgZ
Analyst calls; Citi earlier lowered its oil price outlook for Brent and WTI following OPEC meeting/
upgraded shares of APA, AR, NFX to Buy, while downgrade CIE and CNQ to Neutral; BMO Capital
cut its ratings on EXXI, GDP, HK, and SN
Stock movers; COP cut its 2015 cap-ex budget to $13.5B, which is down 20% YoY; EQT said it
plans to file IPO for EQT Midstream Partners interests; BP was rejected by Supreme Court on
challenge to Gulf payments; Coal stocks falling across the board as well- WLT, ANR, ACI, BTU
MLPs plunge again; after partially recovering recent losses the last few days, the Alerian MLP
Index (AMZ), which closed down 1.51% last week, dropped over 5.5% on the day to the lowest
level seen since March amid the drop in oil prices today. Nearly all components in the index were
lower today, led by more than 15% drops in LGCY, BBEP and NMM. Wells Fargo downgraded a
handful of MLPs (on falling oil prices), with BBEP, LGCY, MCEP all cut to Market perform; TPLM
fell to 5-year lows posting a smaller than expected Q3 profit
Solar stocks slumped again, following the slide in oil prices; stocks, already battered by crude's
recent plunge, are joining oil/gas firms in selling off (TAN falls over 2%), led by weakness in FSLR,
SPWR, SUNE, SOL, HSOL, YGE and others
Utilities; the defensive sector outperformed, with shares of EIX, PCG and ED among winners; CPN
was upgraded to Outperform by one analyst
Financials
Major banks/brokers; were mixed to little changed, outperforming the broader market weakness
Energy exposed banks in Texas moving lower as oil tumbles further; CMA (Dallas based) falls, as
well as other lenders with sizable Texas-operations and exposure to energy credit such as BOKF,
FFIN, CFR, VPFG, TCBI, among others
Analyst rating changes; BLK was downgraded to neutral at Susquehanna citing weaker emerging
markets and reduced expectations for active equity flow in 2015; WFC was downgraded to
Market Perform at Bernstein saying shares look less compelling after outperforming other bank
stocks; Keefe Bruyette downgraded USB and DB
Exchanges; NDAQ was upgraded to Outperform from Market Perform at Keefe Bruyette, while
cutting the rating on CME to Market Perform
M&A news; IBKC to buy Georgia Commerce Bancshares for $40 per share, deal valued at $189M
http://goo.gl/hUysYh ; Blackstone Group LP agreed to sell 26 Northern California buildings to
Hudson Pacific Properties Inc. (HPP) for $3.5 billion in its latest deal to exit office holdings
Other movers; PSEC down after suspended equity issuance/reduces its dividend
Healthcare
M&A news; CBST to be acquired by MRK for $102 per share, in deal valued at $7.8B in cash in
deal which includes $1.1B debt http://goo.gl/P6oskM (shares or TTPH advanced as well recall
on 11/21, co said to explore sale after drawing takeover interest)
Biotech movers following ASH presentations: AGIO said CELG extended collaboration to April
16/to receive $20M payment (eligible up to $120M in milestones); SGEN full data from the
Phase 3 Aethera trial didnt translate into an overall survival (OS) benefit; XLRN drugs reduce
anemia caused by rare blood disorders; INFI says overall response rate was 57% in 30 evaluable
patients receiving duvelisib monotherapy

 Other movers; Biotech stocks were among early leaders (the IBB helped Nasdaq from sliding
further), with new all-time highs for CELG; EW provided initial 2015 outlook/announces pact
w/option to buy CardioKinetix
Industrials & Materials
Transports mixed; oil prices fall further, helping transports but airlines mixed on reduced AAL
PRASM forecast, while rails fall on analyst downgrades (NSC downgraded to neutral at Bank
America while CP was cut at Goldman Sachs); rail cars mostly lower (TRN, ARII), and GBX even
after getting order valued at $1.24B
Airlines active; AAL lowered its Q4 PRASM forecast to down (1%) to up 1% from prior view flat to
up 2% (also said Nov traffic -0.5%, capacity up 0.9%); LUV reaffirmed Q4 PRASM view of up 1%2% YoY (and sees 2014 PRASM up 4%-5%); LUV upgraded to buy (prior to data) at Goldman
Metals & Mining; iron ore prices fall -2.7% to $69.80 per dry ton, Bloomberg reported (steel
prices falling with energy weakness/lower prices X lowest levels since early August); gold
miners back to the downside despite gold prices holding up overall (NEM, ABX, GG weak); China
steel exports reach another record high, as per Bloomberg
Industrials; UTX upgraded to outperform at Bernstein and raise target to $133 as see the
leadership change as an opportunity to capture higher performance levels; DOV lowers guidance
(sees year $4.55-$4.62 from prior $4.75-$4.80); WAB positive mention in Barrons
Containerboard names active; Norbord Inc. (NBD.CN) agreed to acquire Ainsworth Lumber Co.
(ANS.CN) for about C$763 million ($667M, creating the worlds largest producer of oriented
strand board (OSB); shares of LPX advanced in sympathy
Tankers/shipping; the Baltic Dry Index fell -3.1% to 952 Points in London
Technology, Media & Telecom
Semis weaker across the board (SOX); group has been one of the strongest in tech space
following upbeat guidance from a few key players of late (MCHP), but pares recent gains today
after trading 13-year highs; AMAT upgraded to buy at Deutsche Bank calling it an
underappreciated tech leader
Internet; EBAY upgraded to buy at Stifel saying spin-off could be a significant catalyst; UBS
downgraded YNDX & QIWI citing the ruble decline; GLUU rises following insider share
repurchases as per filings; TWTR fell as much as 4% to lowest since July (drops a 3rd day) now
cut in half from all-time highs; LQDT plunged after termination from WMT, largest retail partner;
positive comments on GOOGL in Barrons over the weekend
Software/Hardware; RHT downgraded at Wells Fargo as expects bookings growth to flatten out;
DRIV falls after granting extension to 12/19 for MSFT to decide whether to extend distribution
pact; INFY dropped as the families of four of its co-founders sold $1 billion worth of shares
Ratings agency MHFI shares fell late day after the SEC said to seek S&P suspension from rating
CMBS; would be the first such suspension against a major ratings firm shares of MCO also
declined on the headlines

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