Closing Recap 4:10PM EST

Wednesday, December 10, 14

Index

Up/Down

Last

DJ Industrials

-268.05

1.51%

17,533

S&P 500

-33.66

1.63%

2,026

Nasdaq

-82.44

1.73%

4,684

Russell 2000

-24.44

2.09%

1,162

Equity Market Recap

Equity markets felland fell hard (no recovery like yesterday), with major averages posting their
biggest one day losses since mid-October, amid another downdraft in energy prices. The 4% drop
in oil came after OPEC cut its demand forecast to 12-year low, prompting global growth/demand
concerns, and taking several energy related stocks to new multi-year lows. The fact that China
markets have ripped over 30% in months and European markets have rallied (DAX recent record
high), despite their economies not showing strength (but up on Central Bank intervention), gave
Bears ammo for global pullback today on growth fears (DJIA was just 8 points off 18k Friday)
Dow laggards today included CVX and XOM in energy complex once again (on lower oil), GS and
JPM hit financials (JPM Q4 trading commentary at conference), and BA (said deliveries will be
delayed). Small Caps (Russell 2000) outperformed yesterday, but led decline today. Defensive
areas saw moderate strength (bonds/gold), but stocks fell in broad fashion
Overseas, Greek stocks plummet again (fell 13% Tuesday) on fear of political crisis, while other
European markets are mostly lower. Asia was mixed, as Shanghai bounced 3% after 5% drop the
day prior), while Nikkei drops over 2% on yen strength

Commodities
Energy futures under siege; plunging to fresh 5-year lows after OPEC cut the forecast demand
for its crude in 2015 to 12-year low amid surging U.S. shale supplies, and reduced estimates for
world consumption. OPEC lowered its projection for 2015 by about 300K barrels a day, to 28.9M
a day (about 1.15M a day less than the groups 12 members pumped last month). Brent prices
dropped below $65 for first time since July 2009
The Department of Energy also reported bearish inventory data this morning, with crude barrel
build of 1.45M barrels (vs. est. for -2.7M barrel draw), and gasoline an 8.2M barrel build (above
2.55M build est.) WTI closed below $61 per barrel (down over -4% and -42% in 4-months)
Precious metals end slightly lower, with gold prices down a little less than $3 an ounce to close at
$1,229.40 an ounce. The sideways action comes a day after surging on a weaker dollar (gold was
up 3%, and silver jumped 5%); little changed today despite continued dollar weakness (defensive
plays bonds/gold rally today with equities and oil plunging today)

Currencies
The dollar was weaker, as dollar index (DXY) falls -0.40 to 88.30 level; the yen heads for biggest
3-day gain in over a year according to Bloomberg, jumping more than 1% to 118.00 level,
extending its three-day gain to over 2%; the dollar dropped 0.6% to $1.2438 per euro

Bond Market
Treasury markets strong again early (held gains); yields dipped modestly as bond markets
bought again (today on equity weakness); 5-year back to 1.6%, the 10-yr yield back under 2.2%
on equity market pullback. No major U.S. economic data this morning, but oil falling, and equities
falling, leading to further advances in Treasury prices this morning
US Treasury auctioned $21B in 10-year notes at yield of 2.214% (lowest since June 2013), with
bid-to-cover at 2.97 (vs. prior auction of 2.52 and strongest since March 2013), with indirect
bidders awarded 53.8% of the auction (highest since Dec 2011); 6.9% to direct bidders

Macro

Up/Down

Last

WTI Crude

-2.88

60.94

Brent

-2.58

64.26

Gold

-2.60

1,229.40

EUR/USD

0.0064

1.2438

JPY/USD

-1.28

118.41

10-Year Note

-0.051

2.169%

Sector News Breakdown

Consumer
Retailers; FRAN Q3 results in-line, but guides Q4 EPS/revs/comps below consensus; AEO receives
second analyst upgrade in as many days (BMO today); VRA Q4 eps/sales guidance both shy of
consensus; Footwear Apparel at Goldman: GCO upgraded to neutral/SHOO cut to buy; LE said Q3
comp sales fell (-3.1%), while merchandise sales/service fell (-2.8%)
Homebuilders fall on earnings; TOL Q4 eps slight miss/revs in-line, as avg price of homes rise to
747k from 732k MoM/said net signed contracts of $970.8m and 1,282 units rose 16% in dollars,
10% in units; HOV Q4 deliveries up 5.5%, 4Q consolidated net contracts up 7.9% y/y to 1,301
homes; shares of PHM, LEN, KBH move in reaction
Staples ; TSN reaffirmed forecasts at conference; leaders today, GMCR rises on positive analyst
commentary; beverages were weaker again
Restaurants; YUM cuts 2014 EPS growth forecast citing significant impact from China supplier
issues (2015 eps growth also below views); KKD Q3 EPS missed estimates/comps better, but
reaffirmed year outlook; BKW upgraded to Outperform at RBC; MCD nears 52-week low (follows
softer comp guidance Monday)
Gaming falls; FBR Capital cut estimates on LVS, MGM and WYNN citing ongoing Macau weakness
(says with Nov. -20% and Dec. off to a weak start, we are looking at 4Q -23% and 2015 flat);
Morgan Stanley said Macau 4Q gross gaming rev. (GGR) is trending ~10% below -13% est.
Energy
Oil stock under pressure again; falls sharply (new lows for many names) on OPEC lowered
demand forecast for 2015 by about 300K barrels a day, to 28.9M a day; drillers lower again RIG,
NE, ESV, NBR, as well as services HAL, SLB, WFT, and E&P SWN, APC, APA, as well as large cap oil
giants XOM, CVX, COP, HES

 Movers; OAS cut 2015 cap-ex spending in half to $750M-$800M from $1.43B 2014 budget; GDP
announced a preliminary capex budget of $150-$200M, with the flexibility to accelerate with
improvement in oil prices; FGP said its Q1 loss widened as increasing costs and warmer weather
more than offset slightly increased sales; DVN said prelim 2015 oil production up 20%-25%
MLPs another weak showing following plunging oil prices; the Alerian MLP Index (AMZ) was
down over 4% to 440, underperforming the broader markets; Bank America notes that tax loss
selling is compounding volatility from commodity prices (but notes the AMZ has outperformed
the S&P 500 in nine out of the last ten years in January); among leading losers today included
APL, BBEP, LINE, GEL and CMLP
Fracking sand stocks advanced yesterday with energy bounce/positive analyst comment on SLCA
today a much different story, with SLCA, EMES, HCLP, FMSA all falling
Financials
Large cap banks; Banks/brokers lower after JPM comments at Goldman Sachs financial
conference; CFO said trading environment will be challenging in 2015 (echoes comments by
BAC yesterday), also said core performance of trading down 4% YoY in Q4 (C, MS, GS move
lower); GS was downgraded to neutral at Susquehanna saying credit market clouding 2015 view
Texas based banks still under pressure on falling oil; note BBT said today at investor conference
that there will be hiccups in Texas amid oil declines; shares of energy exposed banks in Texas
have been moving lower as lenders with sizable Texas-operations and exposure to energy credit
such as BOKF, FFIN, CFR, VPFG, TCBI, CMA have been falling)
Healthcare
All quiet in healthcare sector today, but overall weaker, led by biotech stocks (REGN, CELG, ALXN,
AMGN), with managed care also lower, though Pharma and hospitals were little changed
Movers on news; MRK drug shrank tumors in some breast cancer patients in trial; SNSS upgraded
to buy at Cantor and double tgt to $4
Drug makers face another patent cliff in which the industry will lose roughly $65 billion in
revenue through the end of 2019, according to a report http://goo.gl/j43qu5
Industrials & Materials
Fertilizer stocks rise; OAO Uralkali sees a high risk that its Solikamsk-2 potash mine east of
Moscow will be completely flooded, forcing the worlds biggest producer of the fertilizer to
abandon a site that makes up almost a fifth of its capacity (POT, MOS, IPI rise)
Crop report (WASDE) sent commodity prices lower initially: Corn down as much as 1.2% after
USDA WASDE report for Dec., while soybeans -1.5%, wheat -1.6%. Wells Fargo estimates USDA
data for December indicates row crop cash flow will drop 21% from the prior year, which is
consistent with November and still negative for farm equipment demand (DE/AGCO)
Airlines recover some of yesterday losses after profit taking: 1) oil prices plunge further (lifts
transports), 2) the IATA said industry will post higher-than-expected record earnings this year and
are likely to reap a further 25% gain in 2015 sees $19.9B net income up from June est. $18B), 3)
Barclays upgraded got UAL and AAL to Overweight and lift target on lower oil prices
Aerospace/defense; BA fell as American Airlines said initial 787 deliveries will be delayed to
1Q15 from year-end 2014; Qatar Airways has announced that the delivery of Airbus' brand new
A350 aircraft, scheduled for early next week, has been put on hold; Goldman reiterated
Attractive Defense coverage view following trip to D.C. (top picks LMT/NOC); aero suppliers HXL,
PCP, BEAV, AYI among names down on the Airbus/BA news)
Metals & Mining; another dreadful showing for industrial metals, with steel makers getting hit
hard on lower steel prices/lower oil; JPM still cautious on the steel industry as the high U.S. steel
price premium over Chinese prices should continue to attract imports into the U.S. and put
downward pressure on domestic steel prices (X, AKS, STLD, NUE weak)

 Industrial/Machinery; TITN cut its year adjusted EPS to 10c-30c from 30c-60c, after Q3 misses
mark; PNR starts $1B stock buyback program
Shipping/Tanker stocks; Deutsche Bank cut tgts on DLNG tgt to $25 from $32, DRYS to $1 from
$2, GASS tgt to $10 from $14, DSX tgt to $8 from $10, NMM tgt to $15 from $20, and SALT tgt to
$2 from $7highlights 4 to own (NNA, CPLP, TNK and TK); Baltic Dry Index fell another 2.4% to
911 points (Bloomberg notes has declined 3.5% YoY, but down over 60% from 2013 peak)
Technology, Media & Telecom
Semiconductors; BRCM raises Q4 rev guidance to upper half of range ($2.075B-$2.15B from prior
$2B-$2.15B)/announces $1B stock buyback; the Semi index (SOX), after trading to best levels in
13 years Monday (over 700), has pulled back the last few days
Internet; FBs Instagram announces service now has over 300M users; large cap Internet stocks
weak with overall market (AMZN, NFLX, YELP, ZNGA)
Internet Security stocks; Pacific Crest positive saying sector likely to offer more upside in 2015
due to strong fundamental backdrop and relative scarcity of names in space (firm positive on
CUDA, FFIV, IMPV, PFPT, PANW)
Software/hardware; 3D stocks lower, led by DDD after initiated with Underperform and $25
target; data software names rise (positive initiation at Bank America), led by DATA, QLIK, CSOD;
CMTL falls after opting to stay independent
Other movers; NQ Co-CEO Henry Lin steps down/founders lockup extended; ALOG Q1 eps
beat/revs light; YOKU was upgraded to Outperform at Credit Suisse; China ADRs mostly lower
(BABA, BIDU, SOHU)
Telco movers; Sprint (S) downgraded at Oppenheimer saying has most risk from competition;
TMUS had no change to Q4 forecasts during presentation at conference; VZ nears 52-week low
(lowered outlook the other evening/high spectrum auctions weigh on stock); in tower names, CCI
was cut at Oppenheimer

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