Closing Recap 4:10PM EST

Wednesday, December 17, 14

Index

Up/Down

Last

DJ Industrials

288.00

1.69%

17,356

S&P 500

40.14

2.03%

2,012

Nasdaq

96.48

2.12%

4,644

Russell 2000

34.82

3.06%

1,174

Equity Market Recap

Equity markets surge, close near highs (S&P best day since January)! So many stories where to
begin? FOMC keeps rates unchanged (expected)/alters language (expected), as still remains
dovish; Russia/ruble recover after massive losses prior week (and yesterday) after Bank of
Russia actions; President Obama unveils plan to normalize US/Cuba relations; Consumer Prices
(CPI) drop more than expected/most in 6-years; another volatile move for crude (closes up 1%,
but turns negative in after hours traded up as much as 5.5%); treasuries sell off on FOMC
headlines (yields rise); the dollar surges; couple of M&A related news stories; several movie
theaters wont screen SNEs The Interview due to threats; ORCL rpts after the close; Transports
underperform on weak FDX earnings
Russia rebounds as Russia Market Vector ETF (RSX) rises as much as 10% with ruble rebounding
from record lows as Bank of Russia took steps to stabilize its banking system. The Bank of Russia
said lenders wont have to write down the value of assets affected by the weaker ruble and
falling bonds, allowing banks to use the third-quarter exchange rate in valuing risk-weighted
assets. We saw a massive squeeze higher in Russian ADR stocks that have been hit hard over the
last few days on Russian market/ruble decline (VIP, QIWI, YNDX, LUKOY, and CTCM). Ruble
rallied over 10% from yesterday closing levels (recall yesterday Central Bank of Russia hiked
interest rates to 17% from 10.5%).
Cuba in the news; President Barack Obama announced the re-establishment of diplomatic
relations as well as an easing in economic and travel restrictions on Cuba today. "Isolation has
not worked," Obama said in remarks from the White House. "It's time for a new approach."
Important to note though that the President cannot unilaterally end the longstanding U.S.
economic embargo on Cuba, which was passed by Congress and would require action from
lawmakers to overturn.

FOMC & Economic Data

The FOMC altered its language about when it will raise interest rates, saying the central bank can
be "patient" in determining when to "normalize" monetary policy" (this instead of for a
considerable time language). The Fed said its new approach is "consistent" with its prior
statement that it would be appropriate to keep rates near zero "for a considerable time."

 Most Fed officials expect rates to rise in 2015 (15 officials), though not quite as much as they
previously predicted. The key fed funds rate is seen increasing to a median of 1.125% from near
zero today instead of 1.375%. Fed cuts 2015 inflation outlook to 1%-1.6% from 1.6%-1.9%. The
fed funds rate has been near zero since 2008 and the Fed hasn't raised the rate since 2006.
Consumer price index fell by a seasonally adjusted (-0.3%) last month to mark the largest drop
since December 2008 (vs. est. for -0.1%). Energy costs fell for the fifth straight month, led by a (6.6%) decline in the price of gasoline. Excluding the volatile food & energy components, CPI rose
0.1% (in-line with forecasts)

Commodities
Oil prices end higher by 1% to close at $56.47 per barrel (but traded lower after pits closed
reversing gains of up as much as 5.5% on the day)
Gold prices ended at $1,194.50, up 0.20, but closed prior to the release of the FOMC Meeting
results; following the Fed headlines, gold moved wildly, trading both up and down sharply, as the
Federal Reserve policy statement is tilting slightly to a dovish side (moved lower in the end)
The CRB Commodity index (CRY) fell to fresh 52-week lows earlier (lowest levels since 2009),
before the reversal in oil prices midday ended higher on the session at 239+

Currencies & Bonds

The dollar jumped during Fed Chairperson Yellens comments post FOMC meeting; references to
"begin 'normalization' over the next couple of meetings" seemed to lift the dollar further against
other currencies. The euro fell to session lows following FOMC (below 1.235), after early
weakness as ECB executive board member Benot Coeur said I see a broad consensus around
the table in the governing council that we need to do more. The ruble rebounds from
yesterdays losses against the dollar (rises more than 10%); the yen weakens against the US dollar
(strong day for dollar index, up over 0.83 to 88.95) as dollar trades fresh session high (above
118.50), following the Fed comments. Treasuries sold off late day after early strength; the sell-off
lifted treasury yields across the board (10-yr traded 2.14% - up from 2.04% early in morning)

Macro

Up/Down

Last

WTI Crude

0.54

56.47

Brent

0.73

60.74

Gold

0.20

1,194.50

EUR/USD

-0.0156

1.2355

JPY/USD

2.17

118.57

10-Year Note

+0.02

2.13%

Sector News Breakdown

Consumer
Retail; Goldman Sachs upgraded COLM to buy (also positive mention by Jim Cramer on Mad
Money), firm downgrades TUMI to neutral; PTRY is nearing a deal to be sold, said the WSJ (had
mkt value of about $685M coming into today) http://goo.gl/yzpqXt ; retail rises with market (JCP,
KSS, M, SHLD, DDS)
Staples movers; GIS Q2 EPS above views, but revs were shy of consensus; HLF weakened midmorning after Pershing Squares Bill Ackman Bloomberg TV interview (further bashed company);
restaurant movers, as DRI rises as quarterly profit tops consensus estimates, as Olive Garden
sales improve; MCD got a lift after Bill Ackman declined to comment on recent market
speculation whether he took a stake in the company

 Autos; Morgan Stanley cut its TSLA model 3 total unit deliveries est. to 297K by 2020 (TSLA
published tgt 500K); VC reached agreement to sell ownership interest in Halla Visteon Climate
Control Corp. (HVCC) to Hahn & Co. for about $3.6B http://goo.gl/88QM5n ; KNDI announces the
sale and delivery of 1,000 Kandi Brand Electric Vehicles to Chengdu City
Casinos & Gaming stocks extend weakness after reports late yesterday that Beijing is set to
launch a major crackdown on the multi-billion-dollar flow of illicit funds into the gaming hub
(shares of WYNN, MPEL, LVS, MGM fall) http://goo.gl/BF9qcT ; Omega Advisors (Leon
Cooperman) reports 5.41% passive stake in CZR; NYNY rises as its unit Montreign Resort was
selected for casino facility in Catskills region
Leisure movers; cruise lines rise (RCL, CCL) after news of U.S. improving negotiations with Cuba;
SEAS said it will accelerate its buyback program and postpone its fourth-quarter dividend
Energy
Big squeeze in energy complex, as the worst performing sector in the S&P in 2014 rallied on no
specific news; stocks continue upward squeeze, as oil prices try and recover; once again,
beaten up drillers and E&P stocks (among biggest losers in 2014) pushing; the XLE rises early; Oil
drillers surge RIG, NE, DO, SDRL, ESV higher; oil services HAL, SLB, WFT jump
New York Governor Andrew Cuomo announced his administration will block hydraulic fracturing,
or fracking, for natural gas in the state when an existing five-year moratorium pushed by the
state Department of Environmental Conservation ends next year http://goo.gl/VbLAlG
Refiners were higher despite analyst calls; Wells Fargo downgraded its refining sector to market
weight as new global capacity additions, especially for diesel and jet fuels, will likely pressure
margins in 2015downgrades HFC, MPC to market perform vs outperform; maintains
outperform on PBF, PSX, TSO, VLO; separately, Credit Suisse downgraded CVRR to Underperform
MLPs sector also rallied with jump in oil prices as Alerian MLP Index (AMZ) jumped over 4% early
(best performance since Oct 16th); RMP 25M share MLP IPO opened at $15.79, down from $16.50
pricing (but pared losses)
Cap-ex/production cuts; AREX announced a sharp reduction in 2015 capital spending and a 10%14% production growth target; PWE lowers 2015 production guidance 5% to 90K-100K boe per
day and cuts cap-ex budget by C$215M; ROSE made deeper cuts into cap-ex budgets-from
$950M to $~750M and production cuts
Utilities active; Deutsche Bank says among regulated Utes, they cut exposure further
downgrading two strong performers, PCG and POR, to Hold from Buy and cuts larger-cap bondproxy ED to Sell given negative TSR targetsays valuation for CPN improves and upgrades to Buy
Financials
Large cap financials with a strong showing, following gains in overall market; shares of JPM, GS,
MS, BAC, C, all rise
Insurance; Catlin Group Ltd., a Lloyds of London insurer, said it received a takeover approach
from XL valued at about $3.9B http://goo.gl/Jvx3Qx ; in life insurance space, Sterne Agee said it
believes UNM, LNC, and SYA have the most energy exposure as a percentage of GAAP equity
(including AOCI), while PRU, MET, and HIG have the least exposure
Pershing Squares Bill Ackman said in a Bloomberg interview on TV that he added meaningfully
to FNMA/FMCC positions in last week
Financial services; XOOM upgraded by one analyst; ONDK 10M share IPO opened at $26.50, after
pricing at $20.00; PAY upgraded at Barclays after earnings

Healthcare
Top news; few M&A stories as SHPG said to consider bid for NPSP/also consider other targets
http://goo.gl/hp6dR5; PHG said it will buy VOLC for a total of $1.2 billion, with VOLC holders to
receive $18 per share, above its closing price of $11.49 yesterday http://goo.gl/tcI022;
Movers on news; ASPX soars after reporting positive top-line efficacy, safety data from study of
SD-809 or treatment of chorea associated with Huntingtons disease/study met goal (Canaccord
said news an incremental positive for JAZZ"s JZP-386); HALO entered into a worldwide
Collaboration and License Agreement with Janssen Biotech, Inc.; CERS received pre-market
approval for the INTERCEPT Plasma System; POZN receives another complete response letter
from FDA on cardio drugs; MYGN lost bid to block competing DNA tests for breast cancer after
U.S. appeals court said patents are invalid
Industrials & Materials
Transports underperformed market; FDX reported Q2 eps miss by 9c and revs also short of
consensus, guides FY15 $8.50-$9.00 vs. est. $9.10 (weighs on transports); in rails, KSU upgraded
to Overweight at Stephens (up tgt to $135); in airlines (group fell yesterday) were weak in the
morning, but rallied into the afternoon
Metals & mining movers; CLF price tgt cut to $1 from $10 at Credit Suisse on lack of any longterm support (firm also sees downside risk to FCX, upgrades SXC and sees X as most intriguing
story in space); Bloomberg noted iron ore index declines -0.8% to $68.05 per dry ton (lowest level
since June 2009; CDE to acquire PZG for $146M http://goo.gl/7ITHxz ; SWC upgraded to buy at
Goldman Sachs; Credit Suisse; TCK upgraded to buy at UBS on pullback in shares
Industrials/Machinery; JOY Q4 EPS/revs beat, but bookings fall 27% YoY to $783M and guides
2015 EPS $3.10-$3.50 vs. est. $3.53; also a negative for group, the Architecture Billings Index
(ABI) fell to 50.9 from 53.7 in October (names like CAT fell); EMR downgraded to Underperform
at CLSA citing headwinds including falling oil/Europe weakness
Petro chemicals rise with bounce in oil; shares of LYB and EMN, which have been hit on falling
energy prices, bounced today
Shippers/tankers; Baltic Dry Index falls (-1.3%) to 827 pts, marking the 19th consecutive daily
decline, its longest retreat since June 5, 2013 (led by decline in Panamaxes, with -1.7% drop)
shares of DRYS, EGLE, DSX leveraged
Engineering & Construction; MTZ lowers 2015 revenue and EPS outlook citing uncertainties
due to lower world oil prices, expected lower levels of wireless project activity; Standpoint
Research upgraded E&C names FLR, JEC
Technology, Media & Telecom
Tech overall up with the market; top movers include DRIV as jumps as extends pact with MSFT
until March 2017/still sees Siris deal closing in Q1; BBRY rises on analyst upgrade and after
unveiling its new BlackBerry Classic smartphone (% more screen space and 50% more battery)
Internet movers; NFLX rises as DISH becomes first major Pay-Tv provider to integrate it into settop box; Pivotal Research upgraded shares of both GOOGL and TWTR; BIDU confirmed strategic
partnership with Uber
Internet security stocks IMPV and CHKP both upgraded to buy at Deutsche Bank on expectations
enterprise security IT spending will again be "very strong" in 2015 (shares of CUDA, PFPT rise)
Telco; Goldman Sachs lowers its wireless estimates and price targets and downgraded VZ to
Neutral citing higher spectrum costs, increased wireless competition that is driving higher churn
and lower margins; DISH becomes first major Pay-Tv provider to integrate NFLX into set-top box
Media; SNE canceled its New York premiere of The Interview after threats of violence from the
hackers behind a devastating cyberattack on the studio (CKEC, RGC, and AMC all said they will
not show the film)

 Shares of body camera makers DGLY and TASR rise after the LAPD reports purchase of 860 Taser
Axon Cameras (confirming reports yesterday)
Analyst calls; Citi raises HDD price targets raised for STX (to $72 form $60) and WDC (to $125
from $110); QLGC upgraded at Morgan Stanley

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