Closing Recap 4:05PM EST

Monday, January 5, 15

Index

Up/Down

Last

DJ Industrials

-330.44

1.85%

17,502

S&P 500

-37.45

1.82%

2,020

Nasdaq

-74.24

1.57%

4,652

Russell 2000

-16.96

1.44%

1,181

Equity Market Recap

Not a pretty day on Wall Street, as the S&P 500 posted its worst day in 3-months, falling over (1.8%), while the VIX index jumps more than 15%; while treasuries gain momentum (sending
yields reeling). After going an entire calendar year without a 4-day losing streak (264 trading
days), the S&P snapped that streak today (first time since Dec 2013)! The Dow Industrials were
down as much as 357 points at its peak losses (lower oil, lower bond yields, stronger dollar to
start 2015 much like 2014 so far), led by declines in CAT (52-week lows), energy names
CVX/XOM), and GS in financials. The move came as WTI crude fell over 5% and Brent 6%
All 10 sectors in the S&P 500 were weaker, led by declines in Energy, Materials and
Discretionary, but was really broad based. Transports were sharply lower, despite another drop
in energy prices, falling over 2.5%. Tech lower as well (maybe can get a bounce with the
Consumer Electronics Show this week?)
Europe ended on the lows, led by decline in Italy's (-4.8%), Germany (-3%), France (-3.3%), and
Spain (-3.5%), amid renewed Greek exit fears after a weekend story in Der Spiegel suggesting
Angela Merkel feels financial markets are stable enough to handle Greece's withdrawal from the
EuroZone. Note Greek markets fell more than 5% today

Commodities
Energy plunges; it was another dreadful showing for the energy complex, as WTI crude dropped
more than 5% to end at $50.04 per barrel, broke below that level the first time in 5 years (April
2009) earlier, on surging supply. Brent dropped below the $55 per barrel level, as Russia output
continues to rise while Iraq plans to boost exports this month (as per Bloomberg). A stronger
dollar did not help the commodity complex either
The losing streak for gasoline reached triple digit territory over the weekend, now 102 straight
days without a daily gain, according to Bespoke. Natural gas prices reversed earlier gains, of as
much as 5%, to end lower despite colder temperature forecasts (fell -0.08 to $2.926 mln btu)
Gold prices one of the few gainers, rising $17.70, or 1.5% to settle at $1,204 an ounce; scaled an
intraday high of $1,204.40 and a low of $1,177.80 an ounce. Most news reports cited the gain in
gold on investors seeking the safe haven of the precious metal on concerns over the Greek crisis
(possibly leaving Eurozone) and fears of a global economic slowdown following crude oil's
extraordinary plunge to new depths (rallied despite a rise in the dollar)

Currencies
Dollar rises; the dollar index, after rising more than 13% in 2014, added to recent gains, up 0.25
to 91.33 (high was 91.775 best level since Nov 2005), as the euro falls to 9-year low against the
greenback (as low as 1.1864 briefly overnight before paring losses). Weakness in the euro came
amid investor concern Greece might leave the currency union and on speculation the ECB has
moved closer to large-scale sovereign-bond purchases. The yen pares recent losses, as the dollar
drops below the 120 level

Bond Market
Treasury markets very strong; after defying the odds last year, rising when many predicted a selloff in bonds as the US economy improved and the Fed ended its QE purchases, bonds still surging
daily. The yield on the 10-yr bond fell to the lowest level since June 2013 today (2.03%), while the
30-yr yield dipped to fresh 2-yr low (under 2.6%). Safe haven buying continues as European
investors likely shifted out of stocks and into Treasurys on concerns that a Greek exit, from the
EuroZone appeared a possibility. Note over the weekend, bond guru Jeff Gundlach told Barrons
that 10-year Treasury bond yields could move below their modern-era low of 1.38%, going
against the conventional wisdom that an interest-rate increase by the Fed will support 10-year
yields

Macro

Up/Down

Last

WTI Crude

-2.65

50.04

Brent

-3.57

52.85

Gold

17.80

1,204.00

EUR/USD

-0.0063

1.1939

JPY/USD

-0.99

119.51

10-Year Note

-0.076

2.034%

Sector News Breakdown

Consumer
Auto sector; December monthly auto sales were released: 1) GM Dec US sales rose 19.3% to
220,671 units vs. est. up 13%; 2) F Dec U.S. light vehicle sales up 1.3% vs. est. 2.8%; 3) FCAU Dec
US units sold 193K vehicles, up 20% (vs. est. 23% rise), as Jeep sales rose 19% and Chrysler brand
up 53%; 4) Nissan Dec sales rise 6.9% to 117,318 units vs. est. 6% (posted best year); 5) Honda
(HMC) Dec sales rose 1.5%, below views for 6.3% rise (ended year w/1% rise); 6) TM reports
December U.S. sales up 12.7% to 215,057 units
In other auto news; Ford (F) downgraded to neutral at Citigroup following a proprietary Yen
analysis; BWA shares may rise 23% to $67 as demand for fuel-efficient auto parts increases while
production costs drop, Barrons; HTZ fell as GM said sales to rental customers were down -13%
Retailers generally weaker with overall market; several analyst changes as Jefferies remains
constructive on retail in 2015, upgrades SKUL to buy given better visibility for stronger topline
and EPS growth and ups LB to hold as fears of deceleration off peak fundamentals proved
overstated; also upgrades GPS to buy (was also upped at Susquehanna), while downgrading
URBN and UA and says best ideas are DECK, FOSL, GPS and KORS); TIF downgraded to hold at
KeyBanc; LULU upgraded to Outperform at William Blair both RL and M cut at Buckingham
Consumer staples movers; defensive beverage stocks rise on several analyst calls; KO upgraded
to Overweight at Morgan Stanley, while STZ was upgraded at RBC Capital, CCE upped at Bank
America and DPS raised at Janney to buy (but was downgraded to Underperform on valuation at
Bank America); in foods, GIS was cut to Underperform at Bank America, but upgraded THS; HLF
shares dropped over 10% on no specific news

 Restaurant changes; Janney cuts SBUX to neutral as concerns about near-term same-store sales
trends have grown but upgraded BOBE to buy; TXRH was downgraded to hold at Miller Tabak;
RW Baird upgraded shares of LOCO and PBPB while downgrading BWLD
Casinos and Gaming; Morgan Stanley reduced its Macau gross gaming revenue (GGR) est. to
down (-4%) from unchanged, and 2016 est. to up 10% from gain of 13%; Wells Fargo said now
ests. Jan. Macau gaming revenue decline of 15% vs prior modeled est. of down 10% (WYNN, LVS)
Energy
Oil & energy stocks renew downside momentum given the more than 4% drop in oil prices;
weakness broad based in energy complex (XOM, CVX, RIG); MLP stocks also falling (AMZ index
drops), led by oil and as another MLP cuts distribution (BBEP which follows LINE last week);
broad weakness with shares of WLL, OAS, CLR all sharply lower
Major oils fall; Citigroup downgraded CVX, Galp, Repsol to neutral from buy, and Eni to sell saying
their business models/valuations appear more challenged in lower oil environment
MLP sector; Alerian MLP Index (AMZ) falls over 3% with decline in oil; ACMP and RGP
downgraded to neutral from Outperform at Credit Suisse and cuts targets; BBEP cut its cash
distribution per unit of 8.33c for 1st month attributable to 4Q vs last monthly payment of 17.33c;
LINE said is in talks on sale of Permian Basin assets
Utilities; several analyst rating changes as PCG upgraded to Overweight at Barclays; CNP
downgraded to neutral at Macquarie; DUK downgraded to neutral at UBS (utilities were top
performers in 2014, another good start as bond yields continue to fall)
Coal stocks also broadly lower with energy weakness: CNX, BTU, ANR, WLT
Oil rig counts continue to decline, with the latest week showing a drop of 29 rigs to 1,811,
according to Baker Hughes (and down from 1,893 on Dec 12th
Financials
Large cap banks fell with overall market and as treasury yields continue to move lower; shares of
JPM, C, GS, MS declined; WFC also fell, downgraded by one analyst as believes estimates look
aggressive going forward; STI expects $145M charge in Q4 for legal expenses
In stock news; NDAQ acquired Dorsey, Wright & Associates, a market leader in data analytics,
passive indexing and smart beta strategies, for $225M; RCAP raised $270M in December and said
it sees sales improvement
Insurance stocks; VOYA was downgraded to Bank America after a near 2-year rally; broad
weakness in insurance names with MET, PRU, PFG, LNC down over 3%
U.S. officials are taking their first crack at writing rules for payday loans, responding to concerns
that the short-term, high-rate debt can trap consumers in a cycle of borrowing they cant afford.
The Consumer Financial Protection Bureau is exploring ways to require payday lenders to make
sure customers can pay back their loans, according to people familiar with the matter.
http://goo.gl/Ee7Uql
Healthcare
Pharma sector; MRK was upgraded to Outperform at Bernstein as believes will file for approval of
its Keytruda drug 6-12 months ahead of the consensus outlook; NVS upgraded to Outperform at
Cowen; European Pharma SNY and GSK cut to Underweight at JP Morgan; NPSP shares jumped
after the WSJ reported the company was seeking a buyer http://goo.gl/oSD6Ef
Biotech movers; GILD rises as CVS gives preferred formulary status to GILD drugs Harvoni and
Sovaldi (weighed on ABBV); REGN was upgraded to Overweight at Morgan Stanley w/$485 tgt as
survey results indicate robust DME penetration for Elea; ALXN cut at Morgan on valuation, while
cutting AMGNs rating on balanced 2015 catalysts; Nomura downgraded shares of ALXN, BIIB,
PCYC; AMGN and KITE announced a strategic cancer immunotherapy

 Medical devices/lab corps.; LH upgraded to buy at Citigroup; ZMH and BSX upgraded to
Overweight at JP Morgan citing underperformance in 2014 (downgrades BCR and SYK); BDX
upgraded to strong buy at Raymond James following CFN acquisition; device names HRC, BCR
and ZMH all upgraded at Morgan Stanley (while cuts TFX and BAX)
Movers on news; CEMP posts positive phase III data for oral Solithromycin, CERS said its EU
phase III study of Intercept met its primary endpoint, CNAT to report data from trials of
Emricasan on January 8th; ISIS announces pact with JNJ to develop RNA-targeted therapies; KITE
and AMGN announced a strategic cancer immunotherapy; BCLI positive NurOwn ALS efficacy
signal but just incremental update from last June
Industrials & Materials
Transports were lower, led by rails (UNP, KSU) and logistics/truckers (CHRW, CNW); airlines were
mostly lower after DAL said Dec PRASM fell (-4.5%); budget carriers VA and RYAAY both
downgraded to neutral at Bank America after strong rally in sector
Machinery sector; CAT was downgraded Underweight at JP Morgan on its direct oil/gas exposure
(~12% of revenues) and also its indirect exposure in mining; CF upgraded to Overweight at Piper
with a $327 price target; Evercore also cut its rating on CAT, as well as TEX and URI; shares of PH
and ATU were also downgraded at JP Morgan
Materials, Metals & Mining; SCHN was downgraded to neutral at Davidson saying global growth
trends and oil price declines cloud recovery prospects; KeyBanc maintained its defensive view on
the carbon steel sector and downgraded RYI to hold; China dropped its decade-old quotas
limiting exports of rare earths, as it moves to comply with a WTO ruling last year; metals in
general were broadly lower, with big drops in FCX, AA, VALE, X and CLF; though gold miners
rallied on strong gold prices (NEM, KGC, AU)
Technology, Media & Telecom
Tech weaker with broader tape, no safe spots; in semi news, INTC upgraded to buy at MKM; INFA
downgraded to neutral citing valuation and weaker sales checks; Semiconductor equipment
stocks AMAT and LRCX are among stocks that may stall in 15 said Barrons on reduced spending;
MXIM upgraded to Outperform at Macquarie, while cuts LLTC; also saw broad selling in
component, and EMS stocks on slower spending fears
High beat stocks fell; NFLX under pressure, dropping more than 4%, while AMZN, PCLN (getting
hit with falling euro), AWAY, P all lower; FB gave up early gains despite positive analyst
comments, while LNKD and TWTR also down
Internet security stocks were one of the few bright spots today, with gains in CUDA, FEYE, PANW
Telco/Cable/Media movers; CVC downgraded to Underweight at JP Morgan after run in shares
and thinks future sub growth is limited; CCO underperformed on no apparent news; Telco stocks
T and VZ outperform market, as lower bond yields making higher dividend paying stocks more
attractive
Other analyst changes: FFIV and RDWR both upgraded to Outperform at Oppenheimer; AKAM
cut at Pacific Crest; CTSH was upgraded to buy at Goldman Sachs

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