Closing Recap 4:05PM EST

Friday, January 9, 15

Index

Up/Down

Last

DJ Industrials

-169.28

0.95%

17,738

S&P 500

-17.22

0.83%

2,044

Nasdaq

-32.12

0.68%

4,704

Russell 2000

-10.32

0.88%

1,185

Equity Market Recap

A volatile end to a very volatile week, where the Dow Industrials posted 5-straight days of 100+
plus moves, the first time since the week of September 22nd. The volatile action started with 5
straight days of selling, followed by a sharp V shaped recovery the last two days (recovering
4%), only to lose ground today. Financials were a drag on the markets, led by banks (ahead of key
earnings next week), as well as Energy amid falling oil, and Discretionary on weaker retailer
reports. The key factor to todays action was the Nonfarm payrolls report, which saw continued
job growth, but slowing wages (which weighed on the dollar but lifted bonds/gold). The S&P 500
is set to close around its 50 day moving average (2,045), as it moved back into negative territory
for 2015. European markets fell sharply after weaker German industrial production (second
straight day of weak data) will that mean aggressive monetary stimulus from the ECB shortly?

Economic Data
Nonfarm Payrolls for Dec rose 252K, above estimates for 240K gain, while the prior month was
upwardly revised to 353K from 321K. The unemployment rate dropped to 5.6% from 5.8% the
prior month, though wages decline (-0.2%) vs. an expected 0.2% gain. Also alarming, the
participation rate dropped to 62.7% from 62.9% prior. Nonfarm private payrolls rose 240k vs
prior 345K (est. 228K), while manufacturing payrolls edged higher
Wholesale Inventories for Nov jumped 0.8%, above est. 0.3%; wholesale inventories increased to
$547.2B vs. $542.9B in prior month; wholesale sales fell 0.3% in Nov. after no change prior

Commodities
It was another dreadful week for oil prices, falling again Friday by 43c to $48.36 per barrel, and
ending the week with an 8% decline (its 7th consecutive weekly decline). Oil dropped to the
lowest level in more than five years on same concerns, as OPEC refuses to reduce its output, and
the industry faces an oversupply surplus. Brent slid as much as 4% before paring losses (WTI fell
more than 3% before partially recovering). Oil remains near lowest levels since April 2009

 Gold prices ended higher, rising $7.60, or 0.6% to settle at $1,216.60 an ounce, and advanced
2.5% for the week. A mixed jobs report helped propel precious metals higher after the December
employment report showed a gain of 252,000 jobs (more than expected), but a surprise drop in
hourly wages kept a lid on the expectations for a rise in interest rates. Silver prices inched higher
by 3c to $16.42 an ounce

Currencies
The U.S. dollar initially jumped on the better December jobs report/drop in unemployment (DXY
jumped to 92.497 high)but sold off the remainder of the day, touching a low of 92.497. The jobs
report showed job growth (positive for US economy/dollar), but also showed lack of wage growth
(not good), which weighed on the market and the dollar (which came in with a 7-day winning
streak). The dollar extended losses against the yen, while the euro advances off 9-year lows

Bond Market
Bond markets advance following the better jobs data; the 10-yr yield has been having a real
tough time trading above the 2% market (holding for 3 days now), while longer dated maturities
are falling (lifting those yields). Combination of record low bond yields in Europe, uncertainty if
Fed will raise rates in 2015 at all, keeping U.S. Treasuries strong. The yield on the 10-yr ends
below 10% this week, as low wages weigh on investor sentiment

Macro

Up/Down

Last

WTI Crude

-0.43

48.36

Brent

-0.92

50.04

Gold

7.60

1,216.10

EUR/USD

0.0045

1.18.38

JPY/USD

-1.09

118.57

10-Year Note

-0.045

1.971%

Sector News Breakdown

Consumer
Retailers/Discretionary stocks were under pressure; BBBY dropped on Q3 sales miss/comp sales
miss (did raise eps view); TCS cut the top end of its year EPS outlook/light Q3 revs; SHOO lowered
its year EPS outlook; GPS Dec comp sales slightly above Street; M announced restructuring, but
narrowed its Q4 comp sales growth view; FL downgraded at Credit Suisse; RL downgraded at
Janney; DKS cut by two analysts; AEO raised @ Telsey; FIVE lowers top end of Q4 EPS; FRAN
boosted views; HELE jumps on increased FY15 forecasts
Gaming, Lodging & Leisure; JPM upgraded GLPI to Overweight calling it one of the most nonconsensus, underappreciated, and favorable risk-rewards in gaming; Morgan Stanley upgraded
shares of WYNN, but cut LVS; Macquarie said remain cautious on Macau given more weak data
in December (-30% yoy); in lodging space, HOT was downgraded at JP Morgan
Staples; GMCR received positive initiation at UBS with buy and $182 tgt); STZ downgraded by one
analyst (follows outperformance yesterday on strong earnings); tobacco stocks were little
changed; consumer products mostly lower (FX concerns into earnings shortly?), with CL, AVP, PG,
KMB lower (ENR receives analyst upgrade)
Housing and construction stocks were strong today/this week, given lower rate environment (30yr yield lowest level in over 18 months), FHA cutting premiums for insurers, and stronger
economic data (jobs today); builders (RYL, PHM) and housing material makers (USG) trade highs
Restaurants; DFRG upgraded to buy at Sterne Agee citing prime beef costs; Tigress Financial
upgraded RRGB and DRI to neutral (overall group pares some recent gains)
Auto sector; auto retailers ORLY and AAP both downgraded at RBC, citing valuation; LEA initiated
with a buy and $117 tgt at Citi; TSLA under pressure (cautious article in Germany)

Energy
Energy complex was mostly lower, led by usual suspects (E&P, services, drillers)
Refiners; sector downgraded to market weight vs overweight at Wolfe Research on heavily oversupplied U.S. product market in spite of bubbly U.S. oil demand (downgraded PSX, HFC)
Oil drillers again leading lower in energy (RIG, DO, SDRL, ATW); RBC upgraded NE to outperform,
while cutting RDC noting outperformed group by ~25% over past year; service stocks weak, Baker
Hughes noted weekly rig count plunged to 1750 in latest week from 1811 prior
Utility sector; RBC Capital upgraded shares of CPN, EXC, EIX to Outperform, while downgrading
shares of CMS, XEL, PNW & UTL (utility stocks were weaker today, but remain near all-tie highs)
MLP sector; GMLP priced 7.2M secondary units at $29.90 per share (stocks remained under
pressure after deal); at Jefferies, NFG was cut to hold, but upgraded PAGP & PAA to buy from
hold; overall, the Alerian MLP Index (AMZ) was lower given the oil prices weakness yet again
Oil & Gas companies mostly lower with lower prices (APA, APC, CHK, DVN); HK said its 2015
Drilling & Completions budget $375M-$425M compared to $950M YoY; SD restated 2013-2014
results to incorporate new accounting treatment/reduced cap-ex/rig count
Financials
Financials underperformed the market, with banks leading (lower bond yields not helping), but
things change next week with several large cap and regional banks reporting; financials carrying
the brunt of releases as JPM & WFC report earnings on Wed; BLK, BAC, C, and CBSH on Thursday;
PNC, STI, CMA, and GS Friday
New today fairly light in space, MTG said Dec primary new insurance written $3.3B (note
mortgage insurers (MBI, ESNT, MBI, NMIH, RDN) been a hot topic this week very volatile
after the FHA announced a 50 bps premium cut to 0.85%
Regional banks, especially those in Texas which provide more loans to the energy sector than
other states, have remained under pressure given oil decline (BOKF, CF, ZION, PB, CMA to name
a few); a lower rate environment also hurts banks making money on lending (Canadian banks
also under pressure given the same loan fears)
REITs continue to be favorite of investors amid the low rate environment; Bank America raised
targets in 2 REIT sectors today: Triple-net REITs tgt EPR, NNN, O, SRC & WPC on lower assumed
risk free rate and Healthcare REITs tgts for DOC, HCN, HCP, NHI, SBRA, SNH & VTR
Insurance sector; XL agreed to purchase Catlin Group Ltd., a Lloyds of London company, for 2.8
billion pounds ($4.2B) http://goo.gl/kVlEsv ; ACE downgraded at Wells Fargo but upgraded VOYA
Healthcare
Large cap pharma; LLY downgraded at Bank America saying valuation already reflects positive
expectations; ABBV cut at Bank America (recall late yesterday, ANTM chose GILDs Hep C
treatment as primary option over ABBV Viekira Pak); CNAT plunges (cut at Piper) in response to
apparent uncertainty in its Phase 2 results evaluating its oral pan-caspase protease inhibitor,
Emricasan;
Biotechs; AMAG dropped after the FDA said it wants boxed warning on Feraheme risks; REGN
and SNY said Alirocumab monthly dose meets trial goal (Janney also initiated coverage with buy
and $519 tgt); ARGS falls as Phase 2b study of AGS-004 in HIV didnt meet primary endpoint
Small cap movers; AGEN rises after INCY enters into a global license, development and
commercialization agreement focused on novel immunotherapeutics; ANGO boosted forecasts

Industrials & Materials

Transports; sector broadly lower after strength the past 2-days; weakness led by airlines (JBLU,
LUV, DAL, UAL), though rails, freights and truckers also down with market; MATX in shipping
space lone upside standout in DJ Transports after improved forecast
Chemicals; as goes oil, so goes petro chemical stocks LYB and WLK (both lower with oil); DD
activist investor Trian starts fight with company over board seats; OMG jumps as investor
FrontFour seeks changes at the company/has taken a stake of more than 5%
Gold miners mostly higher (NEM, ABX, AUY, AU, KGC, GG) amid bounce in gold prices early
(strong jobs but low wages give Fed more ammo to be patient about raising rates); note
Canaccord downgraded seven Canadian gold producers
Tankers/shippers; SBLK announced it upsized a secondary public offering to 49M common shares
which priced at $5.00 per share; the Baltic Dry Index Falls 2.1% to 709 Points in London; MATX
raised its Q4 outlook; crude carriers extend recent gains (FRO, STNG) amid signs of demand for
tankers to store oil (buying at low prices)
Technology, Media & Telecom
Internet; YELP upgraded at Bank America saying valuation more compelling; TWTR jumped over
3% on no news (highest level since Dec 1); overall lot of action for large cap Internet names as we
head into earnings (GOOGL trading near 52-week lows); FB, NFLX, AMZN down on week
In earnings news overnight; CUDA down despite Q3 eps/rev beat; EOPN cut its year eps forecast;
CRAY fell after saying delayed contracts hurt 2014 results (will help 2015);
Pac Crest was positive on HDD stocks citing a favorable backdrop for STX and WDC in 2015;
raising estimates and price targets
After near 3% gains for the SOX semi index yesterday, group doing very little today, trading down
slightly on no real news in sector after CES this week; SIMG with a late day jump after Reuters
reported company was working with bank to explore alternatives http://goo.gl/j9eZq8 ; note
NXPI traded to new 52-week high
IT services; INFY rallies after earnings despite earnings miss, but gross client adds totaled 59, up
from 49 in FQ2 and 54 a year ago (CTSH moved in sympathy)
Goldman Sachs downgraded software names QLIK and CSOD as well as NUAN

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