Closing Recap 4:10PM EST

Monday, January 12, 15

Index

Up/Down

Last

DJ Industrials

-96.14

0.54%

17,641

S&P 500

-16.49

0.81%

2,028

Nasdaq

-39.36

0.84%

4,664

Russell 2000

-5.67

0.48%

1,180

Equity Market Recap

U.S. equities end lower, failing to recover from sharp losses early, as the continued decline in
energy prices (oil falls another 5%) is really taking its toll on stocks leveraged to oil prices for revs
(energy, industrials, etc.). Defensive Telecom and Healthcare sectors were outperformers, while
Energy, Technology, and Utilities lagged. There was no major economic data today, and earnings
start tonight with Alcoa (AA), followed by banks later this week; few M&A deals in the Healthcare
sector (see below) and comments out of JPMs Healthcare conference created a bout of volatility
for that sector; a couple of stocks got crushed on lower guidance (semi maker SNDK, retailer TIF
both fell around 15% on soft outlooks, while LULU boosted its outlook)
While plunging oil prices (off nearly 60% from June highs) have grabbed most of the media
attention, the ongoing strength in the bond market is equally as big a story (and shocking
many)especially given fact we should be getting closer to raising rates this year (note all-time
closing yield level of 2.45% for the 30-year in July being tested). There are several potential
reasons cited for ongoing strength, but fact that European bond yields are at record all-time lows
(and making fresh lows daily), the U.S. bond market looks incredibly appealing in comparison!
In a bit of an embarrassing situation today for the U.S. govt, @Centcom, Twitter account for U.S.
Central Command, suspended after account was compromised and began posting messages
threatening U.S. troops, supporting Islamic State. Centcoms YouTube account also compromised.
(U.S. said hack was an annoyance not national security situation)

Commodities
Energy prices plunging daily; after posting an 8% drop last week (its 7th straight weekly decline),
WTI starts this week falling 4% to fresh 2009 lows (low $32.70 in Jan 2009); while Brent fell as
sharply as same problems/fears weigh (oversupply issues)
Natural gas prices plunged with energy complex; falling -0.14 to $2.80 mln btu
Gold prices jumped $16.70, or 1.6% to settle at $1,232.40 an ounce adding on to last weeks
2.5% advance as volatility has increased U.S. equities. Falling long term treasuries yields are also
helping keeping the price of gold higher (and small pullback US dollar)

Currencies
The dollar index (DXY) was flattish, paring earlier gains in the session; the index traded as high as
92.337 (and low at 91.721), but ended around Fridays close at 91.94. The dollar fell Friday
despite a better jobs growth report, as investors chose to focus on the slowing wage growth
segment of the data. The euro pared losses to trade to same level Fridays close, while the yen
gained slightly against the greenback to 118.30

Bond Market
Bonds were stronger, as equities faltered and oil prices slide; bonds extended gains after results
from the U.S. Treasury auction of $24B in 3-year notes, which came in at 0.926%, with bid to
cover at 3.33 (strongest since Aug 2011), and 45.8% of notes awarded to indirect bidders. Yields
on benchmark 10-yr dropped to 1.90%, though yields fell across long/short end of the curve; the
30-yr yield drops below 2.5%, while the 2-yr was at 0.545%

Macro

Up/Down

Last

WTI Crude

-2.29

46.07

Brent

-2.73

47.38

Gold

16.70

1,232.80

EUR/USD

-0.0004

1.1838

JPY/USD

-0.15

118.36

10-Year Note

-0.061

1.91%

Sector News Breakdown

Consumer
Retail movers; LULU raised its Q4 eps and sales outlook citing improving trends/holiday results
(upgraded at Sterne Agee); TIF lowered its yearly forecasts for comps/EPS citing holiday sales
decline; EXPR boosted its fell-year eps/comp sales outlooks; BURL boosted Q4 EPS outlook to
$1.30-$1.32 from $1.25-$1.28; ASNA cuts year EPS to 70c-75c, from 90c-$1.00; GMAN boosted
its Q4 sales/EPS outlook; BBW said Q4 revs $130M, above est. $113M
Food stocks; Citigroup downgraded six food companies (KRFT, MDLZ, K, CAG, MKC, and CPB as
becomes more cautious citing high valuations, volume declines and risk to growth estimates for
companies with exposure to Europe and Emerging Markets; DF was also cut at Credit Suisse citing
valuation (raises tgt)
Homebuilder sector; multiple analyst calls today on group: Raymond James upgraded DHI, KBH,
MDC, RYL, SPF all upgraded to Outperform citing move by FHA to lower mortgage insurance
premiums; KeyBanc remains cautious on group (upgraded DHI, but downgraded TOL and MDC);
RBC Capital lowered estimates for several builders on concerns about impact of softer demand in
Texas amid oil production cuts and potential layoffs
Building product stocks move with builders; RBC incrementally cautious on companies with
sizable European exposure including DOOR (22%), AWI (20%), MHK (19%), MAS (19%) after
meetings with European investors highlighted concerns about soft demand
Autos; TSLA shares fell after the WSJ reported GM plans to launch a $30,000 electric vehicle
called the Chevrolet Bolt that would be capable of driving 200 miles on a charge by 2017; ORLY
downgraded to neutral at Northcoast; Detroit auto show started today
Restaurants; DENN boosts year Ebitda to $80M-$82M as well as free cash flow outlook; KKD
guides FY16 eps 79c-85c vs. est. 87c/lowers FY16 revenue outlook; other restaurant names little
changed on day

Energy
Energy stocks fall as oil prices drop more than 4%; oil drillers (RIG, NE, DO, ESV), E&P (SWN, APA,
APC), majors (XOM, CVX), services (HAL, SLB, WFT) are all down sharply; those leveraged to nat
gas also lower (EQT, CHK, RRC), as well as MLP sector (BBEP, GMLP, ARP, LGCY) oil also hitting
industrials/multi industry/some regional banks (loans) more negative research today as
Goldman Sachs lowers crude oil forecasts
Cap-ex movers; CNQ lowers its year cap-ex outlook to C$6.2B from prior C$8.6B view and sees
2015 output growth 7% vs 2014 view midpoint; BAS said its December well servicing rig
utilization rates fell MoM
Goldman Sachs impact on oil markets today: lowered its long-term estimates on Brent oil to $70
a barrel from $90 a barrel. In E&P space, Goldman upgraded CHK to Buy, downgraded BBG to
Sell/ECR to Neutral, upgraded PE to Neutralin oil service, remains cautious despite sell-off, as
cuts SLB to neutral and removes OII from conviction buy listpipelines, Top picks still EQM, KMI,
PAGP; downgraded DPM to Sell, and MWE to Neutralrefiners, upgraded ALJ, cut WNR
Utility sector weaker; KeyBanc remained positive on group, as reit buy and up tgts for AEP, ALE,
CMS, NEE and POR as sees further upside potential to the group as fundamentals remain intact;
Morgan Stanley cut the Regulated Utilities sector to cautious (cuts EIX after run in shares), but
upgrades yieldco industry view to attractive vs in-line on attractive risk/reward, growth outlook,
strong div. yields; prefers ABY, NYLD, PEGI
MLPs fall with oil; the Alerian MLP Index (AMZ) fell over 4% early in sympathy with oil decline;
Goldman Sachs maintained its Attractive coverage view of Midstream Pipelines and MLPs as cash
flows should be sustained by fee-based contracts and limited commodity price exposure. Favorite
stocks: EQM, KMI, PAGP (downgraded MWE/DPM)
Financials
Large cap bank earnings this week: as JPM & WFC report earnings on Wed; BLK, BAC, C, and
CBSH on Thursday; PNC, STI, CMA, and GS Friday (MS was downgraded by one analyst today)
REITs remain a beneficiary of lower rates/bond yields; (IYR rises to best levels since 2007), led
again by GGP, MAC, TCO, CBL, among others; healthcare reits also broadly higher - HCN, VTR,
SNH, HCP, OHI, NHI. Earlier, Wells Fargo downgraded the Mortgage REIT space to Market Weight
citing uncertainty surrounding Fed monetary policy as well as geopolitical turmoil (cut AGNC,
CMO, CYS, MFA, MITT, MTGE and NLY (kept OP ratings on HTS, IVR and TWO)
Financial services; LC init Underperform and $17.75 tgt at Sterne Agee, while also downgrading
ONDK to Underperform cited strong competition, potential increased regulatory scrutiny; ALLY
declined after one analyst estimated that ~20% of ALLY's originations could be impacted from
loss of GM business (note according to ALLY's 10K, of ALLY's >$37B or originations in 2013, new
GM leases totaled ~$8.5B, or >20% of total originations)
Healthcare
Large cap Pharma movers; BMY and SGEN rise as independent Data Monitoring Committee
halted its late-stage trial dubbed "CheckMate-017" for its PD-1 inhibitor, Opdivo, early because
the drug showed a clear survival benefit in squamous cell non-small cell lung cancer (NSCLC);
MRK sped up plans to submit new drugs for hepatitis C and lung cancer for U.S. regulatory
approval; ACT said it sees Q4 eps beating estimates by 10%-15%
M&A news; SHP agreed to acquire NPSP for about $5.2B, paying $46 per share in cash
http://goo.gl/n1f2dn ; Roche Holding said it would pay $1.03B for up to a 56.3% stake in FMI, the
maker of molecular diagnostics tests, as Roche will pay $50 a share http://goo.gl/LBhlZY ; MWIV
to be acquired by ABC for $2.5B, or $190 per share to add animal health supplies
http://goo.gl/wtqz6L; BIIB agreed to acquire privately held Convergence for up to $675M; TKMR
to acquire OnCore Biopharma to develop hep B treatment http://goo.gl/Hn2A24

 Hospitals active; HCA raised its 2014 Ebitda guidance to $7.4B from an earlier range of $7.25B$7.35B; but group falls on THC outlook as boosted its 2015 rev view ($17.4B-$17.7B) and Ebitda
to top end of prior range but guided year EPS $1.32-$2.40 (est. $2.70) hospitals falling (UHS,
HMA, LPNT, CYH)
Biotech movers; SRPT falls after updates Eteplirsen study results, FDA filing still on for Mid-Year;
VRTX guides Q4 Kalydeco revs below consensus; AEGR rises on upbeat guidance; RVNC cut its
yearly forecast; ICPT said still sees starting NASH phase III study in 1H15; CELG said it expects to
meet/exceed 2017 guidance (several updates from JPM Healthcare Conference); BMRN jumped
following its presentation at the JPM conference; ILMN fell late day on guidance
Devices/products; MDXG guides Q4 revs upper end of $39.6M (saw $38.3M prior)
Industrials & Materials
Multi industry; SPW, ETN named top multi industry ideas at Morgan Stanley, with HON top
mega-cap pick replacing UTX (also upgraded IR and cut DHR); MMM, ROK, ITW underweights
(ADT also downgraded to UW) notes negative impact from lower oil prices this has become a
group moving very much in sympathy with oil prices (as well as chemical stocks WLK/AXLL/LYB)
Industrial metals; Copper prices sink to 5-year lows earlier; AA upgraded to buy at Nomura
(ahead of earnings tonight) and raise tgt to $23; industrial metals in general (steel, copper, iron
ore, coal, etc. fall with broader market); though gold miners advanced as gold prices jumped over
1.6% on the day (NEM, ABX, GG, KGC)
Ag sector; bearish U.S. WASDE crop report; corn prices fell as much as 2% after Jan. USDA
WASDE and 4Q grain stocks report; said corn ending stocks 1.9B bushels (in-line w/ests), while
wheat and soybeans were also reported above views (POT, MOS, DE moved in reaction)
Airlines fall; AAL weighs on group after saying Q4 unit revs would be less than an already lowered
forecast as traffic declined in some international markets/also narrowed its expectation for
pretax margin; LUV said it sees Dec PRASM estimates down (4%-5%), while traffic was up 2.8%;
group failing to rally despite another plunge in oil (JBLU, UAL, DAL weak); ALK analyst upgrade
Transports; group was mostly weaker due to airlines (AAL guidance), but overall held up fairly
well; Barclays downgraded HUBG to underweight on continued rail service issues and cost
challenges, but upgrades CHRW & KNX to Overweight on gains in trucking market fundamentals
Machinery movers; more analyst commentary, as RBC upgraded PCAR saying it is well
positioned to benefit from improving NA commercial truck cycle, eventual Europe, Brazil upturn;
downgraded JOY
Baltic Dry Index Rises 2.0% to 723 Points in London (was first increase in 30 days on Capesizes)
Technology, Media & Telecom
Semiconductors weak; SNDK led the group lower after guiding Q4 revs to $1.73B, below
consensus of $1.8B-$1.85B (and margins 45% vs. prior view 47%-49%) citing weaker than
expected sales of retail and iNAND products (MU guided revs lower last week); INTC estimates
boosted by Citigroup; ISSI guided Q1 revs above prior view (but below consensus); SLAB/ATML
positive Barrons mention; SOX index lower by around 2%
Software movers; SAP posted Q4 cloud revs above forecasts (up 72%) lifting shares of software
stocks early (CRM, ORCL, WDAY were active)
High beta Internet stocks were mostly lower given broad equity pullback; NFLX, AMZN, GOOGL
52-week high, down nearly 20% from record highs), PCLN, FB, TWTR, EBAY lower most of the
session (P higher on positive analyst comments)
Internet security stocks were mostly higher after the official Twitter and YouTube pages of the
U.S. Central Command were compromised by hackers claiming to be ISIS, who released what
appeared to be sensitive documents and personnel records - PANW, CUDA, FEYE, PFPT rose

 Telecom stocks were leaders; WIN and FTR upgraded to buy from neutral at Bank America (CTL
up as well); defensive/dividend paying stocks (T/VZ) also rallied with lower bond yields; LORL fell
after talks with the Ontario Teachers Pension Plan, which were active in the fall, have ended
(Ontario had a prior handshake deal to buy Loral for roughly $85 a share http://goo.gl/R5yYBb
Media stocks were mostly higher; CBS (analyst upgrade), VIAB, DIA, TWX

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