Closing Recap 4:05PM EST

Friday, February 6, 15

Index

Up/Down

Last

DJ Industrials

-62.17

0.35%

17,822

S&P 500

-7.04

0.34%

2,055

Nasdaq

-20.70

0.43%

4,744

Russell 2000

-3.45

0.27%

1,205

Equity Market Recap

Equity markets ended the day lower (snapping the DJIA 5-day win streak), but still posted a
strong week of gains, led by a 7% increase in oil prices (lifting stocks), improved economic data
(jobs today), and investors once again taking advantage of the dip in markets after a mixed
earnings quarter. Equities jumped early following a positive monthly jobs report, which showed
both job and wage growth, while more people returned to the work force (but reversed lower).
The stronger figures means a June Fed rate hike should now be firmly on the table, even despite
a low inflation environment. With the jump in expectations, the dollar rallied, while bonds and
gold sold off. Despite the pullback today, markets still posted strong gains for the week. The
Russell 2000 Index rose 3.3% this week, and the S&P 500 posted a 2.8% gain.
S&P's downgraded Greece to B- from B, moving further into junk territory, comes as the new
country's new government and its European creditors try to reach some sort of deal which would
stave off another default (shares of GREK, NBG declined). Late day as well, Reuters reported that
Greece must apply for bailout extension by Feb 16th at the latest, citing Eurogroup Chairman
(likely the reason for the late day market pullback)
Financials were among leaders on the day following the good jobs data, which now puts a June
rate hike on the table (positive for banks re lending). On the flip side, higher dividend paying
sectors were hit on the jump in rates and increased odds the Fed could now raise rates by
summer. Shares of REITs as well as defensive Utilities (UTY) declined sharply. Tech was mixed
after earnings with TWTR, LNKD surging, while YELP, P, GPRO, EXPE, ATVI fall post reports.

Economic Data
U.S. Jan. Nonfarm Payrolls added 257K (above est. 228K), while the prior month was revised
higher to 329K from 252K; while Nonfarm private payrolls rose 267K vs. prior 320K (above
estimate of 222K); Manufacturing payrolls rose 22k after rising 26k in Dec. Note the three-month
gain in U.S. payrolls in the strongest since 1997
The unemployment rate ticked higher to 5.7% from 5.6%, but the labor force participation rate
increased to 62.9% from 62.7% - which was the reason behind the tick higher in unemployment
Average hourly earnings jumped a strong 0.5%, or $0.12 to $24.75 (on a YoY basis, up 2.2%) and
was markedly better than the December when it fell (-0.2%)

Commodities
Energy futures rise more than 2% on the day (up$1.21 to $51.69), with WTI crude posting a 7.2%
gains for the week and the biggest two-week rally since March 1998 (up 17%) as price volatility
rose to the highest in almost six years. Brent crude climbed more than 9% this week, adding to an
8.6% gain last week. Oil has rebounded of late as companies have lowered cap-ex budgets (BP,
CVX, STO) and as drillers have pulled a record number of rigs off oil fields (note the BHI weekly rig
count data showed a decline of -87 rigs to 1,456). Also helping late day, reports that Venezuela
was working with OPEC members on an oil price strategy Bloomberg reported
Precious metals fell as the stronger jobs/wage growth increases chances of a Fed interest rate
hike by summer. April gold prices fell -$28.10 to settle at $1,234.60 an ounce. A combination of
factors weighed on precious metals, as the dollar surged on the jobs data (stronger dollar tends
to weigh on dollar-denominated assets, making them more expensive). Separately, Charles
Plosser, the president of the Philadelphia Fed, told CNBC in an interview on Friday, that it is hard
not to justify not hiking rates, and the U.S. central bank needs to look through low inflation as
temporary (gold down about 3% for the week 3 week lows)

Currencies
The U.S. dollar surged today, with the dollar index (DXY) up over 1.2%, rising 1.15 to 94.75 (back
at 11-year highs) after the better jobs report gave more confidence in the economy, and
potentially moves the Fed closer to hiking rates. The greenback surged back above 119 level
against the yen, while the euro drops to 1.133 (was at 1.15 twice briefly yesterday).

Bond Market
Treasury markets sold off following the jobs data, as paints improved economic picture, and
higher likelihood of Fed rate hikes; the 10-year Treasury yield up over 12 bps to 1.935%, while the
30-yr jumped over 2.5% and the shorter term 5-yr at 1.44% (was at 1.3% early yesterday). The
yield on the 10-yr actually advanced 30 bps to 1.94% (that is a big move in a weekespecially at
these low levels)

Macro

Up/Down

Last

WTI Crude

1.21

51.69

Brent

1.23

57.80

Gold

-28.10

1,234.60

EUR/USD

-0.0154

1.1323

JPY/USD

1.49

119.01

+0.123

1.938%

10-Year Note

Sector News Breakdown

Consumer
Retailers; consumer discretionary sector (XLY ETF) surges this week, helped today as data showed
more jobs being created, and higher wages, hopes for increased spending. The XLY gained 4.5%
so far this week, to a 2nd straight all-time high (gains lifted this week by DIS which jumped 12%
this week on earnings and CMCSA on net neutrality proposal that would reclassify broadband as
a public utility); BBY upgraded to Outperform ay Oppenheimer; KORS bounces after earnings
weakness the day prior

 Restaurants; BWLD posted a mixed 4Q as EPS missed/comps slightly beathowever SSS during
the first five weeks of 1Q exceeded expectations (sector in general has done well this earnings
season, a beneficiary of lower energy prices); CBRL fell as shareholder filed to sell shares; GRUB
rises a second day after better earnings (analyst upgrade today)
Mattress firms mixed after TPX Q4 EPS/sales top consensus, but guides year below forecasts on
currency effects (SCSS falls, MFRM held up well)
Staples; DPS boosted its dividend and announced stock buyback; EL was removed from
Conviction Buy List at Goldman Sachs (after good jump yesterday on earnings); food stocks were
slightly lower, but staples in general underperformed
Gaming, Lodging, & Leisure; HOT downgraded at MKM Partners saying mounting headwinds will
limit upside (lodging names were broadly lower on HOT and EXPE earnings shares of WYN,
CHH, MAR also declined; toy makers MAT and HAS report Monday morning
Housing/building materials; SPF gets a bounce after earnings; BECN posted Q1 eps/revs below
views (but stock rallied anyway as comfortable with year earnings); VMC analyst upgrade
Education sector lower; shares of DV dropped over 15% after Q2 EPS/revs missed as margins
remain under pressure; STRA Q4 eps also missed by 8c; shares of APOL, CECO, ESI also declined
Energy
Energy movers; jump in oil prices (7% WTI/10% Brent) helping lift several small/mid cap related
E&Ps, drillers, etc. that have been pummeled on the 50% drop in oil since last year; energy
mixed early, with services higher, as well as names leveraged to nat gas; PBR named Banco do
Brasil SA CEO Aldemir Bendine was chosen as news CEO; CPPL jumped over 20% on its first day of
trading (46.81M share IPO opened at$28, after pricing at $23.00)
Oil service stocks rallied; BHI said its weekly rig count fell -87 to 1456 rigs (oil rigs fell -83 to
1,140, the lowest level since Dec 2011); the U.S. Rig Count is down 315 rigs from last year at
1771, with oil rigs down 276, gas rigs down 37, and miscellaneous rigs down 2; NOV dropped as
RBC believes on concern regarding Brazil shipyard financing amid corruption scandal in Brazil
The United Steelworkers union rejected the latest offer from U.S. refiners Thursday evening,
continuing the strike at nine plants around the country. Negotiations have been suspended but
will resume when the union receives unspecified data it is seeking, the union said in a statement
The Utility Index (UTY) fell over 3.6% intraday, its most since August 2011, as defensive, high
dividend paying sectors were sold after the jobs data lifted the dollar/bond yields
MLP sector; it has been a strong week for MLPs, as the Alerian MLP Index (AMZ) has posted gains
of 1.5% three days this week following the bounce in oil prices, but lagged today; BPL Q4 revs
missed estimates, but stock bounces (forecasts higher storage utilization, prices); BBEP
downgraded at Raymond James; NMM priced 4M share secondary at $13.09
Financials
Financials among leaders on the day following the good jobs data, which now puts a June rate
hike on the table (positive for banks re lending); shares of JPM, BAC, WFC, C all higher; also
seeing strength in insurers (MET, LNC), which were down yesterday on PRU earnings; as well as
trust banks (NTRS, STT, BK), and online brokers (SCHW, AMTD, ETFC)
Reinsurance; Deutsche Bank raises ratings on AXS, PRE, RE and RNR noting announcements of
business combinations have intensified in recent months, pushing up valuations and placing a
floor on lower ROE peers at book value.
Insurance brokers; AON Q4 eps beat by 3c (said FX cut by 6c), while revs light (notes lower tax
rate and improved operating margins); MMC Q4 EPS topped views as rev fell short of forecasts
(said consulting revs $1.6B, up 5% or 8% on underlying basis YoY)

 Exchanges; CME reports earnings beat (helped by increased volatility in energy markets), lifting
shares (though analysts were mixed saying much good news priced into the stock); ICE also
moving to 52-week high (jumped on earnings), while CBOE missed quarterly EPS views
Other movers; INTU fell on the heels of Minnesota putting a halt on accepting returns filed
using TurboTax over fraud concerns, INTU has disabled all state tax return e-filings as of
yesterday; BKD rises after Sandell Asset Management pushing company for REIT spin-off; PNNT
upgraded at JP Morgan
Mortgage service stocks continue rise, helped with general strength in financials today on better
jobs data and continued recent momentum; NSM upgraded to Outperform today at Wells Fargo
citing continued clarity on the regulatory front among other factors (OCN, WAC also higher)
REITs; group mostly lower given the better jobs number and its effect on bond yields, which
jumped in response to the strong figures. The REIT ETF (IYR) declined, led by weakness in SPG,
CBL, TCO (note several REITs trading near all-time highs given the low rate environment)
Healthcare
Healthcare sector relatively quiet today after big M&A news yesterday (PFE bought HSP for
$15B); today, shares of MCK (lifts other distributors CAH/ABC), ATHN, FLDM, rise on
earnings/guidance, while SIRO fell (shares of PRGO decline a day after earnings release (little
movement yesterday on lower guidance, but fell today)
Biotech stocks; group down slightly today (IBB); Credit Suisse had comment on Hep C drugs as
they cut GILD to neutral on back of HCV headwind, and lowered estimates and tgts on ABBV,
ENTA and BMY (upped MRK); separately, total U.S. retail prescriptions for Gileads Harvoni and
Sovaldi hepatitis C prescriptions fell 1.1% w/w to 9,824 in latest week
In other analyst news; IMGN upgraded to Outperform at Oppenheimer; IRWD was upgraded to
hold at Cantor
Industrials & Materials
Transports; group flattish on the day, as truckers continue move higher post earnings from
names like YRCW, CNW; airlines falling as oil prices rise 5%, posting best 2-week rally in oil in
over 17-years (weighed on LUV, ALK, UAL); rails were little changed
Metals & Mining; gold prices got smacked today, falling as gold tumbled on the better jobs
figures/spike in the dollar; shares of NEM, ABX, GG, AUY, KGC fall
Aerospace& Defense; XLS to be acquired by HRS for $23.75 per share/valued at $4.75B
http://goo.gl/icgeDL; defense names in general slightly higher today (GD, RTN, LMT)
Agriculture/fertilizers; Potash market has highest downside risks as China contract w/ producers
has been delayed until as far as 2Q, BCS Financial Group said (POT, AGU, MOS); Uralkali said
Solikamsk-2 sinkhole widens
In Shipping/Tankers; Baltic Dry Index fell for a 12th day, dropping nearly 1% to 559, and remains
at 28-year low (all-time low 554 in July 1986); Evercore said recommends focusing on stocks with
high operating leverage, little near-term liquidity risk, and steep multiple discounts in space
Technology, Media & Telecom
Internet movers; LNKD (new all-time highs) Q4 EPS/revs beat, guides year eps to about $2.95
(est. $2.74), user growth up 25% to 347M members, and several analysts positive (one upgrade);
P plunges as Q4 results miss top/bottom line and guides Q1 and year revs below views; TWTR Q4
EPS/revs top views, though MAUs 288M misses est. 295M (guides 15 revs above views); YELP
Q4 results better, but two analyst downgraded on slowdown in ad/user growth; EXPE misses Q4
results (on currency); says expects deceleration in 2015 rev growth (hit PCLN shares); VRSN up on
earnings

 Hardware movers; GPRO posted results that easily beat expectations, but warned on the
upcoming quarter; all metrics beat handily for Q4 (also said its COO resigned); (AMBA a key
supplier to GPRO; falls in sympathy with GPRO guidance weakness); GLW said that Gorilla Glass
vol/revs will increase on smartphones
Media movers; MSG Q2 EPS/revs top consensus, says continues to explore possible separation if
businesses; WWE upgraded to buy at Benchmark; LGF Q3 revs missed on weak motion picture
results; RENT reports Q3 eps loss, missing views (few analyst downgrades); MCO beat by 17c on
better revs
Telecom sector; group has been surging of late, helped a few days ago (VZ/T) after net neutrality
proposal earlier in week; overnight, VZ said it would be selling its wireline operations in
California, Florida and Texas to FTR for $10.5B and selling 11,465K towers to AMT for over $5B
(VZ said it would buy back up to $5B in shares) http://goo.gl/xbs6rI
Internet security movers; IMPV reported strong 4Q revenue results above the high end of
guidance and EPS in line with consensus, but fell on lower guidance; SYMC another in space that
falls on Q4 EPS guidance miss; group has been strong on data breach news (FEYE, etc.)
Semis; a day after fading on earnings, NXPI stock rips today; ONNN Q4 EPS/revs top views and
announces $1B stock buyback (those two names leading SOX index higher early); most semis
higher on the day (equipment names AMAT, LRCX rise)
Video gamers; group active after ATVI forecast 2015 EPS/revs that fall below estimates; also
holder filed to sell 41.5M shares (GME, EA, TTWO move)

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