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Closing Recap

Friday, February 27, 15

Index

Up/Down

Last

DJ Industrials

-81.65

0.45%

18,132

S&P 500

-6.26

0.30%

2,104

Nasdaq

-24.36

0.49%

4,963

Russell 2000

-3.88

0.47%

1,235

Equity Market Recap


U.S. stocks tried to end the month (a stellar month) on an up note, but faded into the close after
weaker than expected economic data, which included a manufacturing data point falling to the
lowest level since 2009. The Q4 GDP report was revised down to 2.2% (from 2.6% prior), while
the Chicago PMI Index contracted for the first time since April 2013, and sentiment declined. It
was a narrow trading range for the S&P 500, less than 1% for the 5th consecutive session
according to Bloomberg, with defensive sectors leading today (Staples and Telecom), while
Technology, Healthcare, Energy and Financials lagged. The S&P 500 posted more than a 5% jump
in February (best monthly gain since 2011), while the NASDAQ posted a 7% gain for the month
(as close as 12 points from 5,000). European shares rose, extending their run of weekly gains to
four. The volatility index (VIX) dropped 34% in February

Economic Data
The U.S. economy grew a revised 2.2% in Q414, mainly as companies restocked warehouse
shelves at a slower pace than previously reported (GDP was down from prior 2.6% view, but
slightly above estimates for a 2% reading). Inventories increased by $88.4B instead of $113.1B
(which adds to GDP). Consumer spending remained strong, rising 4.2% in the quarter, after rising
3.2% prior quarter
February Chicago Purchasing Managers Index (PMI) plunged to 45.8 vs. 58 consensus and below
59.4 in January (first time in contraction since April 2013 and lowest reading since July 2009).
Supplier deliveries was the only component to increase in February, with the port strike no doubt
to blame. New Orders suffered its largest monthly decline on record
Consumer confidence eased in February to 95.4, down from an 11-year high of 98.1 (est. was for
94.0 reading and 93.6 in preliminary). It was also the first decrease in seven months. The
expectations index fell to 88.0 vs. 91.0 last month

Pending home sales rose 1.7% MoM slightly below est. for up 2% - the move followed a 1.5%
drop the prior month that was smaller than initially estimated. The Midwest fell (-0.7%), while
the Northeast, South and West all advanced
NY Feds Dudley cautioned on raising rates too soon, in his prepared remarks at the Chicago
University's Booth School of Business annual monetary policy conference in NY. He noted
lingering headwinds from the financial crisis, and still low inflation as rationale for not acting
prematurely. But he added it is harmful if inflation expectations are allowed to rise too far above
2%, and said don't over-emphasize uncertainty to justify low rates

Commodities
Energy prices ended strong, closing near the highs in a late day rally. WTI crude closed higher by
$1.59 or about 3% to $49.76 close, while Brent prices outperformed once again. April Brent crude
rose more than 4%, and posted its biggest monthly gain since May 2009 (rising over 16%). For the
week Brent rallied over 3%. Back to WTI crude, another weekly drop in the Baker Hughes rig
count, falling 43 to 1,267, helped alleviate concerns late day of additional supply as companies
make efforts to help stem the build in inventories. The spread between Brent/WTI widened to
more than $12, its biggest disparity in over a year (was at parity in mid-January). WTI crude
posted its first monthly gain (3%) since June 2014
Gold futures ended higher by $3 to settle at $1,213.10 an ounce, ending the week higher, but
declined by (-5%) for the month of February. Gains came this week after China Lunar week
concluded and mixed commentary from Fed Chairperson Yellen this week in her testimony to
Senate/House. She kept options open, but appears no need intention to rush rate hikes. The 5%
decline in Feb followed an 8% increase in January

Currencies
Is the dollar that strong? Or are other currencies that weak? The dollar reversed higher late day,
ending around yesterdays close (DXY 95.317, up small), bouncing from earlier lows 94.905. The
euro faded late day, dropping back below the 1.12 mark (fell 1% yesterday), while the dollar
extended recent gains against the yen

Bond Market
Treasury markets advanced late dayending with weekly gainsbut declined for the month. The
benchmark 10-year Treasury yield dropped about 12 bps for the week, but was up about 35 bps
for the month of Feb, rising from 1.673% on Jan. 30. Treasuries with first weekly gain since
January after Federal Reserve Chair Janet Yellen said this week she wont lock policy makers into
a timetable for raising interest rates. The February drop in Treasury prices, has come as the S&P
500 has gained nearly 6% for the month

Macro

Up/Down

Last

WTI Crude

1.59

49.76

Brent

2.20

62.25

Gold

3.00

1,213.10

EUR/USD

-0.0006

1.1192

JPY/USD

0.22

119.64

-0.016

2.00%

10-Year Note

Sector News Breakdown


Consumer
Retailers were strong; JCP shares EPS missed, but revs beat on better comps (+4.4%), FY15
guidance was in-line with management's long-term outlook but FCF was still expected to be flat;
ROST rises after posting 6% comp rise (best in two years) and guides FY15 $4.60-$4.80 vs. est.
$4.42 with new $1.4B buyback plan as well; URBN announced a 20M share buyback; GPS
announces $1B stock buyback on mixed results and guidance; DKS downgraded at Barclays; KSS
upgraded to Outperform at Telsey and raise tgt to $80 after Q4 results
Consumer Staples; MNST posted better Q4 results and expands distribution with Coca Cola
bottlers (several analysts boosted target on MNST) trades all-time highs; WTW posts biggest
drop since 2001 IPO after 2015 eps well below views (40c-70c vs. est. $1.43) trades all-time
lows
Restaurants; PBPB downgraded to Underweight at Piper and cut tgt to $12 on CFO resignation
news; YUM jumps after implementing proxy access shareholder proposal; MCD pares recent
gains (trading at highest levels since July) most names pulling back after recent gains
Housing & Building Products; homebuilders generally higher early on no specific news (mixed
housing data this week, including today with pending home sales below views); WCIC downgrade
at Citigroup; HD & LOW pull back from recent record highs on better earnings this week
Casino & Gaming; rough week for Macau related stocks with cautious analyst comments after
monthly data; January Vegas numbers released today had group mixed WYNN, LVS, MGM
Energy
Energy stocks were weaker early, but pared losses; Baker Hughes (BHI) rig count fell 43 in the
latest week to 1,267 (follows 48 rig decline the prior week and 98 the week before that) the
weekly oil rig count fell -33 to 986; SWN shares fell on Q4 results/cap-ex cut; DRQ shares jumped
on stock buyback, and despite Q1 and year outlook falling below views
Oil drillers; group was weaker yesterday after mixed earnings/div cuts but bouncing today;
Deutsche Bank downgraded HERO to sell and downed tgt to $0 from $4 given continued
deterioration in offshore drilling market; RIG also with analyst downgrade; RDC Q4 eps in-line on
revs beat (advanced further after saying currently in negotiations w/ Saudi Aramco, has been
given every indication co. will keep RDC jackups in fleet)
Coals little life today after Glencore said it will cut Australian coal output by 15m mt due to
supply glut (shares of WLT, CLD, ACI, BTU, CNX, ANR were active)
Utilities were little changed; NYLD shares fell, said proposes split of Class A stock into one Class A
and one low vote Class C share (also reaffirmed forecasts); shares of AES rise a second day after
earnings; names were little changed overall
MLPs; CLMT Q4 sales in-line at $1.34B and lowers 15 cap-ex to $285M-$335M from $375M$420M prior; VLP announced an acquisition of certain Valero terminaling businesses for $671M;
RBC with a few rating changes as downgraded shares of CNNX due to the decision by CNX and
NBL to reduce their capex in the Marcellus; RBC also cut SDLP rating
Alternative energy; CLNE reported 30% volume growth, strong station revenue, and top/bottom
line beat; solar stocks were mostly higher in a good week for the sector, led by gains in SPWR and
FSLR after its joint venture YieldCo (FSLR also jumped on better earnings this week)

Financials
Large Cap banks; BAC downgraded to neutral at UBS saying disclosures in the bank's recent
annual filing raise the risk of a qualitative failure this year; ZION with an analyst upgrade in
regional bank sector
Mortgage finance; WAC downgraded to Underperform at both Keefe Bruyette and Credit Suisse
after weaker earnings yesterday; OCN was downgraded to sell at Compass Point; OCN said
midday that two holders of trusts to terminate OCN as servicer (but said effect immaterial to
overall financial condition
Healthcare
Large Cap Pharma; healthcare was among worst sector performers today (one of best yesterday),
with a few individual news stories; MYL fell late day after registering up to 110M shares for
selling shareholders
Biotech; group underperformed today (still not far off record closing highs for XBI/IBB); Deutsche
Banks removed AMGN, CELG, GILD and BIIB removed from short-term buy list; ACOR declined,
trading to lowest level since Nov, after Kyle Bass coalition filed petition seeking to invalidate
patent 8077826 owned by ACOR; SRPT cut at Cowen amid uncertainty ahead of 2Q meeting with
FDA on eteplirsen filing plans; NVAX posted a wider than expected Q4 loss on lower revs
Med Tech; ISRG weaker after Evercore noted investor concerns may arise around the company
on UnitedHealths decision to require doctors to obtain prior authorization for hysterectomies;
SNN shares jumped midday after an article in TheDealPipeline http://goo.gl/fccNSu
Services; MDRX falls on analyst downgrade after quarterly revenue and bookings miss; AIRM
among best performers after strong results and indications that the Companys payer mix is
beginning to stabilize
Industrials & Materials
Transports; FDX was upgraded to Outperform at Credit Suisse with $203 tgt to reflect the shift in
capex focus towards U.S. Ground Network capacity, a higher margin business and less capital
intensive than Express; in airlines, ALK upgraded to Strong buy at Raymond James with $80 tgt on
attractive valuation, strong domestic mkt exposure and potential for upside revs; in rails, CSX was
upgraded to Outperform at BMO Capital (note rails have come under pressure of late)
Metals & Mining; gold miners ended a good week higher, helped as gold prices ended up 0.3%
today and up for the week; steel stocks underperform again, Bank America said low steel prices
may get buyers off the sidelines, but upside limited by imports amid strong USD
E&C sector5; KBR falls as Q4 revs miss estimates (weighed on FLR/CBI); Bank America said sees
view ACM and JEC as the biggest beneficiaries of their positive outlook on public non-res
recovery; MTZ shares rise after better Q4 results (though lowered its year profit outlook)
Tankers & Shippers; SB downgraded to neutral at Credit Suisse ; the Baltic Dry Index advanced
1.3% to 540 Points in London, bouncing off all-time record lows this week

Technology, Media & Telecom


Internet; after outperforming yesterday, Internet stocks paring recent gains (note shares of NFLX,
AMZN, FB, LNKD were all at or close to record highs yesterday)
Semiconductors; SNDK higher after Morgan Stanley said checks indicate supplier inventories are
low and 1H 2015 pricing is holding up better than expected; the overall semi index (SOX) was
little changed, holding near 15 year highs (AVGO some profit taking after new high yesterday on
earnings), INTC remains lower a second day (Citi was cautious yesterday)
Software; SPLK posted 48% YoY rev growth, above views and EPS better while raising rev
guidance for 16; BLOX another upside mover on better earnings/guidance; CA downgraded at
Credit Suisse as firm is cautious about CAs ability to grow revenue and billings; CYBR files $200M
of shares for holder sale; CRM little profit taking after rally Thursday
Networkers/Hardware; ARUN rises as revenue and margin performance helped beat lowered
expectations for FQ2 (still has bid to it on Bloomberg report Wednesday HPQ was in talks to buy
http://goo.gl/Op0qFt ; RESN drops after Q4 eps loss more than expected; GPRO shares fell to
lowest levels since August (recall IPO lock up last week)
Telecom; TMUS provided 5-year guidance (sees 2017 adj. Ebitda margin 32%-34%; previously saw
34%-36%); S shares advanced midday after filing showed its CEO bought 5.08m shares this week;

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