Closing Recap

Friday, March 6, 15

Index

Up/Down

Last

DJ Industrials

-279.23

1.54%

17,856

S&P 500

-29.78

1.42%

2,071

Nasdaq

-55.44

1.11%

4,927

Russell 2000

-16.77

1.36%

1,217

Equity Market Recap

U.S. equity markets end the week on a sour note, falling sharply after continued jobs
improvement increased expectations the Fed may now raise rates in June, as they have
repeatedly said that futures decisions will be data dependent.
The 295K jobs added marked the 12th month in a row it has created more than 200K jobs (the
longest streak since 1995). The 5.5% unemployment rate marked lowest in seven years.
The Dow Industrials dropped below the 18,000 (first time since Feb 20th) now falling more than
400 points from Mondays closing level (actually below 17,900)
All sectors were weaker, but Utilities, Staples and Telecom led the declines (defensive/high
dividend paying type sectors hurt by rising bond yields)
All of todays action was purely on the jobsimplications for rate increasesand its impact on
several segments of the markets (dollar surged, bonds rolled, commodity prices plunge on dollar
rally)

Economic Data
Jobs data was strong in February; the economy added 295K (vs. est. 235K), with private payrolls
adding 288K (vs. est. 225K), and January's originally-reported 257K job gain was revised down
18K to 239K, and December's gain of 329K is unrevised
The unemployment rate fell to 5.5% from 5.7% (est. 5.6%); broader U-6 unemployment rate fell
to 11% from 11.3% in January. One year ago, it was 12.6%
The labor force participation rate slipped to 62.8% in February from 62.9% in January. One year
ago, it was 63%.
The average workweek of 34.6 hours in unchanged for the 5th straight month, while average
hourly earnings up just 0.1% to $24.78 (vs. est. 0.2% gain), and up 2% YoY
Jan. trade deficit narrowed to $41.8b from $45.6b in prior month, the Commerce Department
said; trade deficit fell 8.4% in Jan; said imports fell 3.9% in Jan. to $231.16b from $240.60b in Dec.
while exports fell 2.9% in Jan. to $189.41b from $195.00b in Dec.

Commodities
Gold futures end sharply lower, dropping -$31.90, or 2.7% to settle at $1,164.30 an ounce
(lowest settlement of year and erasing 2015 gains); the lower price in gold hit shares of mining
stocks, as GDX ETF trades down over 7% (lowest levels since December). The better jobs data
weighed on dollar denominated commodities like gold (and oil). Faster economic growth has
boosted concern that the Federal Reserve is getting closer to raising interest rates. For the week,
gold prices lost 4% (and settled at nearly 4-month lows)
WTI crude oil prices ended the day lower by $1.15 to $49.61 per barrel (low $48.88 and hi
$51.22), weighed down by a stronger U.S. dollar (the decline today wiped its weekly gains, ending
lower by -0.3%).

Currencies
The dollar index (DXY) jumped more than 1.3% today, fresh 11-year highs, after the jump in jobs
data bolstered the outlook on the U.S. economy. The euro plunges (broke below 1.09 vs. the
dollar), adding to yesterday declines after the ECB meeting/QE details (begin QE this Monday) led
shares to lowest level since Sept 2003. The dollar also jumps against the yen (back above 121
level before paring gains), as US economy outpacing all others

Bond Market
The bond market was markedly lower, with the yield on the 10-yr rising more than 12 bps to
2.245%, as the stronger jobs report boosted expectations for the FOMC to boost interest rates,
likely sooner than later now. Note the 10-year yield touched highest level since late December,
trading back above 2.24% (end of year settlement around 2.17%)

Macro

Up/Down

Last

WTI Crude

-1.15

49.61

Brent

-0.67

59.81

Gold

-31.90

1,164.30

EUR/USD

-0.0177

1.0853

JPY/USD

0.61

120.75

10-Year Note

0.129

2.241%

Sector News Breakdown

Consumer
Retailers; GPS Feb comp sales fell (-4%) vs. expected rise of over 1%; SPLS Q4 results mixed (eps
beat/sales miss) and guidance light of views; BIG Q4 results in-line on better Q4 comp sales
*2.9% vs. 1.8% est.) and announces buyback; FL jumps on Q4 eps 9c beat and as comps surge
10% (est. 5.6%)
Analyst calls; LULU downgraded to sell at Goldman Sachs with 20% downside to firms $52 target
(notes 6-month outperformance); FOSL downgraded at Telsey Advisory while KeyBanc reit
Underweight after analyst day (remain cautious on trends)
Gaming & Leisure; LTM is in advanced talks with private-equity bidders, according to people
familiar with the matter, said the WSJ http://goo.gl/g37dow ; casino weakness continues, with
another rough week as analysts continue to take down revenue estimates (WYNN, MPEL)

 Consumer Staples; retailer grocers with a good week of earnings as TFM posted Q4 eps beat,
sending shares higher (follows solid report from KR yesterday); DMND rises on earnings; Casual
diners mostly lower, some cautious analyst comments on CMG had shares lower (group also has
been an outperformer during earnings beneficiary of lower oil prices)
Autos; TSLA shares were initially weaker after Reno Gazette reported that Teslas Gigafactory
construction may be delayedbut TSLA later responded saying Gigafactory remains on schedule
Energy
Energy stocks were lower, ending with declines in E&P, drillers and equipment stocks as
sentiment in the space remains weak given over supply issues (though many companies trying to
address the glut just takes time to take effect)
The weekly Baker Hughes (BHI) total rig count showed a decline of -75 rigs to 1,192 in the latest
week (follows 43 rig drop the week prior), in response to falling oil prices. BHI said weekly oil rig
count fell -64 to 922 (oil futures pared losses following the rig data release) marked the 13th
consecutive weekly rig count decline
LNG shares fell after reports workers walk off the jobs at project in LA; BP dropped its attempt to
remove Gulf oil spill claims administrator, Bloomberg reported; NOV shares fell after RBC said in
a note that half of rig building projects in Brazil may be canceled
Utility stocks fall; sharp drop in utility stocks today (another defensive/high dividend paying
sector), with the Utility Index (UTY) falling over -2% to lowest levels since Oct; shares of PEG, EIX,
NEE, AEE, DUK all lower
Alternative Energy/Solar; CSIQ upgraded to conviction buy at Goldman Sachs and tgt to $56.60
from $35 based on value accretion from the potential YieldCo spin-off plan; solar pulls back after
a good week
Financials
Financials in focus, getting double dose of positive news as: 1) Federal Reserve said all 31 big
banks subjected to a stress test have sufficient capital to absorb losses during a sharp economic
downturn; 2) the better jobs data lifting interest rates (positive for banks NIM); post stress tests,
C upgraded at KBW; FBR Capital said stress test was a positive for BAC, & a headline negative for
FITB, RF, & STI; GS total risk-based capital ratio came in just 0.1% above the 8% minimum (next
up CCAR: second round of tests, to be released March 11th, assesses their ability to weather
losses and still pay dividends, buy back stock or make deals) group reversed lower midday
Trust banks; STT downgraded at both KBW and JP Morgan as banks easily passed the stress test,
but its Tier 1 common capital ratio under the Fed's severely adverse scenario fell to 11.8% vs.
13.3% last year
Online brokers jumped initially on the push in higher yields today (SCHW, AMTD, ETFC)
REITs; Bank America lowers targets on Healthcare REITs DOC, HCN, HCP, NHI, OHI & VTR and
remains Underweight on the sector; mortgage REITs lower with weakness in shares of AGNC,
NLY, MFA, HTS, CYS, TWO - all lower on rate jump
Healthcare
Healthcare/Large Cap Pharma; the FDA approved Sandoz's (NVS) Zarxio, a biosimilar to AMGNs
Neupogen (marks the first FDA approval of a biosimilar); UNH upgraded to buy at Sterne Agee;
large cap Pharma fell (LLY, PFE, MRK, JNJ)
Hospitals; group rose Wednesday after Supreme Court hearings, when Justice Anthony Kennedy
said there is a serious constitutional problem if the court rules for the challengers attack on tax
credits designed to help people afford insurance (group was very strong then). Hospitals took a
breather yesterday (one analyst downgraded THC on valuation), but appeared to have a little
upside momentum once again today

 On earnings; COO jumped as Q1 eps beat and boosted low end of year eps view (lowers revs
view); WX declined on earnings (downgraded to neutral at Goldman Sachs);
Biotech pulling back from record highs; group outperformed Thursday after ABBV agreed to buy
PCYC in $21B deal (lifted premiums for various small/mid cap biotech names); group fell today
with broader market (IBB/XBI dropped)
On news; CALA announced an exclusive license agreement with TransTech Pharma to help
develop hexokinase II inhibitors; ISIS earned a $9M milestone payment from BIIB related to
advancing the ongoing pivotal Phase 3 study evaluating ISIS-SMN; AVEO said Phase 2 study in
metastatic colorectal cancer showed longer progression-free survival with tivozanib vs Roches
Avastin in low serum NRP-1 patients; SSH suspended enrollment in C-Pulse trial after four deaths
Industrials & Materials
AG & Machinery; ag space showed weakness, again likely on the dollar strength as a whole
weighing on commodity prices; fertilizer stocks extending recent weakness (POT, MOS)
Transports; group was weaker, but not as weak as overall market as truckers/freight held up
relatively well; railroad stocks (KSU, UNP) were leaders lower, while airlines also fell despite a
drop in oil prices; SKYW said combined Feb. 15 traffic down (-4.1%)
Metals & Mining; gold miners got slammed as gold prices plunge on stronger US dollar (shares of
NEM, ABX, GG, KGC all fall sharply); CLF falls, Iron ore sank below $60 a metric ton after China set
the lowest target for economic growth in more than 15 years
Aerospace & Defense; ESL downgraded to neutral at Credit Suisse citing yesterday's
disappointing and messy FQ1 report (shares of other suppliers SPR, BEAV, PCP fell)
Paper stocks small pop late day; led by gains in UFS after the ITC made affirmative
determinations in its preliminary phase antidumping and countervailing duty investigations
concerning Certain Uncoated Paper from Australia, Brazil, China, Indonesia, and Portugal
Technology, Media & Telecom
Technology; AAPL to join the Dow Jones Industrial Average, replacing AT&T (T) after the close of
trading March 18th; EBAY traded to new all-time high levels today on no apparent news; YY Q4
results topping consensus leads shares higher; MXPT priced its 6.5M-share IPO at $11.50; several
high beat names faded late day with the market
Semiconductors; MRVL upgraded to positive at Susquehanna and raise tgt to $20 from $14; the
semi index (SOX) dropped more than 1%
Software & Hardware; VMEM Q4 revenue trailed consensus estimates
Services; CKP falls as 2015 revenue falls well short of consensus
Equipment; FNSR Q3 eps tops consensus as does Q4 guidance, lifting shares (group was little
changed yesterday after muted CIEN results)

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