Closing Recap

Monday, March 23, 15

Index

Up/Down

Last

DJ Industrials

-11.41

0.06%

18,116

S&P 500

-3.64

0.17%

2,104

Nasdaq

-15.44

0.31%

5,010

Russell 2000

-1.73

0.14%

1,264

Equity Market Recap

Major averages dropped into the close, as the S&P 500 and Dow Industrials gave up earlier gains,
while the Nasdaq Composite snapped its 5-day winning streak, ending narrowly lower as Biotech
stocks dropped. Transports were among top losers on the day, as rails declined on weaker
forecast from KSU, while airlines suffered as oil prices jumped (DJ transports drop more than
1.5%); Defensive Telecom (low yields helping) & Staples (helped by weaker dollar). Markets
overseas were mixed with more gains in Asia, but Europe was mixed. The main driver remains
Central Banks, as they continue to provide all out QE to stimulate their economy/weaken their
currencies (or at least in the U.S., dont raise rates despite at record lows of 6-years despite an
economic improvement), which has lifted global stock markets.
The Dow Jones Industrial Average is back over 18,000. The Nasdaq Composite is above 5,000
(about 0.3% from all-time record levels). The Russell 2000 is pushing to new record highs, while
the S&P 500 near highs. Same picture overseas, as Japans Nikkei 225 is now rapidly approaching
the 20,000 level (levels not seen last since 2,000), while Germany's DAX recently traded above
12,000 for the first time and is up nearly 30% from the lows set earlier this year. The Shanghai
Composite Index is up 16% from its February lows.

Economic Data
Existing Home sales for Feb rose 4.88M, as closings rose 1.2% (slightly below estimate of 4.9M,
but above prior month reading of 4.82M); the median value of a house climbed 7.5% from the
same month last year while the number of properties on the market was little changed
St. Louis Federal Reserve President James Bullard told CNBC Monday that the dovish statement
from last week may have misplaced investor expectations about the first rate hike. Bullard also
said the market could throw another tantrum with the Fed possibly raising rates later this year

 Federal Reserve Bank of Cleveland President Loretta Mester said Monday that the U.S. central
bank can do more with the words it uses to help guide the publics expectation of where its
interest-rate policy may be heading
Fed Reserve Vice Chairman Stanley Fischer said today a rate hike is warranted before year-end
and the Fed funds target will be set at each meeting based upon what members believe will best
enable meeting both goals. He acknowledges, however, that the "benefits of global monetary
accommodation may be offset by the appreciation of the dollar".

Commodities
WTI crude oil ended the day at the highs, spiking in the final minutes before the pit close,
ending up 88c to over 1.75% to $47.45 a barrel. Overnight, prices for WTI and Brent were down
over 2% on reports Saudi Arabia is producing almost 10 million barrels a day, citing Oil Minister
Ali al-Naimi, which would be close to a record if sustained for a month. The closing print marked
the best close in about 2-weeks
Gold prices log their 4th straight session gain, rising $3.10, or 0.3% to settle at $1,187.70 an
ounce. The move higher once again aided by a pullback in the U.S. dollar, making dollar
denominated commodities (ie. Gold) more attractive to foreign investors. The ongoing situation
in Greece (German Chancellor Angela Merkel reached out to Greek Prime Minister Alexis Tsipras
on his first visit to Berlin since taking office) also helping sentiment.

Currencies
The dollar has lost about 3% over the last week, with the dollar index (DXY) dropping from 100 to
around 97 level today, down more than 1% Monday alone. The pullback in the dollar has all come
after the FOMC comments last week, as profit taking ensues in the greenback, which has been
one of the longest crowded trades over the last year. The euro traded at $1.0919, compared with
$1.0821 Friday evening, bouncing off 120-year lows early last week as the ECB launched its
massive $1 trillion asset purchase plan. The yen pared gains late day vs. the dollar

Bond Market
Little movement in bond markets, but bonds add to last week gains, as yields continue to be
pressed lower; the yield on the 10-yr dropped to 1.91% (down from 1.93% prior), while shorter
term 20-yr yields dipped to 0.577%; longer dated maturity yields inched higher were

Macro

Up/Down

Last

WTI Crude

0.88

47.45

Brent

0.60

55.92

Gold

3.10

1,187.70

EUR/USD

0.0124

1.0945

JPY/USD

-0.18

119.85

10-Year Note

-0.022

1.908%

Sector News Breakdown

Consumer
Retailers; LULU mixed analyst commentary ahead of earnings this week (Canaccord downgraded
shares, but Cowen said good risk/reward); SPLS was upgraded to Buy at UBS; record highs for
several retailers such as TGT, TJX, JWN today; S&P 500 Retailing Index (S5RETL) rises as much as
0.6% to record 1138.94 vs S&P 500 gain of as much as 0.3%

 Consumer Staples; a group with little to no individual news stories, but among one of the
stronger sectors on the day, helped by an easing dollar; several of these companies (consumer
products/food companies have been hit on a stronger dollar of late as they do a large chunk of
revenues overseas) shares like CPB, MDLZ, AVP, CL, KMB, EL
Restaurants; RT was downgraded to Neutral at Longbow, while DRI was upgraded at Telsey; MCD
advanced after Glenview letter said a potential REIT could unlock $20B in value
Housing & Building Products; home improvement retailer LOW announced a $5B stock buyback;
AMH upgraded to Overweight at Morgan Stanley; monthly existing home sales came in above
prior month, but slightly below consensus (housing stocks coming off a good week following
better LEN, KBH earnings results)
Casino, Lodging & Leisure; in Leisure, CCL was downgraded to hold at Deutsche Bank saying while
they expect Carnivals Q1 update to demonstrate further bookings and pricing recovery, says
move in FX could result in FY15E EPS guidance being reduced; in gaming, Macau slashed its
monthly gambling revenue forecast 27% (WYNN, MPEL, LVS)
Business, Education & Professional Services; Bank America lowered estimates across coverage
sectors to reflect recent FX changes.; noted MAN and MGI have the highest exposure to the
euro, at 51% and 35%, respectively
Energy
Energy stocks performed well today, led by some of the biggest losers of 2014 (drillers & E&P) as
oil prices held up well following a weaker dollar
Several companies issue guidance act Howard Weill conference; SLB sees Intl E&P spending
down (10%-15%) vs. 2014); Chinas SNP said it is cutting its 2015 capital spending 12% to 135.9B
yuan ($22B) from 2014's 154.6B yuan, after reporting a Q4 net loss of 5.4B yuan vs. a 19.3B yuan
profit in Q3; EXXI cuts 15 cap-ex to $640M-$660M from prior $670M-$690M; CRK cuts FY15 capex spending by additional 22% to $248M; PES lower Q1 guidance for production and drilling, now
seeing production service revenue 28%-33% lower vs. prior guidance for a 15%-20% decline
Other movers on news; APA was upgraded to buy at Citigroup; ETP will drop down a second
portion of ETPs retail business to SUN in an $816M deal; sand based stocks active on FMSA
earnings (HCLP, EMES)
MLPs; Jefferies upgraded shares of NGLS to buy w/$47 tgt saying despite the risks, sees an
attractive risk/reward & upgrade to Buy on valuation; Jefferies also upgraded EPD to buy citing
valuation; a bounce in oil prices also helped the sector recover today (which had been trading
near 52-week lows); the Alerian MLP Index (AMZ) was up more than 1.5%
Financials
Large Cap banks lagged the overall market, with big banks under pressure most of the session
(the lower rate environment weighing on them over the last few trading days had been
expectations for rate hikes by mid-summer market not agreeing following FOMC last week);
also regional bank weakness as well as brokers
Insurance; GNW upgraded to Strong Buy at Raymond James based on a substantial discount to
our sum-of-the-parts valuation of $12 per share
Mortgage Finance; OCN issued letter rebutting non-performance claims by RMBS investors;
Many Chinese names are also rallying today including online real estate plays SFUN, EJ and LEJU
(they reported earnings last week)

Healthcare
Biotech stocks fall from all-time highs (but drop wasnt too bad), led by weakness in GILD and
VRTX; VRTX said VX-661/Kalydeco showed mean within-group absolute improvement from
baseline in lung function (but missed analyst expectations); GILD said nine patients taking its
hepatitis C drugs Harvoni or Sovaldi along with the heart treatment amiodarone developed
abnormally slow heartbeats and one died of cardiac arrest. Three required a pacemaker to be
inserted http://goo.gl/JJHyha; IMGN to receive $20M upfront from Takeda after pact (eligible for
up to $210M); DVAX rises on JPM upgrade
Large Cap Pharma/Managed care; HUM agreed to sell to Sell Concentra for about $1.06B in cash;
PRGO downgraded at RBC Capital saying Consumer Health challenges are likely to weigh; PFE
added to Jefferies franchise picks and expects shares to significantly appreciate over the next 1-2
years based on several factors
Specialty Pharma; MEIP said Pracinostat and azacitidine study did not meet primary endpoints;
HPTX trades to new all-time highs (Wedbush upped tgt to $52); TEVA & MYL rise as RBC notes
Investor enthusiasm over a potential Teva acquisition of Mylan is high, Bloomberg reported
Hospitals; THC and private-equity firm Welsh Carson Anderson & Stowe agreed to form a joint
venture combining Tenets short-stay surgery and imaging assets with those of Welsh Carsons
United Surgical Partners International Inc. http://goo.gl/aHzaKb
Industrials & Materials
Industrials; the sector was downgraded to neutral from positive at Barclays, cutting ratings on
DOV, GWW, XYL, and WCC (upgraded more defensive TYC and LII), saying stock returns may be
limited to mid-single digit levels in 2015, only slightly better in 2016; HDS downgraded at
Raymond James
Transports; rails weaker after KSU lowered its 2015 revenue outlook, saying it expects low singledigit revenue after originally seeing growth at a mid-single-digit rate, citing a drop in energy
market transport volume as well as F/X and a drop-off in fuel surcharge revenue (UNP, NSC, CSX
active); airlines decline given bounce in crude (UAL, LUV, DAL)
Metals & Mining; in steel space, MT downgraded at Jefferies and AKS cut to Neutral at
Macquarie after lowered outlook last week; MCP rises after 60 Minutes aired a report on the
importance of rare earth elements; FCX said it reopened an access road at its Grasberg mine in
Indonesia; gold miners (GG, NEM, ABX) rise as gold prices up for a 4th day
Chemicals; MON shares weak after the WHO said herbicide marketed by Monsanto (Glyphosate,
a herbicide marketed by Monsanto under the Roundup) likely carcinogenic, according to a WSJ
article; SHLM cuts forecast; Q2 eps miss by 3c and guides year $2.50-$2.55 from prior $2.60$2.65 citing FX impact (chemicals ALB, DD, DOW, FUL active on guidance); paint coatings SHW
was downgraded to sell at UBS (VAL & PPG fell)
Tankers & Shippers; Baltic Dry Index rose 0.5% to 594 Points in London (rises for a 7th straight
day); NMM was upgraded to buy with $15 tgt saying the resulting 18% distribution yield and
mgmts strategically smart move away from dry bulk toward sustainability of containerships,
should support shares at current levels and justify upside from here
Technology, Media & Telecom
Internet movers; FB new fresh all-time highs after earlier weakness; online travel stocks
outperformed (TRIP/PCLN); high beta stocks were generally mixed though
Semiconductors lagged; AVGO positive mention at Citi as raises target to $160 and reiterates it as
its top specialty semi pick; Wells Fargo cautious on DRAM industry saying prices continue to fall
and sees risk in consensus FY16 for MU; NVDA was downgraded to sell at Goldman Sachs as
believes the market under-appreciates the risk of the INTC license not being renewed and
expects GPU growth to decelerate

 Software & Hardware; DGLY received a patent for Lidar speed enforcement technology; CYBR
higher after Bank America initiates coverage with buy and $60 target; shares of GPRO (and
supplier AMBA), both rising
Storage; Piper Jaffray downgraded NTAP and EMC to Neutral saying the company is facing
competitive pressure from next-gen storage vendors and public cloud providers

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