Closing Recap

Friday, March 27, 15

Index

Up/Down

Last

DJ Industrials

33.83

0.19%

17,712

S&P 500

4.80

0.23%

2,060

Nasdaq

27.86

0.57%

4,891

Russell 2000

8.40

0.68%

1,240

Equity Market Recap

Equities snapped its four day losing streak, managing a small gain on very light volume, though
the Nasdaq jumped late day on a WSJ report that INTC in talks to buy rival semi maker ALTR
http://goo.gl/nEyDrP, lifting battered semi stocks. Equities have fallen the last few days after the
latest bout of softer data pointed to a potential U.S. slowdown, slowing earnings in the S&P, and
as Federal Reserve members continue to suggest a rate hike will occur this year (despite the
bond/equity market telling us otherwise). Volatility continues in the currency, commodity (oil)
and bond markets as well. Earlier this morning, data was in-line with forecasts, with GDP for
quarter at 2.2%, but potentially more onerous, corporate profits fell in Q4 and posted the first
annual decline since the middle of the last recession. European stocks finished higher Friday, but
the regions key benchmark saw its lengthy string of weekly wins come to an end; Germanys DAX
logs first weekly loss in 2 months
Late day, Chair Janet Yellen said she expects the Federal Reserve to raise interest rates this year,
and that subsequent increases will be gradual without following a predictable path. I expect that
conditions may warrant an increase in the federal funds rate target sometime this year, Yellen
said Friday in remarks prepared for delivery in San Francisco. She and fellow policy makers
generally anticipate that a rather gradual rise in the federal funds rate will be appropriate over
the next few years. After the initial increase, officials wont follow any predetermined course of
tightening that involves similar-sized increases at regular intervals, Yellen said.

Economic Data
The U.S. economy (GDP) expanded at 2.2% annualized pace in Q4, led by the biggest gain in
consumer spending in eight years (data in-line with prior month view, but below est. of 2.4%).
Recall GDP rose 5% in the prior quarter. Personal consumption rose 4.4% in 4Q after rising 3.2%
prior quarter, while the GDP price index rose 0.1% in 4Q after rising 1.4% prior quarter and core
PCE q/q (key inflation metric) rose 1.1% in 4Q after rising 1.4% prior quarter
Corporate profits fell in Q4 (first time since 2008); pretax corporate profits, adjusted for
depreciation and the value of inventories, fell at a (-1.4%) annual rate in Q4, while for the full
year, adjusted profits slipped (-0.8%) to $2.09 trillion

 U.S. consumer sentiment fell to 93.0 in the final March print from the University of Michigan
survey compared to February's 95.4, though is better than the 91.2 March preliminary reading.
This is the weakest since November's 88.8. The current conditions index dipped to 105.0 from
February's 106.9 (103.0 preliminary). The consumer expectations index dropped to 85.3 from
88.0 last month (83.7 preliminary).

Commodities
Oil falls on day/up for week; WTI crude ended the day at the lows, falling more than 5% to
$48.87 (intraday high was $51.38), while Brent fell more than 4% as well, but still logged a
healthy gain for the week of 4.9%. Busy news in energy complex, rising early in the week amid a
declining dollar (oil also wasnt dented after larger inventory builds were reported by the API and
DOE yet again, including record builds in Cushing), and advanced further yesterday on reports
that Saudi Arabia and allies carried out air strikes in Yemen, on Iranian-backed Houthi rebels the
past few days. However, oil futures began paring gains as investors took profits (inventory issues
clearly still remains/oil got lift this week on geopolitical concerns). Goldman Sachs said earlier it
expected the Yemen military action, but also a potential nuclear deal with Iran that could lead to
a loosening of sanctions, to have little near-term impact on oil supply. The Saudi-led operation
has not affected the oil facilities of major Gulf producers, but the fear is the conflict could spread
and further unsettle the Middle East and disrupt oil shipments.
Gold prices fell $5.00, or 0.4% to settle at $1,199.80 an ounce, snapping its 7-day winning streak
on dollar weakness, but still ended with a 1.3% gain for the week. Prices had rallied the past two
trading sessions amid the turmoil in Yemen, helping buoy safe-haven demand for the metal. The
yellow metal also benefitted from a weaker U.S. dollar following FOMC commentary last week,
as well as softer economic data (slowing economic growth fears)

Currencies
Dollar declines; after falling sharply late last week on FOMC lowered growth projections and
expectations of a push out in interest rate hikes, the dollar held relatively steady this week, but
did manage to lose some additional ground vs. counterparts. The dollar weakness has helped
propel commodity prices over the last week and a half. The dollar index (DXY) was down small
today, trading around 97.28, down from last week highs of 100.33 (more than 3%), which was a
12-year high. The euro actually lost ground this week to the dollar, ending near 1.09 level.

Bond Market
Bond markets were stronger, extending gains into Fed Chairman Yellens speech in San Francisco
late day (started at 3:45 PM ET), as the yield on the benchmark 10-yr dropped to 1.94% late day
after closing 2.01% late yesterday (traded as low as 1.89% Thursday morning). It has been
another volatile week for bonds, but yields still remain depressed, continuing to look significantly
more attractive than their European counterparts (German 10-year bunds yields around 0.25%).
Bonds pared gains late day after the Yellen comments.

Macro

Up/Down

Last

WTI Crude

-2.56

48.87

Brent

-2.78

56.41

Gold

-5.00

1,199.80

EUR/USD

0.0018

1.0902

JPY/USD

-0.10

119.08

10-Year Note

-0.064

1.946%

Sector News Breakdown

Consumer
Retailers generally higher; footwear co FINL Q4 eps beats by 4c on slightly better sales and Q4
comps beat while guides FY16 EPS growth in low single to mid-single digit range vs est. up 9%;
OXM Q4 eps beats, while guidance also comes in above consensus; AEO downgraded to Sell at
Goldman Sachs saying it sees 29% downside risk over the next six months (calls AEO, ANN, ANF
as top sell ideas on declining mall traffic); CONN and KIRK both upgraded at Piper today
Consumer Staples; KRFT shares still surging after news of Heinz tie-up earlier in the week, but
also surging other food companies, with GIS, K, CAG all higher (remember CAG boosted guidance
yesterday); fairly quiet news session for restaurant stocks (group mixed)
Housing & Building Products; RH Q4 results in-line, but guides year revs below consensus $2.13B$2.17B vs. $2.24B); Homebuilders mentioned positively by Legg Masons Bill Miller on CNBC
saying of all the industry groups, investors can easily make a significant amount of money in
next 3-5 years in builders (LEN, KBH, PHM higher)
Casino, Lodging & Leisure; in cruise space, CCL Q1 results beat, but cuts top end of FY2015 EPS
forecast to $2.30-$2.50 from prior $2.30-$2.60 (est. $2.51) positive comments on bookings (RCL
& NCLH moved); casinos were mixed
Autos; TSLA registrations of Model S sedans in China fell 45% in Feb MoM (monthly total was
260, down from 469 in January) Bloomberg; VC received antitrust approvals for sale of Halla
Visteon Climate Control to Hahn & Co.
Energy
Energy stocks giving up some gains after oil prices give up some recent gains; investors taking
profits in energy stocks after rising this week on Yemen attacks by Saudi and dollar decline (was
another week of inventory builds/while more rigs came offline today)
Services; Baker Hughes (BHI) weekly rig count fell -21 to 1,048, while oil rigs fell -12 to 813 (last
week, the BHI rig count fell -56 total rigs to 1069, and oil rigs fell -41 to 825); coming into today,
U.S. rig count is down 734 rigs from last year at 1803, with oil rigs down 648); more than 98% of
voting shareholders from both companies approve the $34.6B megadeal for HAL to acquire BHI
In analyst news; Deutsche downgraded shares of PES and PD to hold as believe oil market
supply/demand fundamentals are beginning to tighten at the leading edge
MLPs; for the second day, MLP Index (AMZ) little changed, despite volatility in the oil space;
shares of TLLP, EQM, FGP leaders, while BBEP, MEMP, NRP led decliners (no specific news in
space today)
Utilities; sector with a little recovery, rising nearly 1% after three straight days of selling
pressure/underperformance; the UTY index still off about 12% to 562 from all-time highs reached
in January, despite bond yields still at depressed levels; ED bounces after late day decline
Thursday on Manhattan explosion
Coal stocks continue to get obliterated, with shares of BTU, ANR, WLT, ACI, still under pressure;
additional selling pressure on BTU over the last few days (UBS said with the current gas price
environment virtually ensuring limited run times on coal plants, particularly of the Appalachian
variety which are primarily impacted by these regulations, we do not think many coal assets will
elect to continue operations); Illinois Basin focused ARMS cuts coal sales guidance on cheap gas
and plant retirements (the Illinois Basin is all thermal coal and BTU has 20% exposure)

Financials
Large Cap banks little lower, not really doing much of anything this week; reports midday on
Reuters that the Fed is mulling life insurers plan for new capital standards; in analyst calls; BBT
was upgraded to Outperform at FBR Capital; RF was upgraded to Buy at Compass Point
Payday lenders; Macquarie downgraded WRLD to Underperform due to increased risk from
proposed and potential CFPB regulations (note weakness in Payday Lenders Thursday after one
analyst said the first read on CFPB Payday Rules is more onerous than expected and a negative
for CSH, EZPW, WRLD, FCFS)
Consumer finance/Lending; VNTV downgraded to reduce at SunTrust calling it the most
expensive merchant processor we follow on four out of five metrics in C15; LC initiated
Underperform at Portales
Healthcare
Biotech names with a nice bounce (2%), helped by BMRN (positive analyst calls), ESPR (analyst
initiation), as well as recoveries in CAR-T stocks (JUNO, KITE, BLUE), after selling pressure this
week; 2) airlines recovering as oil prices plunge as Yemen fears abate
Large Cap Pharma; JNJ is collaborating with GOOGL to develop a robotic-assisted surgical
program, but no financial terms were disclosed; Managed care HMOs were strong today, with
gains in AET, CI, UNH, ANTM (Leerink positive on ANTM, raised tgt to $180); Nikkei reported late
that Panasonic Healthcare may bid for Bayer's blood glucose meter unit http://goo.gl/v8eeZU
Biotech ; BMRN rises after several positive analyst comments as UBS target raised to $136 from
$112 and Deutsche raises to $140 from $90 (sees a potential takeout valuation of $194-$271 per
share in one year if BMN-111, DMD, and Hemophilia are positive); PTCT positive mention at Bank
America today (reit buy and $86 tgt); MDVN tgt bumped to $150 at Barclays
Specialty Pharma; OHRP plunges as its clinical trial evaluating candidate for the treatment of the
wet form of age-related macular degeneration (wet-AMD), OHR-102 failed to achieve its primary
endpoint; ALKS was downgraded to Neutral at Citi; ESPR was resumed with a buy and $130 tgt at
Citigroup; OREX rises as EMA approved Mysimba (Contrave's brand name ex-US) for the
treatment of patients with Obesity (BMI over 30)
Services; OVAS falls as Oppenheimer said there was pushback from academics on the validity
of the clinical results
Industrials & Materials
Transports; small recovery in transports today after posting more than 4% drop this week on
jump in oil (hurt airlines), profit warnings in rail space (KSU and GWR), and economic slowdown
concerns after softer economic data the past week (hit names like FDX/UPS); rails KSU -11%,
UNP -7%, CSX and NSC both -6% this week
Metals & Mining; ROLL to acquire the Sargent Aerospace & Defense business of Dover
Corporation (DOV) for $500M; SCCO canceled its $1.4B Tia Maria project amid protests in Peru,
the company's head reported citing Reuters (Minister later said official exaggerated on
project/was not cancelled); SXCP upgraded at Citigroup
Chemicals; DOW said it would separate a large part of its chlorine business and merge it with
OLN in a deal that will give Dow control of Olin; deal valued at $5 billion http://goo.gl/DELARH ;
shares of AXLL advanced on the OLN/DOW deal
Distributors: MSM and WCC downgraded to Neutral at RW Baird saying relative performance of
the group generally peaked in 1Q12, and with organic growth, pricing, and margins likely under
pressure into 2016, we believe it is too early to call a bottom; FAST to buy back up to 4M shares
AG & Machinery; BG upgraded to Buy at Goldman Sachs as believes Q4 issues will prove
transitory; machinery names (CAT) were weaker

Technology, Media & Telecom

Internet; YHOO announced $2B stocks buyback (also Morgan Stanley initiated with Overweight
and $55 tgt); FB target raised to $98 at Barclays; Legg Masons Bill Miller said likes shares of P on
CNBC interview; group was mixed; TWTR introduces newly acquired Periscope, an app for livestreaming video from mobile phones
Semiconductors got a lift late day after the WSJ reported INTC is in talks to buy ALTR (shares of
semis jumped, including XLNX, BRCM, ADI, TXN)story broke late day http://goo.gl/nEyDrP
Prior to the report, semis had been little changed; stopping bleeding after dreadful two days, as
FX fears on earnings and SNDK revenue warning hit group; memory stocks defended at
Bernstein; Raymond James downgraded analog/mixed-signal chipmakers DIOD, SMTC and POWI
which follows a chip stock rout that some blamed on cautious remarks from TSM about nearterm demand
Software & Hardware; BBRY reports a surprise quarterly profit, though sales fell short of
consensus views (Q4 eps 4c vs. est. loss of -4c); Pacific Crest said its field checks in North America
point to a below-normal seasonal start to 2015 with particular weakness in legacy enterprise
storagefirm lowered storage estimates on EMC, NTAP and HPQ and also cut rating on EMC to
Sector Perform on increasing seasonal, secular and competitive risk
Video gamers/Consumer electronics; GME guided Q1/16 EPS forecasts below ests. after Q4
EPS/revs also miss (EA, TTWO, ATVI active); MVIS received the $8M up-front license fee the
company announced on March 5 it would be receiving
3d makers weaker today despite VJET rising on earnings; SSYS trades new 52-week low (lowered
guidance early February, been under pressure since)), while DDD lower, just off its 52-week low
reached 2-weeks ago
Comm equipment; INFN tgt raised to $25 from $17 at Jefferies citing new products, saying new
Cloud Xpress product is a really big deal with a very big potential market (MKM + comments
yesterday lifted shares)

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