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Closing Recap

Friday, May 22, 15

Index

Up/Down

Last

DJ Industrials

-52.12

0.28%

18,233

S&P 500

-4.58

0.2%

2,126

Nasdaq

-1.43

0.03%

5,089

Russell 2000

-4.46

0.36%

1,252

Equity Market Recap


As expected, stock markets werent too volatile, trading mixed most of the session (NASDAQ
holding at new all-time highs), as markets remain complacent holding at record levels. U.S.
consumer prices rose for the third straight month in April, the latest sign inflation is stabilizing,
while Fed Chair Yellen said today in a speech that the central bank is on track to raise interest
rates sometime this year. Even with those two key factors, equities were little changed, as
volume was anemic, and major averages traded in a fairly narrow trading range ahead of the
Memorial Day Holiday weekend. The dollar surged, bonds slipped, and commodity prices were
generally lower to end the week. Transports slipped again, led by weakness in airlines.
Asia jumped as China closed at fresh 7-year highs, rising for a 4th day to post an 8.9% gain for the
week. The Shenzhen New Index rose 1.1% to bring its rally to a 12.2% gain over the past five
days. The Nikkei Index rose 61 points to 20,264, the Shanghai Index surged another 128 points
(or 2.8%) to close at 4,657, while the Hang Seng Index jumped 469 points (1.7%) to 27,992

Economic Data
Fed Reserve President Janet Yellen: The Fed is still likely to "take the initial step to raise the
federal funds rate target" at some point this year, Chairwoman Janet Yellen said, acknowledging
a patch of soft economic data in 1Q but says her "guess is that this apparent slowdown was
largely the result of a variety of transitory factors." She specifically cites an "unusually cold and
snowy winter" and West Coast port labor disputes. Some of the weakness might too be
"statistical noise," she says. Still, she says the pace of policy tightening is likely to be gradual.
Consumer Prices for April rose an in-line 0.1%, though core CPI (ex: food & energy) was slightly
hotter than expected, rising 0.3% vs. est. 0.2% MoM, while rising 1.8% vs. est. 1.7% YoY

Commodities
Energy falls on the day/up for the week; WTI crude posted its 10th consecutive weekly gain
(barely) despite todays lower close; on the day, WTI crude closed lower by 1.65%, falling $1.00 to
$59.72. Natural gas steels lower by 2% to $2.887 mln btu
Gold prices fell a mere dime today to settle at $1,204 an ounce, but logged a 1.7% decline for the
week which saw the dollar jump against its rivals (the weekly loss was its first in the last three).
Silver prices logged a 2.9% loss for the week. Copper prices ended at a 3-week low amid signs of
weaker demand from China and concerns about excess mine supplies

Currencies
The U.S. dollar jumped about 1% Friday, as inflation data came in slightly above expectations and
stayed strong after Federal Reserve Chairwoman Janet Yellen said the central bank remains on
track to raise interest rates sometime this year. The dollar index (DXY) traded to the highest level
since April 28th, back above the 96 level (off lows of 93.135 just last Friday). The mover higher
snapped a five-week losing streak for the dollar. The euro sank vs. the dollar, falling back to 1.10
level (lowest in 3-weeks), after touching high of 1.1467 last Friday, while the dollar rose to 121.50
vs. the yen (best levels since March)

Bond Market
Treasury market post modest gains, as yields closed slightly above yesterday levels after Fed
Chair Yellen said the central bank is on track to raise interest rates sometime this year. Bonds
were higher after the CPI report showed the biggest monthly gain since January 2013 (but then
erased gains). The Fed is closely watching inflation data to decide when to raise short-term
interest rates. Inflation has been subdued and running below the Fed's 2% target. Investors are
concerned that if inflation picks up speed, the Fed could raise interest rates sooner than many
investors expect. Mixed economic releases over the past few weeks have raised the question
over how robustly the U.S. economy is rebounding. Many investors expect the Fed to wait until
late this year to raise interest rates. The yield on the benchmark 10-yr was around 2.21% at close.

Macro

Up/Down

Last

WTI Crude

-1.00

59.72

Brent

-1.17

65.37

Gold

-0.10

1,204.00

EUR/USD

-0.0102

1.1010

JPY/USD

0.51

121.55

10-Year Note

0.019

2.209%

Sector News Breakdown


Consumer
Retailers; one of few busy sectors today given earnings: ROST Q1 eps/sales beat while comps 5%
tops 3.4% est (Q2 guidance light/but year eps view above); FL Q1 eps beat by 6c on better sales
and comps (7.8% vs. 5.3% est.) on better margins (good for shoe companies); ARO drops as Q1
comps fall (11%) vs. est. (9%), though EPS loss narrows; ANN mixed Q1 as EPS beat (lower costs),
while sales/margins miss (year sales below); GPS w/ in-line quarterly report noting currency/Port
issues hurt revs; HIBB cut the top end of year eps after Q1 miss
Consumer Staples/Restaurants; CPB mixed Q3 results as eps beat/sales miss, but posts gross
margin strength; TFM fell after cutting its year comp outlook after posting Q1 comp miss; FRS
being sold to private equity fund NRD Partners for $34 per http://goo.gl/PtRP9T

Energy
Energy stocks gained the most yesterday on jump in oil, declined today on drop in crude (also
saw BHI weekly rig count only come down slightly-see below)
Energy movers; EROC to be acquired by VNR for $474M in stock http://goo.gl/r4IE9v ; SYRG
acquired the remaining 35% WI in the Greenhorn acreage in the NE Wattenberg Extension area
from non-op partner for $3.95MM in stock ($250/acre)
Baker Hughes (BHI) weekly rig count fell another -3 rigs to 885, while oil rigs fell another -1 to
659; oil rigs have now plunged about 60%, or 936 rigs, since peaking in mid-October and are at
the lowest level since December 2010.) oil rigs now down for a 24th straight week
Financials
Financials were little changed in the afternoon, but shares of Dow components GS and JPM made
intraday 52-week highs; financials (banks/brokers) remains tightly leveraged to move in rates,
which were active today given CPI data/Yellen comments
Bond/Mortgage insurers; Puerto Rico House of Representatives passing bill raising sales tax,
sending bill to Senate (expected to pass), positive for MBI/AGO BTIG said; also said believe the
House's vote also should benefit AMBC given that it has approximately $2.5bn of insured
exposure to Puerto Rico's debt
Healthcare
Healthcare movers; a federal appeals panel in NY upheld a December lower court order requiring
ACT to keep older Namenda IR on market instead of dropping it for extended-release version;
OTIC shares fall as its OTO-104 narrowly missed primary endpoint of reduction in vertigo
frequency during month 3 following treatment compared to one-month baseline period (shares
also downgraded at JPM); good week for Healthcare on M&A news/continued momentum
In analyst research; QURE initiated Outperform and $47 target at Oppenheimer; ESPR initiated
with a Sell rating at Chardan Capital noting with stock up almost 700% since the June 2013 IPO,
we see far more risks than rewards at these levels and recommend taking profits; HZNP initiated
Outperform and $37 target at Leerink; CLLS surge as Oppenheimer initiates Outperform $65 tgt
Gene therapy; CBMG announced encouraging clinical data from its Chimeric Antigen Receptor
(CAR-T) CD30-positive Hodgkin's lymphoma immuno-oncology clinical development program;
been an active week for CAR-T stocks with BLUE and KITE active movers on news
Industrials & Materials
Industrials/Machinery; DE Q2 results topped views and boosted its outlook, though Q2 profit fell
YoY, as net income fell to $2.03 vs. est. $1.56 (but down from $2.65 a share year earlier); DE said
ag sales seen falling (25%) in 15, offset by construction sales equip; IR upgraded to Buy at Argus
as expects to benefit from improving macro conditions, strength in the U.S. construction markets
Transport Index falls to lowest level since October of last year; airlines weak for a third straight
session, as overall sector underperform again - KSU, JBHT, DAL leading laggards (shows pullback
broad based - truckers, rails, airlines); airlines fell over 8% on Wednesday after PRASM growth
across all sectors slides along an increasing downward trend, spooking equity investors despite
US airlines scoring record EBITDAR results
Metals & Mining; precious metals mixed despite rise in gold; Dow Jones reported as global steel
production fell 1.7% on-year in April, it slid 9.8% in the US, according to the World Steel
Association. Imports, the strong dollar and the fall in oil prices continue to bite, causing domestic
prices to fall some 25% this year and US steelmakers to idle plantsglobally, though capacity
utilization fell to 72.5% from 75.7% a year ago; X rallied after saying it is close to filing several
anti-dumping complaints with U.S. authorities (also lifted AKS/STLD)
Baltic Dry Index falls 1% to 586 points overnight, but posted its biggest weekly drop in three
months, falling (-7.6%)

Technology, Media & Telecom


Internet; not much in sector today (outside of online travel), with modest moves in AMZN, NFLX,
GOOGL; EXPE sold its 62% stake in LONG to CTRP & others for about $671M http://goo.gl/cr8ypl
Semiconductors; group strong with a few exceptions; shares of SWKS, IDTI, SYNA, CRUS making
new 52-week higher; AVGO jumps ahead of earnings next week; MRVL falls after lowering
guidance for next quarter (makes second time after MRVL just lowered guidance a month ago)
Software; FEYE rises after CEO said on CNBC Mad Money security has become a must have
for companies and FEYE is on a strong path of organic growth, while HPQ CEO said today its
partnership with FEYE should help both grow their markets; INTU jumps on better earnings
results and boosted forecasts; CRM jumped mid-afternoon after CNBCs David Faber said the
company held significant talks with MSFT, but couldnt agree on price http://goo.gl/cNHWiU
Hardware; HPQ Q1 eps beat by a penny but rev decline of 7% (hurt by FX) said demand eroded
in enterprise services, software and storage, but execution was better than feared; NCR added to
focus list at JP Morgan with $39 tgt; RBC said HPQ results slight positive for STX and WDC as
implied flattish PC demand environment compares with expectations of flat to down q/q; BRCD
rises despite quarterly miss; BBRY up on buyback news
Telco/Media; several moving parts in the TWC/CHTR/Altice story; Reuters reported Altice SA is
talking to several banks about raising debt for a potential bid for TWC, which is also being
courted by CHTR after CMCSA abandoned its $45.2B. Earlier this week, Altice agreed to buy U.S.
regional cable company Suddenlink for $9.1B from private equity investors http://goo.gl/5OQf2b
; VOD rises after Goldman Sachs said asset sales more likely days after Liberty Global Plcs John
Malone said a combination with the mobile phone operator would be attractive.

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