Closing Recap

Monday, June 15, 15

Index

Up/Down

Last

-107.40

0.60%

17,791

S&P 500

-9.60

0.46%

2,084

Nasdaq

-21.13

0.42%

5,029

Russell 2000

-3.97

0.32%

1,261

DJ Industrials

Equity Market Recap

U.S. equity markets declined for a second session (though finished off the worst levels of the
morning), dragged down by European market after talks between Greece and its international
creditors broke up in failure over the weekend and Athens moved closer toward a debt default
that threatens its future in the euro. Major U.S. averages were lower across the board (follows
Friday when all 10-S&P sectors and all 30 Dow components closed negative), as the S&P traded
back below key technical levels (100-day 2,088), the Dow Industrials moved back into negative
territory for the year, and the NASDAQ trades around its 50 day MA of 5,023. In sector news,
positive moves in an overall down market from housing stocks (on SPF/RYL merger and better
housing data), Internet security stocks (amid all recent hacks/breaches, with latest against US
gov't) as CYBR, FEYE, PFPT all surge, and Healthcare/HMO stocks after Dow Jones reports of deal
talk between CI/ANTM/AET/HUM all in mix. European stock closed lower after weekend debt
talks between the Mediterranean nation and its creditors broke down. Most commodities
declined, although gold was in positive territory.

Economic Data
The U.S. Empire State index (NY) dropped to an unexpected -1.98 in June, as estimates were
calling for a 6.0 gain (after last month 3.09 reading), though components were mixed. The
employment index rose to 8.65 from 5.21, though new orders fell to -2.12 from 3.85. Prices paid
were little changed at 9.62 from 9.38, while prices received slipped to 0.96 from 1.04. The sixmonth general business conditions fell to 25.84 vs 29.81
Industrial Production for May fell (-0.2%), below est. of a rise of 0.2% (after falling 0.5% in April).
Capacity utilization fell to 78.1% in May vs. est. 78.3% (prior also 78.3%)
U.S. NAHB homebuilder sentiment index jumped to 59 in June, above estimates for 56 and
topped Aprils 54 reading (highest since September). The single family sales index popped to 65
from May's 58 (best since 2005), while future sales index rose to 69 versus 63

Commodities
Oil prices slid a third day, slipping 44c to $59.52 per barrel, as news in energy sector since OPEC
kept quotas in place two weeks ago at its semi-annual meeting. The recent rally in oil has lost
some steam after recent reports that Saudi Arabia, Iraq and the United Arab Emirates are
pumping record amounts of oil, the International Energy Agency said last week.
Gold prices end higher, rising $6.60, or 0.6% to settle at $1,185.60 an ounce, bouncing back after
declining the prior two-session. Todays move was helped by weaker economic data, prompting
some weakness in the U.S. dollar, making commodity prices less expensive for foreign buyers.
Watch gold ahead of FOMC meeting this Wednesday (though no changes are expected)

Currencies
The U.S. dollar was flattish for most of the session (second straight session), before losing ground
late in the day amid a bounce in the euro. The dollar had held up relatively well early, despite a
batch of mostly negative economic reports, as fears of a possible Greece EuroZone exit ramped
after a deal was not struck over the weekend. The euro traded above 1.1270 (off overnight lows
of 1.1189), while the yen was little changed at 123.43

Bond Market
Bond markets stronger (but pared gains throughout the afternoon) given several weaker
economic data points this morning in the U.S.; weakness in data sends bonds higher and yields
lower, as 10-yr drops 6.7 bps to 2.32%, extending gains after weaker Industrial Production data
for May (followed weaker manufacturing data early), but bounced back up to 2.36% (was nearly
2.5% early last week). Watch bonds ahead of FOMC on Wednesday.

Macro

Up/Down

Last

WTI Crude

-0.44

59.52

Brent

-1.24

62.61

Gold

6.60

1,185.60

EUR/USD

0.0018

1.1284

JPY/USD

0.02

123.41

-0.029

2.358%

10-Year Note

Sector News Breakdown

Consumer
Retailers; mattress stocks SCSS and MFRM downgraded at Wedbush citing margin dilutive
strategies, increasing competition, and tougher comps; Home improvement retailer LOW
upgraded at Wedbush as looks favorably on its internal initiatives to drive sales and margin;
Wedbush also upped WSM to Outperform; weakness in retail was broad based
Consumer Staples & Restaurants; DEO upgraded at RBC Capital to Outperform; STZ CFO said
plans to leave the company after Q1; not much news on sector today
Housing sector stronger; one tie-up in group as Southern California homebuilders SPF and RYL
said they agreed to merge; SPF holders will own about 59% of the combined company after a
share swap and will implement a one-for-five reverse stock split, then give RYL investors 1.0191
share for every one they hold. Fractional shares will be paid in cash. http://goo.gl/drvHeP ; also
better housing data as NAHB Housing data rises to 59 reading vs. est. 56 (and above prior month
of 54); shares of DHI, PHM, LEN, TOL rise (housing starts data tomorrow)

 Casino, Lodging & Leisure; movie theaters active after strong performance by Jurassic World
over the weekend, with 2nd best opening ever; shares of RGC, CNK, IMAX move; Gaming stocks
active on mixed analyst commentary
Auto sector; TRAK acquired by Cox Automotive for $4B/$63.25 per share http://goo.gl/fR7LIY ;
Goldman Sachs said the DOC affirmed and increased tariff rates on China import tires, which they
believe will increase pricing, but also make imports from other countries more cost competitive
(says potential negative for CTB due to higher import cost); SunTrust noted while they continue
to see a solid tire demand backdrop in the U.S. and tariffs were "finalized" at much higher rates,
they see a number of risk factors that will negatively impact earnings (GT shares also fall)
Energy
Energy stocks weaker; falling on lower oil prices, with majors, equipment, service, and drillers all
lower across the board; in stock news; Emirates National Oil Co. agreed to buy Dragon Oil Plc
(DGO.LN) for $2.6B http://goo.gl/sSN2QX (ENOC already held a 54% stake in Dragon Oil); NKA
acquired by Brookfield for $4.225 per common unit http://goo.gl/p5jaza; Jefferies upgraded
shares of Chinese Oil & Gas companies CEO, PTR & SNP upgraded amid recent pullback in shares
MLP;s Wunderlich transferred coverage in the upstream MLP sector and said the sector has too
much debt, on average, and has suffered from the dramatic decline in oil, natural gas, and
natural gas liquids prices since late 2014. The firm has buy ratings on MEMP, VNR, and LGCY (also
says remain selective but believe some upstream MLPs currently represent good value); several
secondary announcements as BBEP files to sell 59.37M common units for holders, SHLX files to
sell 7.7M common units for holders and SMLP in pact for sale of up to $150M in common units
Land drillers; Goldman Sachs said land activity and pricing may be near bottom citing slowing
pace of rig count decline, bottoming in permits and commentary from BAS, PES and PXD, and
prefers land drillers (HP, NBR, PTEN) and select completion and frack sand cos (CJES, EMES, RES)
Alternative energy; Coal related names mixed today after several days of sharp declines (many
penny stocks these days); SXC shares were lower, but ANR bounce after hiring Rothschild for
debt restructuring; shares of WLT, ACI, BTU, CNX have plunged; solar maker FSLR reached a
record 18.6% module efficiency, increasing the amount of sunlight converted into electricity and
helping it compete better with silicon panels.
Financials
Large Cap banks/financials in general lower as bond yields slip again (to lows 2.31% from 2.5%
mid last week) after a round of weaker economic data reports sent bonds higher; banks still
leveraged to move in rates, and taking a breather today; GS price target was upped to $245 at
MKM Partners; overall financials held up relatively well
Insurance; AIG shares jumped after Reuters reported US judge says awards no damages in
lawsuit over AIG bailout; RDN plans to sell $300M in 5-yr senior notes; PRU was mentioned
positively in Barrons over the weekend
Credit card Monthly Master Trust data: COF May credit-card net charge-offs 3.39%, down from
3.66% MoM, while delinquencies 2.74% vs 2.77% MoM; JPM May Credit Card net charge-offs
2.59%, up from 2.34% MoM, while delinquencies 1.13% down vs. 1.18% in April; ADS Net ChargeOffs 4.5% for May vs. 4.5% YoY, while Delinquency rate 3.9% vs 3.7% YoY; DFS May NCOs at 2.3%
and delinquencies 1.6%, same for both MoM; BAC NCOs 2.9% and delinquencies 1.67%; SYF
NCOs drop to 5.75% from 6.36% MoM, while delinquencies in May 2.83% vs. 3.02% in April
Lending stocks/refinance; peer-to-peer lenders fall as LC shares fall, while ONDK shares fall more
than 6% to intraday record low ahead of lockup expiration today (56.2M shares or ~81% of
shares outstanding); OCN gets Event of Termination notices on at least 16 RMBS deals
representing $5.5B UPB, according to Compass Point; Mortgage finance stocks TWO and MITT
both downgraded at Wunderlich

Healthcare
Managed Care/Large Cap Pharma; CI jumped midday after Dow Jones reported ANTM said to
make takeover approach valued at $175 per share (which was rebuffed) http://goo.gl/48vAw1 ;
shares of HUM fell, which recently said it would observe a "quiet period until earnings July 29th
after receiving questions from analysts and investors "regarding the potential for the company to
participate in industry consolidation" (possibly removes two potential bidders)
Biotech; sector was mixed to lower; REGN bounced after recent pullback; Leerink positive on
BMRN ahead of BMN-111 data to be reported before the end of 2Q (continue to see a positive
risk/reward for the stock heading into the data); LGND downgraded at Deutsche Bank on
balanced risk/reward; IDRA initiated Overweight and $6 tgt at JP Morgan; TKMR downgraded to
Hold and tgt cut at Maxim to $14 from $27
Specialty Pharma; RDHL jumps as its drug RHB-105 meets primary endpoint of late-study target;
AGIO declines a second day after analyst said additional AG-120 data look numerically slightly
worse vs AG-221 data (Leerink comments)
Retail/Services; CVS to pay $1.9B for TGTs more than 1,660 pharmacies, more than 80 clinic
businesses http://goo.gl/q31aex
CAR-T sector; BLUE positive update on HGB-205 update saying first patient treated with
LentiGlobin BB305 in sickle cell disease at 6-month follow-up had anti-sickling hemoglobin of
45%, above ~30% threshold BLUE expects may possibly achieve a disease-modifying effect (target
raised to $244 at JP Morgan and $230 at SunTrust); shares gave up early gains (highs $187)
Hospitals; Oppenheimer said CYH and HCA recommended as buy on Supreme Courts ruling in
King vs. Burwell, expected in late June, as risk/reward seen as favorable
Industrials & Materials
Aerospace & Defense; the 51st Paris Air Show started this week (several orders announced for the
likes of BA, Airbus, ERJ, GE); UTX said (at the Paris Air show) it would definitely separate its
Sikorsky helicopter unit, and will make a decision whether to sell it or spin it off within 60 days
(Sikorsky is the main supplier of helicopters to the U.S. DoD that received $7.5B of sales in 2014)
Airlines were mixed to lower despite a pullback in oil prices; LUV said it is still on track for record
Q2 profit ex-items, while ALK offered some yearly outlooks; overall transport index was lower
with market, with freight/truckers leading lower (JBHT/EXPD/R); rails outperform (CSX)
Metals & Mining; mid-quarter updates for steel names due out this week: KeyBanc reduced 2Q
estimates on STLD/NUE ahead given expectations for tepid 2Q steel volumes, while UBS said
focus more on steel outlook vs. Q2 results (steels broadly lower X/NUE); gold miner GG
downgraded at RBC given the company failed to meet prior guidance on several occasions
Chemicals; Jefferies raised estimates and price targets for BASF, DOW and LYB as the
combination of higher-than-expected levels of outages and revised Jefferies energy forecasts
should more than offset near-term demand risks
Paper & Packaging; Goldman Sachs updated estimates for group as continues to prefer self-help
stories such as BERY and GPK, while downgrading CCK to Neutral
Technology, Media & Telecom
Semiconductors lagging; Memory stocks MU and SNDK downgraded at Morgan Stanley; MU cut
to Underweight as believe that PC, server and graphic pricing will remain under pressure and
thinks there is the mild risk of excess supply (cut tgt to $21 from $30); SNDK cut to as increasingly
uncomfortable that SanDisk can get its problems from the last couple of quarters behind it (cut
tgt to $75 from $80); INTC estimates lowered at Goldman Sachs, cautious at CS and Deutsche in
regards to quarter after channel checks
Internet; NFLX shares fell after BABA said it is planning to build Chinas version of Netflix Inc. and
HBO via a new service called Tmall Box Office; TWTR extends Friday sell-off after inventors digest
the resignation of former CEO Costolo

 Software & Hardware; couple of big earnings reports expected this week in software sector
(ADBE tomorrow night, ORCL reports Wednesday night, RHT Thursday night); CRTO shares were
defended at Pac Crest as believe news that new ad blocking capabilities on mobile Apple devices
will hurt Criteo is overblown; Internet security names rise (FEYE/CYBR)
Analyst calls; EMC downgraded at FBR Capital citing inconsistent performance of storage
business; TDC downgraded to Underperform at JMP Securities; JBL upgraded to Buy at Needham
Media; CMCSAs Universal Jurassic World posts second-biggest opening weekend ever with
$204.6M in weekend sales; had $44.1M in weekend Imax (IMAX) sales, a record - beats Iron
Man 3 IMAX record of $28.8M. RealD (RLD) said 48% of Jurassic World gross on 3d-equipped
screens (highest-ever grossing domestic debut ever for company); FOXA downgraded at Topeka

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