Closing Recap

Monday, June 29, 15

Index

Up/Down

Last

DJ Industrials

-348.79

1.94%

17,597

S&P 500

-43.78

2.08%

2,057

Nasdaq

-122.04

2.40%

4,958

Russell 2000

-10.92

2.57%

1,246

Equity Market Recap

Worst day for major equity averages in months (3-month lows), as Greece default fears becoming
a greater reality with a debt repayment to the IMF due tomorrow, and no deals reached with
creditors over the weekend. Overnight lows for the S&P futures were 2,054 (about 45 points
below Friday closing lows) and touched highs 2,083.25. Market weakness was broad based, with
several other factors (China, Puerto Rico debt) also weighing on investor sentiment. The move
lower was led by Financials (banks), Materials and Discretionary, while defensive Utilities held.
The move lower pushed the NASDAQ back under the 5,000 level, first time in 2-weeks (down
2.4%). The so called fear index, the CBOE volatility index (VIX) jumped as much as 34%, or over
4.50 above 18.50 (its highest levels since the beginning of February)
Technicals weighing: the S&P 5000 posted biggest drop since March 25th - continues steady
slide, and trades below its 100 day moving average of (2095), heading towards 200-DMA (2053),
to trade at lowest since April 17, as concern over potential Greek exit from the euro builds. The
Dow Industrials fell more than 200 points, erasing 2015 YTD gains once again and heading to 200
day support at 17,678...a level it has not breached since the October pullback (tested back in
early Feb but held and rallied to new all-time highs just a month later)
Other underlying factors that were being dismissed early due to the attention grabbing Greece
headlines were: 1) China falling into bear market territory, falling 20% since peak early in the
month (despite announcing additional easing measures overnight/cut rates), as Shanghai took
another 3% loss overnight (was up 2.5% at Monday peak vs. -7.6% low) and 2) news Puerto Ricos
governor called the islands $72 billion of debt unpayable.
Asian shares fall across the board in conjunction with broad global sell-off on Greece uncertainty
and potential ramifications a default may have. Chinas Shanghai enters a Bear market after
another 3% loss overnight takes the index down over 20% from its peak on June 12th (was up
2.5% at Monday peak vs. -7.6% low). In Asian markets, The Nikkei Index drop about 600 points
(2.8%) to 20,109, the Shanghai Index fell 139 points (3.3%) to end at 4,053, and the Hang Seng
Index tumbled 696 points to 25,966

Greece
Greece is heading closer to a euro exit as it closed its banks and imposed capital controls. No
deal was struck over the weekend between Greece and its creditors regarding an EU$1.9B debt
repayment due to the IMF tomorrow, raising fears of a default. Greek PM Tsipras was unwilling
to concede to the creditors demand but is also unwilling to take his country out of the EU. Greece
will now head to the polls this weekend to vote on the latest EU proposal. Europe plunged on the
news, with the contagion already beginning, as several Italian banks failed to start trading on
Monday as fears over a Greek debt default induced many investors to shed peripheral stocks,
including Italian, with banks suffering the most

Commodities
Crude oil prices fell to near 1-month lows, down over $1.30 to $58.33 per barrel, amid concern
Greeces failure to reach a deal with international creditors will prompt its exit from the euro
area, in addition to further weakness in Chinas stock market. Oil is heading for its first monthly
decline since March. Note crude has actually risen about 11% this year despite fact that U.S.
producers and OPECs biggest members continue to pump at a record pace
Gold priced closed higher by $5.80, or 0.5% to settle at $1,179 an ounce, its highest closing level
in a week, though not up as much as one would think, given the Greece turmoil and reversal
lower in the U.S. dollar throughout the session.

Currencies
The euro was sharply lower overnight, falling to lows of 1.0955 against the dollar, but advanced
steadily the entire session to top out around 1.1278 almost a full 300 bps move off lows. The rally
occurred on no apparent fundamental reasons, as there were no resolutions in the Greek debt
repayment drama, ahead of the $1.9B payment to the IMF due tomorrow. The dollar index (DXY)
also declined in orderly fashion, giving up some of last weeks gains (DXY high 96.39 low 94.97)

Bond Market
Bond markets were stronger throughout the session, ending near their best levels, as the yield
on the 10-yr dropped to 2.33%, down 15 bps from Fridays 2.48% close. Bond markets are coming
off a soft week where the yield on the 10-year Treasury rose 8.7 bps to 2.480% on Friday, its
highest level since September 30 (up 21 bps last week). Greece headlines and fears of
default/euro exit lifted interest in bonds.

Economic Data
May Pending Home Sales rose 0.9% MoM, below est. vs. up 1% (slowest pace in over a year);
said be region: Northeast up 6.3%; April rose 10.1%, Midwest fell 0.6%; April rose 4.2%, South fell
0.8%; April rose 1.8%, and the West up 2.2%; April fell 1.4%; Pending home sales revised lower to
2.7% from 3.4% prior
The Dallas Fed manufacturing index improved to -7.0 in June after falling to -20.8 in May ( 6th
consecutive month that the regional index has been in contractionary territory); index
breakdown: employment component rose to -1.2 from -8.2, new orders edged up to -10.3 from 14.1 and prices paid climbed to 7.4 from -1.7

Macro

Up/Down

Last

WTI Crude

-1.30

58.33

Brent

-1.25

62.01

Gold

5.80

1,179.00

EUR/USD

0.0071

1.1238

JPY/USD

-1.28

122.57

10-Year Note

-0.15

2.33%

Sector News Breakdown

Consumer
Retailers; consumer discretionary names down with broader market, while Macys (M)
downgraded to Sell at Deutsche Bank and cut tgt to $63 from $71 to reflect low confidence that
the company can bust out of its SSS rut/sales deleverage (also weighed on retail sentiment)
Consumer Staples; SYY terminated its merger agreement with US Foods, days after the U.S.
District Court granted the FTC request for a preliminary injunction to block the proposed SyscoUS Foods merger http://goo.gl/5GOWZz (SYY to buyback $3B in stock); CALM shares down over
5% (has been falling since topping at $59.86 on May 18th as Avian flu headlines have eased);
note shares of food company CAG reports tomorrow
Auto stocks were broadly lower, led by autos (FCAU, GM) as well as auto suppliers (LEA, DLPH)
and tire companies (CTB, GT); TSLA fell despite positive comments by Credit Suisse saying shares
have substantially more upside and raised its target to $325 from $290
Energy
Energy stocks broadly lower once again, led by a decline in oil prices, and as global equity stock
fell on China weakness (a top commodity consumer), and the complicated situation in Europe
and its debt repayment/default fears out of Greece. Oil dropped last week despite another round
of larger than expected inventory drawdowns
Coal stocks outperformed after the EPA lost at U.S. Supreme Court on Power-Plant Emissions rule
saying the EPA didnt properly consider cost of regulation; shares of BTU, CNX, CLD, ANR, ACI
active; Stifel said news especially positive news for U.S. thermal coal industry, which has been
damaged by competition from low-cost nat gas, aggressive regulations
Nat gas leveraged stocks active; RRC was mentioned positively in Barrons saying shares may rise
to $100, assuming natural gas price rebounds to around $4 vs latest $2.77 within next 2 years;
CHK was upgraded to Buy at Sterne/CRT
MLPs; note the Alerian MLP Index (AMZ) fell 1.85% to 406.72 last week, and extends losses this
morning to new 52-week intraday lows; group continues to be hurt by rising rates and lower oil
prices (hitting shares of high dividend paying stocks)
Financials
Financials/Large Cap banks lagging; Oppenheimer downgraded rating on JPM and STI to Perform
from Outperform and removing price target of $81 for JPM and $51 for STIwhile firm says
favorites remain the much hated mega banks (BAC, C) and the card companies (COF, DFS), and
we still see select opportunities in the regionals (CFG, FITB) marks the third analyst to cut some
ratings on run-up in shares over past week; online brokers weak (SCHW, ATFC); insurance names
broadly lower as well, MET, PRU, PFG, and LNC (lower rates/Greece default fears weigh)

 European banks under pressure given the possible contagion in banking sector if Greece defaults
on debt payments; Italian shares were hit hard as well as general Euro banks DB, CS, UBS; BPOP
shares fell on Puerto Rice news (see below) and downgraded at Guggenheim
Bond insurers/Monoline shares fall after Puerto Rico Governor Alejandro Garcia Padilla told the
NYT Puerto Rico wouldnt be able to pay its debtsroughly $72B in debts (weighed on shares of
AGO, MBI which were downgraded by BTIG based on the news); AGO, MBI, AMBC have net debt
service exposure. He said, "The debt is not payable,"There is no other option. I would love to
have an easier option. This is not politics, this is math."
REITs; not really benefitting from drop in yield today, as markets in general weak; note the RMZ
(Reit Index) declined 2.9% last week, as the yield on the 10-year jumped 21 bps last week to
2.47% from 2.26%; note the IYR down around lowest levels since October of last year, as
mortgage REITs have been pressured of late (NLY, CMO, MFA, AGNC)
Asset managers/Consumer Finance; XOOM cut to Neutral from Positive at Susquehanna as it
views the shares to be fully valued near-term; LM mentioned positively in Barrons, saying shares
may rise 20% to $62 or higher over next year, but fell with overall financial weakness (other
managers dropped including BLK, BEN, JNS, TROW)
Healthcare
Healthcare/Pharma; fairly quiet for a group that has seen a tremendous amount of volatility over
the last two weeks amid M&A speculation in HMO sector (as per various reports), and the
Supreme Court decision last week upholding tax subsidies for people who buy health insurance
on federal exchanges created by Affordable Care Act (ACA), which lifted hospitals
Biotech declined with broader market (one of the better performing sectors over the last year);
the IBB traded to lowest levels in more than a week (not much specific news in); upcoming items
to watch in space: include the FDA action (PDUFA) dates for VRTX cystic fibrosis combination,
REGN/SNY and AMGNs PCSK9 cholesterol drugs, Amgen's Kyprolis expansion in multiple
myeloma and NVS LCZ696 for heart failure
Movers on news; PETX reported positive top-line results for its pivotal effectiveness study for AT002; CRMD fell on negative report by the Pumpstopper http://goo.gl/Yuf40j ; JUNO said sees
phase 1 study in NHL starting this year; DGX upgraded to Buy at UBS; VTAE shares fell as trial in
diabetics did not meet its primary endpoint
M&A news; there were a few small deals today; AMAG said it will acquire Cord Blood Registry for
$700 million to expand its maternal health business http://goo.gl/XMGF1E ; IART to acquire
privately held TEI Biosciences for $312M http://goo.gl/z8AfnE ; NVS acquires Spinifex
Pharmaceuticals for $200M plus milestones http://goo.gl/b4fmU2
Hospitals; group an outperformer last week on Supreme Court decision; today Mizuho the latest
to upgrade stocks based on news (LPNT & CYH upgraded to Buy based on the favorable SCOTUS
decision preserving subsidies that will likely result in continued growth in hospital volumes)
Industrials & Materials
Transports; group rebounded early, only to falter; the Dow Transports ended off about 1%, with a
broad based pullback; JBHT to replace TEG in the S&P 500 Index June 30th; ODFL upgraded to Buy
at Stifel saying sell-off in LTL has presented a buying opportunity; R also upgraded at Stifel based
on reasonable valuation; rail stock NSC had tgt and estimates lowered at Bank America
Metals & Mining; AA estimates and tgt cut at Morgan Stanley; IAG cuts forecast for 15 output to
780,000 to 815,000 Oz; steel producer TX downgraded to Neutral at Bank America as reduce
EBITDA estimates by 15-30% in 2015-16, driven by lower steel prices
Chemicals; shares of CCC fell as much as 6.6% early after the Supreme Court rejected the EPAs
MATS Rule; CCC likely to see modest cuts in consensus ests. for 15, 16, said BB&T
Paper stocks were upgraded at Dundee saying containerboards are relatively inexpensive, down
22% on avg from their 52-weeks high, creating buying opportunity; firm said the long-term
outlook on U.S. containerboard mkt is positive and upgraded IP, KS, RKT to buy

Technology, Media & Telecom

Internet; high beta Internet names were under pressure with market pullback (NFLX down about
60 points from highs after stock split announcement a week ago); Online home-rental
marketplace Airbnb Inc. is closing on a $1.5B fundraising that would boost the company's
valuation to $24 billion, the Financial Times reported http://goo.gl/pYhyNL ; LNKD files to sell
3.57M shares of Class A common stock for holders, while FB, YELP, GOOGL, IACI, YHOO fall
Semiconductors; group hammered on Friday due to MU quarterly results/forward guidance
weighing on sector no let-up today, down another 2.7% (follows 2.4% drop Friday); QCOM
downgraded to Sell at Drexel with $55 tgt and cutting forward estimates; Pacific Crest lowering
our estimates on AMD, CAVM, INTC and XLNX
Hardware; AAPL suppliers have started initial production of new iPhone models with a feature
called Force Touch; SYNA upgraded to Outperform at Oppenheimer saying they believe it is far
too difficult for AAPL to build a TDDI solution for the resolution and touch capabilities needed;
FFIV cut to Neutral on valuation at Piper; Jefferies lowered numbers for WDC, STX and HPQ given
recent negative data points (but thinks attractive entry point); APH a binding offer to acquire
Singapore-based electronic connectors maker FCI Asia Pte Ltd for $1.28B http://goo.gl/l1ljZ1
Media/Telco; JP Morgan upgraded former Gannett Co. parent TGNA to Overweight with $35 tgt
as retains one of the largest and attractive broadcast television groups in the U.S. (also positive
mention in Barrons); in Telco, CTL upgraded to Outperform after recent pullback on downgrades;
DISCA/Eurosport awarded all TV, multiplatform rights for 2018-2024 Olympics; CMCSAs NBC
ended its relationship with Donald Trump after he derided Mexican immigrants as rapists
during his speech announcing his presidential campaign. The annual Miss USA and Miss Universe
Pageants will no longer air on NBC, the network said Monday.

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