Closing Recap

Friday, July 10, 15

Index

Up/Down

Last

DJ Industrials

211.52

1.21%

17,760

S&P 500

25.27

1.23%

2,076

Nasdaq

75.30

1.53%

4,997

Russell 2000

17.82

1.44%

1,251

Equity Market Recap

U.S. equities gapped on the open for a third day, but managed to hold its gains this time (pushing
higher into the close), with major averages narrowing its weekly loss to a minimal amount.
Another rebound in China overnight, and hopes Greece will remain in the euro after providing
new economic proposals to Euro leaders, helped propel gains this afternoon. China and Greece
have dominated headlines all week, but attention should shift to quarterly earnings and the Fed
(Yellen testifies to Senate/House next week in semi-annual monetary policy statements) next
week. Gains today were broad based on Wall Street, with materials/industrials getting a lift on
China, Financials higher on rising rates, tech recovers with bounce in semis and transports rally
behind strong gains in airlines.
European markets also gapped up, with Germanys DAX up 319 points, or 2.9% to settle at
11,315, but it was a broad based European rally into the weekend amid expectations a resolution
will come for Greece regarding debt repayments and reforms/changes necessary. Asia was
higher, as the Shanghai Index soared 168 points, or 4.5% to settle at 3,877, while the Hang Seng
Index jumped over 500 points, or 2% to settle at 24,901.
Federal Reserve Chair Janet Yellen said she still expects to raise interest rates this year and
repeated that the subsequent pace of increases will be gradual in her first public remarks since
the June meeting of the Federal Open Market Committee. But I want to emphasize that the
course of the economy and inflation remains highly uncertain, and unanticipated developments
could delay or accelerate this first step, she said in the text of a speech Friday in Cleveland.

Economic Data
U.S. Wholesale Inventories rose 0.8% in May, above est. up 0.3% as inventories increased to
$581.9B from $577B in prior month (most since November), but wholesale sales rose 0.3% in
May after rising 1.7% the prior month, and well below consensus of 0.9%

Commodities
WTI crude oil prices slid early, bounced, and ended little changed at $52.74 per barrel (hi $53.89
and low $51.96) despite several negative factors today: 1) Baker Hughes said its weekly rig count
rose 1 and oil count up 5, its 2nd consecutive week of rigs online after more than 26 straight
weeks of declines, 2) IEAs said that there could more downside to crude prices and correction
could extend into FY16 and 3) 2) Iran nuclear talks were extended into the weekend. Despite
holding up flat today, oil prices did slip more than 7% for the weak on China fears (among others)
Precious metals ended the day little changed, as gold slipped $1.30 to $1,157.90 an ounce and
posted a modest -0.5% drop for the week (third straight week of declines). September silver
added 12c, or 0.8%, to $15.481 an ounce (but fell 0.5% for the week). Comments by Fed Chair
Yellen about signs of an improving economy and expects rates to rise appropriately at some point
this year weighed slightly.

Currencies
The dollar fell for a third day (though pared losses intraday), as the euro jumped across the
board on Greek debt resolution hopes this weekend; the euro rose the most against the yen in
more than two years, as Greece proposed a package of spending cuts and tax increases aimed at
securing a bailout and avoiding being pushed out of the currency union (note the yen was
broadly lower vs. rivals as Asian stock markets recovered). The euro remained higher against the
dollar even after Federal Reserve Chair Janet Yellen said she still expects to raise interest rates
this year and repeated that the pace of increases will be gradual; euro rose 1% to $1.114

Bond Market
Bond markets fell, and yields jumped again, as investors moved into to riskier assets (stocks),
after the Chinese stock market found some stability for a 2nd day and the Greek debt saga
seemed closer to a resolution, as Athens submitted a new reform proposal, which appeared to be
closer to some of its creditors demands. Yields jumped across the board, as the 10-yr topped
2.4% (up over 9 bps). A stronger-than-expected U.S. wholesale inventories report also added to
the selling pressure. Note Eurozone bonds also declined as stock markets jumped between 2%3%, sending yields on the German 10-year bund up over 15bps to around 0.9%

Macro

Up/Down

Last

WTI Crude

-0.04

52.74

Brent

0.12

58.73

Gold

-1.30

1,157.90

EUR/USD

0.0095

1.1132

JPY/USD

1.51

122.85

10-Year Note

0.101

2.412%

Sector News Breakdown

Consumer
Retailer sector; COST was upgraded to Outperform and $160 at OpCo noting trades at lowest PE
since 11; MIK 12.5M share secondary priced at $26.60 per share; GPS June comp sales fell (1%)
vs. est. (0.7%) drop and was downgraded at UBS; COH was downgraded at OTR Global; BDE
positive mention by Canaccord today
Consumer Staples; the dollar fell sharply today, helping lift multi-national companies that benefit
from sales overseas (e.g.: consumer product makers); SJM priced 4.9M share secondary offering
at $105 per share; HELE Q1 eps missed by 4c, but revs beat and reaffirmed year outlook; HSY
upgraded to Positive at OTR Global

 Auto sector; late yesterday, TRUE shares recover after falling late yesterday after AN told the
company its dealerships would stop using the company's service at the end of July due to their
contract dispute (three analysts, JPM, JMP and RBC said sees limited financial impact); Reuters
reported China Association of Automobile Manufacturers said automobile sales in the country
declined 2.3% compared to the prior year to 1.8M vehicles in June, and cut its 2015 forecast for
vehicle sales growth to 3% from 7%; auto retailers, suppliers bounce today
Cruise lines/Leisure rise; two firms positive on cruise industry today as SunTrust said June Cruise
pricing survey shows RCL coming on strong which bodes well for guidance raise, while Wedbush
said pricing trends have been exceedingly positive, and booking trends have been strongsaid
proprietary pricing analysis for the month of June was quite favorable (RCL, CCL, NCLH)
Energy
Energy stocks were among laggards on the session, though refiners continue to surge to 52-week
highs, with shares of TSO leading the way higher, though strong gains across the board for VLO,
WNR, MPC, HFC as well; overall stocks feel this week on a decline in oil prices
Oil services & equipment changes; Jefferies upgraded SPN and WFT to Buy, and upped FET to
Hold as firm thinks shares reflect lower oil prices and an implied softer/slower recovery (said
preferred exposure within OFS remains services weighted to global onshore activity; CAM was
upgraded to Outperform at RBC Capital saying diversified business mix is performing better than
expectations; Oppenheimer said believes the bottom is in for the U.S. rig count and reiterates
Outperform ratings on HAL, SLB, WFT and SPN
In news; the weekly BHI weekly rig count showed an increase of 1 to 863 (2nd week in a row of an
increase), while total oil rigs were up 5 to 645 (also 2nd week of increases; BAS said it still sees Q2
revs down (22%-24%) vs. Q1 and well servicing rig count unchanged at 421; MTDR announced
results of its initial 3-zone stacked lateral test in Rustler Breaks, as well as an update on its third
Permian rig; DVN upgraded to Outperform at Macquarie
MLPs; group has been under pressure, as volatility and pricing pressure have again struck the oil
patch with WTI closing the July 9 session at $52.93/bbl, down 11% QTD. RW Baird said tactically
they are poised to get aggressive on MLPs, after Halloween, with the VIX above 22, or if the
Alerian MLP Index ($395) falls to ~$350. MLPs look attractive to the broader market and to
utilities here, but there is no net for falling oil prices; CEM upgraded to Buy at Bank America
Oil drillers; Clarkson downgraded drillers DO & RIG to Sell, and cut RDC to Neutral; SDRL
subsidiary NADL wins a contract extension by TOT valued at ~$62M
Utilities; surprisingly the index advanced despite double dose of negative factors, as yields
climbed (makes dividend paying names less attractive), and an all-out equity advance today (utes
also seen as defensive plays)
Financials
Large Cap banks rally today, leading markets early, as rates rising for a 4th day; Financials take
center stage next week, as group among first to report quarterly results (JPM, WFC
TuesdayBAC, BLK, USB WedKEY, SCHW, BBT, GS, WBS, C Thursday)
Brokers & Exchanges; Deutsche Bank upgraded ICE to Buy with $252 tgt saying stock has
underperformed the exchange group over much of past 8 months and views valuation as more
reasonable (firm slightly lower tgts on AMTD, BEN, BX, CG, ETFC, KKR, SCHW and STT); DB also
reiterated recent change in preference for exchanges with CME being top pick; AMTD said this
morning a software upgrade made last night led to an order-routing issue this morning.
Asset managers; Goldman Sachs said is selective into 2Q15 as risk appetite subsides and
downgraded AMP to Neutral, and VRTS to Sell; BEN reported June AUM below forecast, falling
2.5M MoM to $866B

Healthcare
Large Cap Pharma/Managed care; little in way of news this week, but things pick up next week as
earnings season begins (JNJ reports next week); BIIB fell after Cowen noted BIIB will present 12month data from aducanumab's 6mg dose cohort on July 22 at AAIC and views as binary event
(believes shares could trade +/- $50 on the news); managed care space quiet after weeks of deal
talk and deals; in other news NVO shares rise, while MYL was also higher; CRL was upgraded at
Banc America, but downgraded at Barclays; TDOC rises as Cowen initiates Outperform and $39
tgt; in drug retail, WBA upgraded at Raymond James, but cut RAD
Industrials & Materials
Industrial & Machinery; DOV cuts its year EPS and revenue guidance citing continued weak
fundamentals in the N.A. oil & gas markets, and generally weaker capital spending in retail
refrigeration and certain industrial end-markets; FELE cut its Q2 eps forecast midday to 35c from
54c-58c prior view
Ag sector; corn prices jumped following WASDE ag report at noon today, trading up more than
2%, to $4.3825 per bushel to highest of the year; corn was up ahead of the report that actually
showed corn ending stocks were 1.6B bushels, above estimate 1.55B, but was below prior 1.77B
which caused prices to extend gains; shares of Fertilizers: AGU, CF, IPI, POT, MOS, were active as
well as seed/chemicals MON, DD and ag machinery DE, AGCO
Transports; Airlines surge amid monthly metrics/guidance; AAL said it sees 2015 domestic
capacity up 1%-2%, down from prior view of 2%-3%, while still sees intl capacity up 1%; ALK saw
Q3 Prasm down (-5.5%), with traffic up 9% and capacity up 10.7%; UAL said June capacity up
2.2%, traffic up 1.3%, available seat miles up 2.2% (oil down about 7% this week)
Aerospace & Defense; WSJ reported LMT is in advanced talks to buy UTXs Sikorsky Aircraft in a
deal that could value the helicopter unit at over $8B; recall Reuters recently reported that LMT
and TXT were vying for the unit http://goo.gl/tqGfS0
Metals & Mining and Materials; iron ore prices gain a 2nd day, rising 2.3% to settle at $50.10 a
ton; ROG cut its Q2 EPS and rev outlook citing sudden sales decline in Chinese markets; gold
miners end the week on a down note, with losses in AEM, ABX, NEM
Technology, Media & Telecom
Internet security sector weak; group has been on a tear given several security breaches this year
(credit cards, govt, etc.), but group falls today after CUDA misses Wall Street expectations for
billings ($94M vs. Street over $100M), causing some to worry the business may be peaking
(though billings miss was primarily due to storage/FX and not security; shares of PANW, CYBR,
FTNT, PFPT, SYMC, CHKP, IMPV were active; in other news, SPLK acquired security analytics
company Caspida, Inc., for $190M
Internet; Z declined on report CFO Chad Cohen is resigning to pursue other business interests;
NFLX tgt raised to $750 at Morgan Stanley to reflect higher price assumptions for the streaming
service (said "bull case" has shares going to $940, compared to his "bear case" of $430) while
Stifel with positive comments as well; AMZN, YHOO, BABA, GOOGL, FB all advanced
Semiconductors; sector has been bludgeoned this week, with the SOX falling over 5% this week;
potential catalyst next week as Semicon West conference next week in San Francisco (moreso for
equipment names); AMAT was upgraded at Susquehanna; group manages nice gains today
Software & Hardware; RAX cut to Hold at Evercore saying believe the risks and potential rewards
are balanced; AAPL with a nice recovery after coming close to 200 day moving averages of 118.70
yesterday (broker 120 to downside) but shares surge today after 5-days of losses
Media & telecom; CVC shares rise after the WSJ reported French telecom group Altice would be
interested in pursuing companies such as CVC and Cox Communications http://goo.gl/cf2eoT

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