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Closing Recap

Friday, September 4, 15

Index

Up/Down

Last

DJ Industrials

-272.18

1.66%

16,102

S&P 500

-29.88

1.53%

1,921

Nasdaq

-49.58

1.05%

4,683

Russell 2000

-8.93

0.79%

1,136

Equity Market Recap


U.S. stock markets tumbled Friday, ending the week close to its lows, falling after a mixed jobs
report weighed on sentiment (the report leaves many questions causing uncertainty over
whether the Federal Reserve will raise interest rates in two weeks). China was a non-factor the
last two-days amid its holiday, though other emerging markets continue to unravel. All 10 S&P
sectors were lower, led by weakness in Discretionary, Industrials, Healthcare, and Technology,
while Financials fell the least. The Dow was down 348 points at session low in a week that saw
big swings in stocks, and commodities (oil closed the week higher). The S&P 500 posted its sixth
decline exceeding 1% in 12 days (prior to that thered been 10 such declines since January).
Note, while U.S. markets trade within striking distance of their all-time highs (well not exactly
after this recent pullback), the MSCI BRIC Index is nearly 50% below its 2007 peak (Brazil, China,
India and Russia). The S&P 500 plunged 1.5%, briefly back in correction territory as Dow falls 275
after jobs, but has since pared losses
European stocks closed lower both for the day and week, hit today by a disappointing German
manufacturing data point (orders fell -1.4% in July). The Stoxx Europe 600 fell -2.5% to end at
353.11, losing 2.8% for the week (added to losses after the jobs data in the U.S.). The German
DAX index fell -2.5% for the week, while the CAC 40 lost -3.3% for the week
Note research from a JPMorgan Chase & Co. strategist this week argued that robotic selling by
quantitative investment funds tuned to volatility and price trends -- which contributed to last
months losses in U.S. stocks -- is only about halfway completed. Marko Kolanovic said such
traders probably have to get rid of another $100 billion in stocks in the next one to three weeks
Next week is a shortened week, with Monday closed due to Labor Day holiday, but busy 4-days
after with various sell-side conferences, including: Citigroup Global Tech Conf. (Sept 8-10),
Barclays Energy (Sept 8-10), Barclays Consumer Staples (Sept 8-10), Morgan Stanley Health Care
(Sept 8-10), Bank America Media (Sept 9-10), and Goldman Retail (Sept 9-10). Also note Apple
(AAPL) is holding its product update on Wednesday Sept 9th at 1:00 PM EST

Economic Data
U.S. nonfarm payrolls for August were reported at 173K new jobs, the smallest gain in five
months, and below consensus forecast for 217K (though the prior month was upwardly revised
to 245K from 215K). The unemployment rate fell to 5.1% from 5.3% (vs. est. of 5.2%), the lowest
level since April 2008. The participation rate of 62.6% matched the prior month (but was below
estimates to rise to 62.7%). Nonfarm private payrolls rose 140K down from prior 224K and below
estimates for 204K, while manufacturing payrolls fell -17K after rising 12K in the prior month
More from the jobs report; average hourly earnings rose 0.3% in August (up 8c to $25.09 per
hour), above consensus for a 0.2% increase (and now up 2.2% for year), while the amount of
weekly hours worked rose up 0.1 hours to 34.6 in August
Prior to the mixed payroll data (missed headline jobs, but revisions higher, unemployment fell,
wages rise), two Fed speakers had comments: Federal Reserve Bank of Richmond President
Jeffrey Lacker said its time for the central bank to end the era of record-low interest rates. He
said I am not arguing that the economy is perfect, but nor is it on the ropes, requiring zero
interest rates to get it back into the ringbut said Its time to align our monetary policy with
the significant progress we have made.
Federal Reserve Bank of Minneapolis President Narayana Kocherlakota said given that inflation
has been and is likely to remain for some time below the Fed's 2% price-rise target, "raising the
fed-funds rate in this calendar year would be inappropriate, because such an action would serve
to further delay the return of inflation to target"

Commodities
WTI crude oil prices end the day lower by 70c, or 1.5% to settle at $46.05 per barrel, while Brent
futures declined 2% back under $50 per barrel, but WTI managed a 1.8% gain for the week (its
second straight week of gains rising 12% last week). A drop in the number of U.S. rigs drilling for
oil failed to push prices higher (BHI said rigs dropped 13 for the week), as investors focused
instead on a supply glut and declining stock prices on Wall Street. Brent prices posted their
biggest weekly gain since April, rising 9%
Precious metals decline -$3.10, or 0.3% to settle at $1,121.40 an ounce (lowest since Aug 18th),
falling today as the U.S. unemployment rate dropped to a seven-year low, fueling speculation
that the Federal Reserve will raise interest rates this month. For the week, gold prices logged a
1.1% decline (which follows strong gains in August after a retreat in global stocks and a
devaluation in Chinas yuan fueled speculation that the Fed would hold off on raising interest
rates this month). However, after todays mixed jobs report, fed funds rate still shows chance of
rate hike in September.

Currencies
The U.S. dollar pared its weekly gains, falling Friday after an early rally following the mixed jobs
report (the dollar index traded to high of 96.58 before falling to 96.22). However, the dollar
gained on the week, helped as ECB President Draghi hinted to additional easing measures
yesterday (hit the euro), and as emerging market currencies continue to plunge. The euro was up
small on the day at around 1.115 level (week high 1.1332 and low 1.1087), while the greenback
ended near weekly lows against the yen (breaking below 119). The Aussie dollar fell to its lowest
level against the U.S. dollar in six-and-a-half years after the jobs data (weakened to 69.27c from
69.80c prior) note Australia's economy is dependent on exporting coal and iron ore.

Bond Market
Bonds gain early, fade, then rally into the close, with yields near their lowest levels of the week
heading into the long holiday weekend. Feds Lacker commented on the jobs report, saying he
thought it was a good report and it was time to hike ratesbut bonds rally regardless, with yields
on the 10-yr ending down around the 2.12% level (down over 4 bps from Thursday), while the
front end of the curve (shorter term 2-yrs more sensitive to monetary policy), were up slightly.

Macro

Up/Down

Last

WTI Crude

-0.70

46.05

Brent

-1.07

49.61

Gold

-3.10

1,121.40

EUR/USD

0.0024

1.1147

JPY/USD

-1.16

118.91

10-Year Note

-0.045

2.124%

Sector News Breakdown


Consumer
Retailers; GPS August comp sales fell a greater than expected (-2%) vs. est. (-0.4%) as weakness in
Gap & Banana Republic more than offsetting stronger Old Navy; VNCE with significant quarterly
miss and lowered guidance due to weaker topline & margins; in non-retail, DLTR upgraded to buy
at Bank America after earnings related pullback in shares
Consumer Staples & Restaurants; CPB upgraded to neutral at Citigroup after earnings; in
products, LOral with cautious comments saying yearly market sales growth is likely to come in
3.5%, at low-end of prior up 3.5%-4% forecast; BGS upgraded at Stephens
Really quiet in consumer space today, as most names in various sectors moving with the macro
picture, weaker as global markets pullback into holiday weekend
Energy
Broad market selling this morning, taking no prisoners; Materials and Energy names led decline
early; energy stocks weaker early, HP, BBG, HES, PXD, APA, to name a few; the weekly Baker
Hughes (BHI) rig count came in at 864, down 13 rigs (after falling 8 the prior week), while the oil
rig count dropped 13 to 662 (after rising 1 the prior week), snapping six weeks of increases
Services; Credit Suisse upgraded FTI to Neutral saying despite the gloomy outlook, sees FTI as a
relative long in a paired trade vs. other companies with offshore exposure; firm also reiterated
Outperform on WFT as a turnaround story; oil services were down with broader energy
Other news items; YPF CEO and his counterpart at Gazprom PJSC signed an agreement to
develop projects in Argentina; MLPs were quiet, as the Alerian MLP Index (AMZ) held around the
350 level (off 52-week lows of 326.19 on 8/24); BP was cut to Underperform at Bank America
Coals/alternative energy; weakness in coals early after volatility the past 2-weeks on debt swaps
(ACI, BTU); group has had a good run over the last few weeks (ACI has gone from low of $1.38 on
8/18 to high of $10.35 8/31 before cutting gains in half); shares of CNX, CLD, ARLP also active
(BTU had a late day spike from early lows)
Utilities; sector falls to fresh 52-week low today as the UTY index slides to 517 level, down 1.5%,
on expectations jobs report was good enough to keep rate rises sooner than later; the XLU is
down over 1.25% ; utilities down about 5% this week
Financials
Large Cap banks ; GS estimates were cut by approximately 30% below the street for 3Q15 at
Macquarie citing declining global markets, a sluggish IPO market and widening credit spreads
(note GS now down $40 from its high near $220 in Junealmost at -20% correction markand is
highest DJIA weighting); BOFI upgraded to strong buy at Raymond James following HRB deal and
says decline from nearly $135 puts the stock in significantly oversold territory

Overall, it was another weak day for financials, led by banks, and those leveraged to energy
related loans (insurance also weaker). CNBC noted that while interest rates have not gone up,
earnings estimates on the street have in anticipation may see estimates starting to come down
(like we saw today on GS), ahead of next quarterly earnings
REITs; a day after making several changes in shopping center REITs (upgraded ROIC, KRG, FRT),
Raymond James focused on self-storage REITs today, upgrading PSA to Outperform citing its
unmatched capital structure, while cutting SSS to Market Perform citing the company's exposure
to the Houston market (said CUBE remains top pick in the sector)
Healthcare
Healthcare another casualty of the broader market pullback; note shares of large cap biotech
names have sunk this year, with BIIB -11%, AMGN 7% and ALXN down 6% YTD to name a few
that have pulled back as biotechs (IBB) falls to 336 levels after highs of 400 on July 20th
Other movers on news; COO Q3 eps beats/revs miss, and lowered its year revenue outlook; AGN
agreed to buy privately held AqueSys for $300M in cash;
Industrials & Materials
Machinery; JOY target cut to $20 at both UBS and Deutsche after awful earnings/guidance on
Thursday that sent shares to lowest level in six-years; CAT downgraded to neutral at Baird saying
the case for a bookings rebound over the next couple of quarters has become difficult; Morgan
Stanley remains negative on NAV saying shares have further downside
Transports; UTIW shares fell after cutting its year Ebitda forecast by $50M top/bottom line to
$75M-$100M after Q2 EPS/revs misses; rail car maker TRN was upgraded to neutral at Macquarie
to recognize limited downside to $27 tgt and potential upside from transactional earnings;
airlines were higher, SKYW upgraded at Cowen
Metals & Mining; broad selling in metals and materials today on weakness in emerging markets,
led by declines in steel producers (AKS, STLD), copper (FCX) and aluminum (AA); gold miners
made new 52-week lows for various names (NEM, ABX, AEM, GG) as gold slid
Chemicals; RYAM upgraded to Outperform at RBC noting recent collapse in RYAM's share price,
as now see limited downside to RYAM's current share price and would not be surprised by a
favorable stock bounce on the near-term outcome of the contract litigation with EMN; PPG
positive mention at Baird saying shares attractive entry point after sell-off
Paper & Packaging; LPX upgraded to Outperform at RBC saying OSB prices appear to have
bottomed and tighter market conditions should support a price rally
Tankers & Shippers; DSX was downgraded to sell and tgt cut to $6.25 at UBS saying share
performance likely to be sluggish given on-the-water fleet exposure; firm said bulker freight
rates likely to drop, recent rally spurred by iron ore producer de-stocking; the Baltic Dry Index fell
1.8% to 875 points in London; TNK was upgraded to buy from sell at UBS
Aerospace & Defense; ESL Q3 EPS misses by 7c and lower revs while cutting its year forecast; no
real news in defense, but LMT, RTN, GD, NOC pulled back with market
Technology, Media & Telecom
Internet; FB said its WhatsApp has hit 900M MAUs; after a five year absence, GOOGL expects to
return shortly to mainland China as a provider of revenue-generating consumer Web services,
the information reported https://goo.gl/X7urZU ; no new news on CEO search from TWTR after
board meeting yesterday (Recode said expects after Labor Day holiday)
Semiconductors; AMBA extends losses for a 3rd day after lower growth guidance Tuesday night
(GPRO also lower by 2% more); the SIA said its three-month moving average (3MMA) revenue
was flat MoM at $27.9B; QCOM President Derek Aberle is skeptical about a break-up, Reuters
reported; MU outperformed in the SOX index which helped up well relative to market

Hardware movers; BBRY to acquire Good Technology for $425M http://goo.gl/LNVgNz; BLOX
CFO to step down and Q4 beat/mixed guidance
Software movers; PAY posted better Q3 results, but Q4 EPS and rev guidance both fall below
consensus; N was cut to Underperform at Raymond James; Pac Crest still cautious on 3D-printing
saying continue to avoid DDD, and expect some margin/price pressure at PRLB and SSYS; CYBR
underperforms in Internet security sector, with QLYS, IMPV, PANW acting better
Media & Telecom; DIS with Force Friday", as brand new Star Wars -themed merchandise set to
hit select retailers, as well as company-owned retail outlets at the Parks today; weakness again
across the media complex, adding to august declines, with FOXA, VIAB, DISCA, TWX, CBS falling

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