Closing Recap

Friday, June 23, 17

Index Up/Down % Last

DJ Industrials -1.23 0.01% 21,396
S&P 500 3.80 0.16% 2,438
Nasdaq 28.57 0.46% 6,265
Russell 2000 10.14 0.72% 1,414

Equity Market Recap

U.S. stocks were mixed most of the day, with the tech heavy NASDAQ outperforming (ending the
week with a gain), while the S&P and Dow Industrials slipped late day. Volumes picked up in the
final hour as the annual reconstitution of the Russell Indexes takes place on the close tonight.
The Russell 2000 Index outperformed other averages, while transports also surged (helped by
new record high in FDX). Energy stocks partially rebounded as oil prices edged higher on the day,
but still posted its 5th straight weekly decline (oil off over 4% this week). Biotech and healthcare
stocks took a breather, pulling back after week long gains. European markets closed lower for a
third consecutive week. Economic data in the U.S. was mixed with better new home sales,
though manufacturing data slipped. The CBOE Volatility Index (VIX) remains weak, down more
than 25% this year amid no fear in stock markets. The two highlights this week moved the needle
slightly as the Senate introduced its healthcare bill yesterday (seen positive for managed care
stocks and hospitals), but appears to be shy of votes needed, while the DFAST stress test for
banks out last night showed all 34 names passed, with the CCAR tests coming next week.

Economic Data
New home sales for May rose 2.9% to 610K annual rate, above consensus for 590K; previous
three months new home sales data revised up 34K; said median new home price rose 16.8% YoY
to $345,800 while 18% of new homes sold in May cost more than $500,000, up from 14% last
month; months supply at 5.3 in May compared to 5.3 in April
The "flash" reading of manufacturing purchasing managers (PMI) index fell to a nine-month
low in June. The IHS Markit manufacturing index fell to a reading of 52.1 in June from 52.7 in
May. The flash services PMI slowed to a 3-month low of 53 from 53.6 in May. The flash readings
are based on 85% to 90% of responses.
Commodities
Oil prices advanced 27c to settle at $43.01 per barrel, but both Brent and WTI posted their 5th
consecutive weekly decline after slipping into bear market this week. Both prices have dropped
over 20% from January highs on global oversupply fears, though inventory data this week for
crude was fairly bullish (though distillates and gasoline stockpiles have grown). For the week, WTI
crude slipped more than 4% to lowest level since August.
Gold prices ended higher by $7.00, or 0.6% to settle at $1,256.40 an ounce Friday, posting a gain
for a third session in a row, as prices recovered from 5-week lows on Tuesday. Prices for the
precious metal settled a dime below their finish a week ago, getting a lift late week as the dollar
declined on mixed data.

Currencies & Bonds

Bonds were in a tight range all day (and week), actually since the FOMC rate decision last week
when they boosted interest rates by 25 bps. The benchmark 10-year yield has held around the
2.15% most of the week while the long-bond 30-yr yield remains near 2017 lows of 2.72%. Yields
have largely remained unchanged amid mixed messages from various Fed speakers over the last
week. Feds Bullard said today sees no reason to raise rates again this year as recent inflation
data raise doubts that prices are returning to the Feds 2% goal, while the Feds Harker said
Wednesday "It is prudent for us to pause on the next rate increase". This differs from the FOMC
stating last week that another hike this year was likely but concerns remain that the last three
months of deteriorating inflation data should warrant further caution from the Fed
The dollar ended the day lower (dollar index = DXY), falling -0.3%, but ended the week little
changed. Bitcoin traded up over 1%, back above the $2,700 level today (up 9% for the week). The
euro bounced back up to the 1.12 level vs. the dollar today (but ends week flattish), while the yen
was little changed throughout the day around the 111.25 level (but down on the week vs. the
dollar). The British pound climbed slightly in what was a fairly quiet week for currencies.

Macro Up/Down Last

WTI Crude 0.27 43.01
Brent 0.32 45.54
Gold 7.00 1,256.40
EUR/USD 0.0048 1.12
JPY/USD -0.06 111.27
10-Year Note -0.006 2.147%

Sector News Breakdown

Consumer
Retailers; footwear stocks active after FINL posted Q1 sales and comp sales below analyst
expectations (comps fell an unexpected -1.1% vs. +1.6% estimate); FINL results come ahead of
NKE earnings next week FINL reversed earlier losses as said confident comp sales will increase
in the 2H; COST falls further below 200 day MA (broke yesterday) down another 1% today at
lowest levels since December (broke 200 day MA of 163.20 yesterday) down 13% from last
Friday; WMT, TGT, COST among names that have slipped since last weeks AMZN/WFM deal
Consumer Staples; SYY under pressure after being removed from focus list at JP Morgan; HAIN
extends losses after JP Morgan downgraded noting after waiting a year for the company to
report earnings, firm was surprised yesterday by the steep erosion of fundamentals
Restaurants; SONC beat 3Q earnings estimates but lowered FY17 comp guidance as recent
challenged trends suggest 4Q comps flat to down 1.5%; mixed week of returns for restaurants,
capped by declines in CMG after guidance mid-week; MCD all-time highs today
 Housing & Building Products; busy sector today as home furnishing stocks fall after BBBY posted
weaker than expected store comps (down mid-single digits from down LSD in prior qtrs.),
accelerated profit deterioration, while EPS and revs both miss handily (shares of WSM, PIR move
in sympathy); RH was upgraded to buy at Deutsche Bank as they see upside to consensus
estimates; LOW and HD shares underperformed; appliance maker WHR shares fall after reports
indicated that it was the companys fridge/freezer that started London tower fire that killed 79

Energy
Baker Hughes (BHI) weekly rig count data showed the total rig count rose 8 to 941, oil rigs up 11
to 758 (23rd straight week of gains) and gas rigs fell -3 to 183; overall though, energy stocks with a
nice rebound on the day after several days of selling pressure with WTI falling to 10-month lows.
Many research analysts threw in the towel this week, with at least four firms cutting ratings on
several E&P related names and lowering WTI and Brent forecasts. Teekay family of stocks (TK,
TNK, TOO) bounced off 52-week lows on day.

Financials
Stress tests: as expected, Fed stress tests results under Dodd-Frank Act (DFAST) showed all 34
banks exceed minimum projected capital and leverage ratios under severely adverse scenarios,
while changes in portfolio composition and risk characteristics have contributed to lower loss
rates in 2017 compared to last years DFAST. Next up, the Fed releases Comprehensive Capital
Analysis and Review (CCAR) results on June 28, 4:30pm (last night). MS and STT skated closer to
the required minimums than expected according to Barclays
Other banking news; Germanys Commerzbank is close to reaching a deal with workers
representatives that will lower the expected costs of its major restructuring plan, but it will push
it to a loss for the second quarter
REITs; FOR gets improved revised offer from DHI of $17.75 per share, up from prior bid of $16.25
in cash (Starwood recently raised its bid to $16 from $15.50 on FOR https://goo.gl/YjxP2d; Bank
America with a few rating changes as it upgraded PLD to buy and downgraded DRE in the
industrial REIT sector; in mall REITs, SKT downgraded at Bank America to underperform, while
BTIG defended group (reit buys on SPG, MAC, GGP); BTIG also defended Strip Center shares
which are down an average of 7% since last Fridays announcement of AMZN/WFM (reiterates
buys on KIM, KRG and ROIC); Jefferies out with a Franchise Note looking at the impact of e-
commerce warehouse demand on the Industrial REITs saying E-com retailers need 3x as much
warehouse space as traditional retailers and we believe E-com growth will add 50bps/year of
growth to warehouse demand says prefers REXR and STAG

Healthcare
Large Cap Pharma; small giveback in names like BMY after strong week of gains; OCUL weak after
being downgraded to equal-weight at Morgan Stanley saying recent management changes add to
continued uncertainties (CEO transition and CFO exit); CARA said the FDA gave I.V. CR845
breakthrough therapy designation as a treatment of moderate-to-severe uremic pruritus in
chronic kidney disease patients undergoing hemodialysis; MDT authorizes $5B stock buyback and
raises dividend to 46c from 43c; the NDA for PTLAs betrixaban has been approved by FDA
Senate healthcare bill: analyst feedback positive for some sectors: Leerink said they see the draft
version of the Senate bill as better than expected and driving the outperformance particularly in
our Facilities coverage and also for our Managed Care names (all of which were up yesterday
AET, CI, UNH, HUM in managed care at 52-week highs along with hospitals THC, CYH, UHS. Said
specifically, stabilization of the Exchanges through substantial funding toward reinsurance, and
risk stabilization is a direct positive for the health insurance stocks and indirectly for the Facilities
names that have enjoyed reduction in Bad Debt from coverage expansion.
 Biotech movers; what a week for biotech (IBB), on track for a 10% gain led by cancer related
drugs on better trials, expectations the Trump administration executive order will focus on easing
regulation for companies, rather than limiting prices as initially feared; AVEO shares rise after its
cancer drug tivozanib was recommended for approval in Europe; REGN slips after its Dupixent
prescription growth showing signs of deceleration, according to one analyst (shares had touched
52-week highs yesterday); BLUE shares slipped after reporting mixed data on its treatment of
beta-thalassemia, where 1 out of 3 patients had a weaker response to the therapy

Industrials & Materials

Transports; UPS got a little spike this morning, while FDX traded to new all-time highs; airlines
mixed as Wolfe Research raised EPS estimates on lower fuel assumptions but we arent changing
any target prices as we assume the market capitalizes fuel-driven EPS at a P/E multiple of zero;
the beaten up car rental names (CAR, HTZ) got lift today
Metals & Mining; Glencore (GLNCY) submitted an improved proposal to buy Australian miner
RIOs stake in Coal & Allied Industries Ltd for $2.675 billion in cash plus a coal price-linked royalty
https://goo.gl/Fh3WYx; Deutsche Bank with a few changes in the metals and mining sector as it
upgraded steel producer X and AKS to buy and raised aluminum producer CENX to hold from sell
saying LME aluminum and U.S. Hot-Rolled Coil (HRC) prices fell 4% and 9%, respectively, through
2Q17but says underlying U.S. economic activity appears positive (apparent steel demand up 4%
YTD), with rising imports again being the main overhangsays supportive trade policy actions
such as Section 232, could be a catalyst to change investor perception
Machinery; CAT downgraded to hold from buy at Deutsche Bank as sees 2Q as last significant
"beat and raise" quarter, though sees waning scope for further positive Street revisions in 2H

Technology, Media & Telecom

Semiconductors; ASML tgt raised to street high EU182 from EU165 at Bank America saying next
catalyst - Samsung EUV volume purchase agreement; SGH a mover on earnings; overall, semis
got a nice lift on the day
Software movers; it has been a good week for software stocks after ORCL, ADBE and RHT all
posted better than expected quarterly results, guidance and metrics helped by cloud growth;
overnight AMWSA slipped as quarterly revenue declined 9% YoY to $26.3M; SNCR shares jumped
after Siris Capital offers to acquire company for $18 per share https://goo.gl/WpFCVJ
Hardware movers; BBRY posted a mixed Q1 as EPS beat by 2c, but revs of $244M missed the
$265M estimate (led mostly by a decline in software revenue); SNX advanced after earnings

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