Closing Recap

Friday, August 14, 15

Index

Up/Down

Last

DJ Industrials

69.35

0.40%

17,477

S&P 500

8.24

0.40%

2,091

Nasdaq

14.68

0.29%

5,048

Russell 2000

7.92

0.65%

1,212

Equity Market Recap

U.S. stocks bounced in a rather quiet, non-volatile day of trading, as investors continued to assess
the pace of global growth after the China yuan devaluation shocker this week weighed on stocks,
commodity and currency markets. The stock action today was relatively tepid in a week that
has seen anything but type moves.
Stocks jumped Monday led by energy names, after oil posted its largest one-day gain in a month
and a big M&A deal (BRKA bought PCP), only to plunge on Tuesday after China unexpectedly
devalued its currency (which hurt exporters to the country retail, autos, chip makers, etc.,
which signaled the government's increased concern about slow growth).
Wednesday opened sharply lower only to have the S&P 500 post its strongest intraday reversal in
over 4 years to close slightly higher (the index closed at 2,086 after falling to 2,052 low) as China
fears eased. Markets Thursday advanced steadily all day before giving up those gains in the final
30 minutes of trading, while markets trudged higher today throughout, closing at its best level
since Monday.
This week has seen: oil prices trade to fresh 6 year lows, the Dow Industrials snap a streak of
906 days where its 50-day MA was above its 200-day MA (also known as the death cross), and
bond markets whipsaw as expectations for timing of Fed rate hikes change like the direction of
the wind based on data/movement by central banks re currency moves. In the backdrop this
week, there has been broadly consistent economic data showing continued modest expansion in
the U.S., but major averages closed only slightly higher.
German stocks finished lower Friday, suffering its largest weekly decline in four months as China
worries weighed, and European stocks more broadly also suffered a sizable weekly drop. The
German DAX fell 0.3% to end at 10,985.14, deepening its weekly loss to 4.4%. Earlier Friday,
European markets advanced amid optimism over Greeces parliament approving the countrys
third bailout program after an all-night debate.

Economic Data
U.S. producer prices moderated in July rose a seasonally adjusted 0.2% after a 0.4% gain in the
prior month (and slightly above estimate for a 0.1% increase). PPI core (ex: food & energy) rose
0.3%, above estimates for a 0.1% and after a 0.3% gain in June. The prices of goods fell 0.1%
while services rose 0.4%, the biggest gain since last October.
Industrial Production for July rose 0.6%, above est. 0.3%, but June was downwardly revised to a
0.1% rise form 0.3% prior; Capacity utilization rose to 78% from 77.7% in June (and was in-line
with consensus forecasts); Factory production rose 0.8% in July after falling 0.3% in June
Prelim August Michigan Sentiment declined to 92.9 vs. 93.5 est. (survey for Aug. fell to 92.9 vs.
93.1 prior month: said the current economic conditions index fell to 107.1 vs. 107.2 last month
and expectations index fell to 83.8 vs. 84.1 last month.

Commodities
Crude oil prices ended slightly higher on Friday, but down for the week. WTI crude rose 27c, or
0.64% to settle at $42.50 per barrel, but it wasnt enough, as the contract posted its 7th straight
weekly decline, falling 3.1%. Brent prices slipped slightly on the day, also posting another losing
week. Also midday, The U.S. Commerce Department informed members of Congress that it
intends to approve an application by Mexicos national oil company, Petrleos Mexicanos SA, to
enter into oil trade agreements with U.S. companies under which the companies could exchange
U.S. and Mexican oil (refiners moved lower on headlines).
Gold prices ended lower by $2.90, or 0.3% to settle at $1,112.70 an ounce, but still registered a
weekly gain of about 1.6%, its biggest in about two months. Gold prices were higher initially after
a higher inflation reading, and on reports China increased its gold reserves to 53.93 million troy
ounces by the end of July from 53.32 million ounces a month earlier, according to the central
bank, but gold succumbed to profit taking late day.

Bonds & Currencies

Bond markets slipped (tired after busy week), as yields were up slightly on the day after stronger
economic data caused some selling in the bond markets. Industrial production climbed 0.6% in
July, largely as car manufacturing increased, while producer prices rose a seasonally adjusted
0.2%. The numbers keep the central back on track to normalize monetary policy later this year.
Early in the week, the yuan devaluation sparked worries about the health of the global economy,
hurting stocks and other riskier assets, while safety plays like Treasury bonds gained. Weaker
bond auctions Wednesday and Thursday pared weekly gains for Treasuries.
The dollar index (DXY) was up modestly, after being down as much as 0.4% earlier in the session,
and down a little over 1% on the week. Stronger data points helped lift the greenback against
rival as the euro ended near the lows (low 1.1098 and high 1.1189), while the yen moved
sideways most of the session; the yuan held steady overnight after falling 3-days

Other Interesting tidbits

FactSet reported that this summer has brought a new wave of weakness across all commodity
markets, which is having ripple effects throughout the global economy. The price of West Texas
Intermediate crude is down 56% from a year ago, gold has fallen by 15%, copper has lost 27%,
and even sugar has dipped 35% over the past year. For the world's largest developed countries,
this has brought inflation rates to new lows. According to the Organization for Economic
Cooperation and Development (OECD), CPI inflation for its member countries was 0.6% on a
year-over-year basis in June, with the G7 countries coming in with just 0.2% inflation. These are
the lowest inflation rates since the global financial crisis in 2009

Macro

Up/Down

Last

WTI Crude

0.27

42.50

Brent

-0.19

49.03

Gold

-2.90

1,112.70

EUR/USD

-0.0031

1.1118

JPY/USD

-0.17

124.26

10-Year Note

0.005

2.194%

Sector News Breakdown

Consumer
Retailers; better picture for retailers this morning, helped by JWN and JCP results (after misses
this week from KSS and M); JWN Q2 EPS and revs top consensus, while raises year sales and
comp sales outlook as well; JCP EPS loss smaller than expected, while revs top consensus and
boosted FY16 EBITDA outlook by $20M (still sees year gross margin improving by 100-150bps
YoY); CBK downgraded at Brean after co says does not see meeting year sales view after Q2;
PRTY Q2 revs missed consensus and lowered year comps to low end of guidance; KSS
downgraded to hold at UBS after earnings
Consumer Staples; food company; TheDeal with article conjecturing why Nestle or GIS could go
after MDLZ http://goo.gl/Ezh79P ; SYY advanced after CNBC reports Peltzs Trian to take 7% stake
(sent shares surging and later confirmed in 13F filing) http://goo.gl/ikI099 ; BUFF moves after
earnings (recent IPO); WFM rated new sell at Pivotal with $29 tgt
Restaurants; LOCO plunges after lowering sales forecast for 2015 and Q2 revs miss consensus
(now sees year system-wide comp. restaurant sales growth ~3%, saw 3%-5%); SHAK bounces
after falling nearly 16% yesterday on secondary offering
Housing & Building Products; HD and LOW rallied early, extends yesterday gains ahead of
earnings next week; homebuilders mixed, paring recent gains after 52-week highs for some
stocks yesterday (DHI, TOL); LL shares jumped as 13F filing showed position by Tiger
Autos; TSLA priced 2.7M share Secondary at $242.00 (deal size was increased to 2.7M shares
from 2.1M shares); MTOR was upgraded to buy at Longbow as expect new business wins and
market share recapture in FY2016
Energy
Energy stocks mixed as wild week continued; several 52-week lows for major oil stocks, drillers,
E&P and service names, seeing a bounce off the lows this morning as oil prices reverse 2%
overnight lows; the Baker Hughes (BHI) weekly rig said weekly total rigs were 884 (holding steady
from prior week) as the oil rig count climbed 2 to 672 (rises a 4th week despite falling prices),
while the gas rig count fell 2 to 211; overall, energy complex had a rough week
Refiners declined; the group fell yesterday after some names touched all-time highs (TSO) after
reports that Torrence refinery restarted hurt, as expectations didn't expect it to be until
September; today group slid as U.S. approves license applications for exchange of similar
quantities of oil from Mexico. Wells Fargo said Mexico-U.S. crude swaps likely negative for refiner
stocks in N-T, further crack in export ban wall will likely negatively affect U.S. independent
refiners via narrower crude differentials over time (VLO, ALJ, WNR, HFC, DK slid)
MLPs; Goldman Sachs upgraded KMI to conviction buy list citing visible, fee-based cash flow
growth at a discount; the Alerian MLP Index actually looking to close the week higher, with the
AMZ trading only a few points off the weekly highs (group this week active on oil and rate moves)
Movers; SD agreed to buy back $250M of unsecured bonds at a steep discount and exchange
$275M more for new convertible debt; TDW downgraded to neutral at Seaport Global; oil drillers
close out the week lower with big losses in NE, DO, RIG, ESV

Financials
Financials as a group performed better today, adding on to gains Thursday, as rates edge higher;
group remains focused on timing of potential FOMC rate hike lift-off (China fears eased from
earlier in the week, economic data pointed positive today bonds fell and rate expectations
increased); insurance, banking, regionals all moved higher
Online brokers with monthly metrics: 1) ETFC said July DARTs were up 6.6% MoM to 149,283, but
down 2.9% YoY from 153,671; says added 29,623 gross new brokerage accounts, ended the
month with 3.19M vs. 3.2M MoM; 2) SCHW July net new assets $9.8B and total client assets
$2.56 trillion at July end, up 8% YoY
Healthcare
Large Cap Pharma; PRGO advanced after the WSJ reported Hedge Fund Paulson is buying PRGO
shares (which also owns 4.6% of MYL, which is bidding $36B for PRGO) http://goo.gl/btzoxF ;
other 13-F filings today showed Kyle Bass took stake in PRGO as well (in addition to new positions
in PFE, LLY, MRK and MYL according to CNBC); PFE received approval for its HSP purchase (had to
sell 4 products to resolve competition concerns)/Piper also positive on PFE saying estimates too
low; managed care stocks were active midday (AET, HUM moved); ENDP advanced as it won
ruling that Actavis (bought by AGN in March) infringed two Opana patents and has 60-days to
remove the generic painkiller
Biotech; biotech sell-off, as ETF IBB falls early back below 100 day (364.70) earlier today on
CNBC interview, LLY CEO said many biotechs are too expensive to buy; ALXN falls after 6.48M
share offering last night; weakness in smaller cap names, like CAR-T JUNO, KITE, BLUE; ICPT adds
to 7.8% decline Thursday after Morgan initiated Underweight and $165 tgt
Other movers; AAVL dropped after saying it wont initiate Phase 2b trial in 2H of 2015 after
further analyses of previously reported Phase 2a data of AVA-101 for potential treatment of wet
age-related macular degeneration (tgt cut to $20 from $51 at Jefferies); KMPH reports positive
data on KP201/APAP and sees NDA in Q4 (Cowen street high $55 tgt); KITE declined as Cowen
noted drop could be linked to unsubstantiated possibility of a patient death in lead-in portion of
Phase 1/2 trial in diffuse large B-Cell lymphoma; WX rises after earnings; CPHD CFO leaves
Industrials & Materials
AG & Machinery; NAV upgraded to Market Perform at BMO Capital as believe the risk/reward
profile has come much more in balance; ETN was cut to neutral at Argus; DAR Q2 EPS beats and
announces buyback; GE is expected to win EU antitrust approval for its proposed EUR12.4B
acquisition of Alstom's power unit, Reuters reports http://goo.gl/vaE7vN
Metals & Mining; Miner EGO upgraded at BMO Capital on several positive upcoming catalysts;
regarding iron ore, BHP said normal iron ore shipments have been restored at the Chinese port of
Tianjin after deadly blasts caused disruptions, while RIO said four fully laden bulk carriers were
re-routed (note iron ore on the Dalian Commodity Exchange jumped 2.7% yesterday to the
highest in more than a month on news of the disruptions, but prices slipped today)
Chemicals; DD upgraded to Overweight at JP Morgan noting share underperformance vs. the S&P
500 says benefited over a five-year period from sharply positive cyclical fundamentals in
agriculture, titanium dioxide, solar, and North American petrochemicals; in ag chemical, CF was
upgraded to Overweight at Barclays citing recently announced deals to stay ahead

Technology, Media & Telecom

Semiconductors; AMAT leads equipment makers lower after Q3 revs miss (though new orders
growth 15%), and guidance misses views on lower-than-expected orders from some outsourcing
chipmakers (KLAC, LRCX, MKSI move); MU held analyst day today, falling to lowest in 2-years
after forecasting FY2016 capex $5.3B-$5.8B, up from FY2015 view of $3.6B-$4.0B; SUNE reverses
after 11% recover the past 2-days; MRVL higher ahead of earnings next week
Data Processing sector; JP Morgan upgraded ADS and cut WEX as believes the group is on track
to outperform the market, supported by a favorable pricing environment, a bias toward
outsourcing given client regulation concerns and low disintermediation risk
Video games; KING fell as Q2 EPS/revs beat, but MAUs/DAUs fall and Q3 bookings below prior
quarter ($460M-$485M vs. Q2 bookings $529M)/also downgraded at JP Morgan; NPD reported
total U.S. video game sales in July were up 6% YoY, hardware sales up 2% to $202.1M and
software sales flat at $178.5M (ATVI, EA, GME, TTWO leveraged)
Software movers; CYBR upgraded to Outperform at Wells Fargo and tgt to $70-$73 range saying
billings growth, sales/marketing efficiencies are exceeding peers by wide margin; PCTY fell as
guides FY16 revs ahead and eps below consensus; AZPN fall as Q4 EPS/revs beat, but lowered its
FY16 revenue forecast
Media & Telecom; VIAB shares were weak after Bernstein said FQ3 results were much worse
than even we expected, which is the main reason for the drop in stock price, but not the only
reason as believe the market is also factoring in a probability-weighted expected value of what
happens if DISH drops VIAB; most media names bouncing after last weeks sell-off
IT Services/Equipment; JP Morgan adjusts targets on service sector, calling VRTU, CDW top picks
as expects increasing demand for digital services to continue to fuel near term growth, driving
outperformance in stocks with above average exposure

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