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Closing Recap 4:05PM EST

Friday, January 23, 15

Index

Up/Down

Last

-141.38

0.79%

17,672

S&P 500

-11.3

0.55%

2,051

Nasdaq

7.48

0.16%

4,757

Russell 2000

-0.53

0.12%

1,188

DJ Industrials

Equity Market Recap


Equities end mixed; as the S&P 500 snapped its 4-day winning streak, led by weakness in
Materials, Telecom, and Staples as earnings/guidance disappointments continue to pile up, while
the Tech heavy NASDAQ managed a small gain (Tech & Utilities rise). Among the weaker
performers today: Transports fall after UPS warns Q4 and year EPS growth will be below prior
guidance/estimates, while rails dip on KSU missed revs; Consumer Staples down as KMB
miss/lower guidance; Trust banks STT/BK fall post earnings; mortgage service names continue to
fall (more concerns on HLSS/OCN today). Midday comments from ECB Executive Board member
Benoit helped support market early, echoing comments by ECB President Draghi yesterday that
policy makers are prepared to extend asset purchases beyond September 2016 if the inflation
outlook warrants it helped pare losses (but futures faded, with markets ending at lows). But for
the week, the Dow rose 0.9%, the S&P 500 added 1.6% and the Nasdaq up 2.7%
European markets end stronger, rising for a 7th consecutive session and posting best week in
more than three years. Germany and France up about 8.5% this month, Spain up 3.5%, which
rallied on expectations for ECB stimulus hopeswhich was confirmed yesterday after ECB
President Mario Draghi said the central bank will buy 60 billion euros ($69 billion) of public and
private-sector debt every month starting in March until at least September 2016. The additional
stimulus measures has pushed the Euro to lowest levels since 2003. The next key event for the
European market comes on Sunday, when Greece will hold its general election. Opinion polls
have indicated the Syriza party is likely to win control of the countrys parliament.
Items next week include: Sunday, when Greece will hold its general election; The FOMC hold a
two-day meeting (1/27-28) with statement due out Wednesday at 2:00 PM; and a heavy week of
corporate earnings including Dow components MSFT, CAT, DD, MMM, PFE, PG, UTX, T, BA, V,
CVXas well as high beta Internets AMZN, BABA, FB, YHOO, GOOG)

Commodities
Energy markets end mixed, as WTI crude priced fell around 1%, though Brent prices managed a
gain: news overnight, 1) Saudi Arabia Royal Court announced that King Abdullah passed away and
that his brother will take over; 2) Saudi Prince Alwaleed predicted the world will never again see
oil at $100 per barrel, but said that Saudi Arabia and OPEC will not blink (oil fell yesterday on
larger than expected inventory builds in the U.S.). Natural gas prices rise more than 4% on colder
weather outlook (after bearish inventory data yesterday)
Gold prices slide $8.60 to close at $1,292.60 an ounce, possibly starting to feel the effects from a
surging dollar, but likely needed a break after surging the last few weeks on easy money policy
by several Central Banks (SNB last week/ECB yesterday); also today, Goldman Sachs cut its gold
forecast for 2016 to $1,089 from $1,200 and to $1,050 in 2017 from $1,200 (raised tgt for 2015)

Currencies
The dollar index (DXY) surges once again, rising another 0.70 to 94.79 as the euro fell below the
1.12 level earlier, lowest since 2003 before recovering (back at 1.1244); euro recovered after
touching low of 1.1115 level this morning. The euro posted its 6th straight week of losses, ahead
of Sundays Greek vote. The yen rose as the Bank of Japan governor signaled the central bank will
look at fresh stimulus options. The Australian dollar slid 1%, with expectations for chance its
Central Bank will cut rates at this years first policy meeting on Feb. 3rd

Bond Market
Bond markets ended higher after pullback yesterday; 10-yr yield touched 1.89% yesterday
before pulling back to 1.80% level this morning as European markets rise, bond yields remain
weak in Europe; 30-yr in US back under 2.4% again.

Economic Data
U.S. existing home sales rebounded 2.4% to 5.04M in December, a little shy of the 5.08M
estimate (after dropping 6.3% to 4.920M in November); single family sales rebounded 3.5% after
a 6.5% drop previously; months' supply of homes declined to 4.4 from 5.1; median sales price
rose to $209,500 versus $207,200 (revised up from $205,300)
China's manufacturing sector strengthened slightly at the start of the year, as the preliminary
reading of the HSBC China Manufacturing Purchasing Managers Index rose to 49.8 in January
from a final reading of 49.6 in December
Markit said EuroZone composite purchasing managers index (PMI) rose to a five-month high of
52.2 in January from 51.4 in December, beating expectations of 51.9 (new orders rising at the
fastest pace in five months).

Macro

Up/Down

Last

WTI Crude

-0.72

45.59

Brent

0.26

48.78

Gold

-8.10

1,292.60

EUR/USD

-0.0121

1.1245

JPY/USD

-0.73

117.76

10-Year Note

-0.08

1.816%

Sector News Breakdown


Consumer
Consumer Staples weak; KMB falls as Q4 EPS misses citing unfavorable FX/sees sales decline for
year (3%-6%) vs. est. 0% (weighed on PG, EL, CL); AVP downgraded at Wells Fargo saying takeout
unlikely/low visibility; HSY downgraded by one analyst on valuation
Autos; JP Morgan trims TSLA l-t estimates and tgt to $180 on lower l/t demand for mass market
electric (given low fuel); MBLY rises, as Citi notes NHTSA plans to add two automatic emergency
braking recommended safety features could raise demand (also positive for suppliers DLPH,
MGA, ALV); Ford (F) sees pre-tax charge of $800M in Q4; FBR notes anti-dumping ruling is a
positive for CTB as additional tariffs will eliminate Chinese competition w/ in North America; GT
said it was recalling 48,500 SUV tires after finding small cracks in them during tests
Restaurants; SBUX trades to new all-time high as Q1 comps top estimates (EPS/revs in-line); MCD
sees Jan. comp. sales declining y/y and 1H15 results under pressure, as missed both top/bottom
line Q4 results (though U.S. and global comp sales fall less than est.) (MCD fell); overall
restaurants DNKN, CMG, YUM, DRI were higher (group remains helped by lower energy costs)
Retailers fairly quiet; LULU upgraded to Overweight at JPMorgan; both KATE and KORS were
upgraded to buy at Mizuho
Leisure/Gaming; LF falls as withdraws guidance for FY15 after Q3 EPS/revs miss views by wide
margin; casino stocks down slightly
Energy
Energy names were mixed as oil failed to really move in any direction today (note Saudi King
Abdullah passed away overnight and Prince Alwaleed commented on oil prices this morning)
E&P sector; Credit Suisse said the stocks appear to be discounting longer-term oil prices in the
mid-$60s and believes its still too early to buy E&P equities as they see a better entry point in
late Q115, cutting ratings on EOX, HES, MUR, MHR, and NBL, while upgrading CHK
Oil majors also downgraded at Credit Suisse, cutting rating on XOM (to UP) and CVX (to Neutral)
saying this oil price recession the group will have less production, more debt and lower upstream
cash margins than they were projected to earn six months ago
Services/Drillers; HERO said sees charge of about $117M on rig write-down (analyst
downgraded); the drilling space was little changed, moving sideways with oil (RIG, ESV, DO); BHI
said the overall rig count declined to 1,633 from 1,676 last week
Oil refiners were quite strong in mixed tape as spread between Brent and WTI crude widens by
more than $3 after trading at parity a week ago; wider spread helps refiner margins; TSO, PSX,
HFC rise; VLO also boosted its dividend by 45%
MLP sector; Alerian MLP Index (AMZ) with modest gains, seeming to have found a bottom with
oil here; few news in names overnight as LGCY cuts its 15 cap-ex budget to $30M from $130M in
14; MCEP cut its quarterly dividend to 12.5c from 51.5c, citing significant decline in crude oil
(also lowered cap-ex for year to $13M (from $30M in 14)
Utilities; the defensive sector back on the rise, trading back near record levels, as bond yields
weaken again (helping the dividend paying names); most names in the DJ Ute index ended
higher, with gains in PCG, FE, PEG to name a few
Financials
Large cap banks; pares some of yesterdays gains, but has been a rough start to the year for
banks given low rate environment and weaker quarterly earnings from the large caps
Trust Banks lower; after stronger results earlier in the week from NTRS, shares of BK and STT
decline today on results; BK Q4 EPS and revs fell short of consensus (lower net interest revs),
while STT EPS beat, but profit dropped as expenses outpaced revenue

Credit cards bounce; COF rises despite Q4 EPS missing estimates by 7c amid an increase in
provisions; said provisions for credit losses rose to $1.11 billion from $957 million a year ago
(note group was hit yesterday on weaker AXP/DFS results)
Exchanges; ETFC was upgraded to Outperform at Credit Suisse following the approval of ETFC's
capital plan, as now see a more credible pathway to unlocking the substantial trapped value;
FXCM shares remain weak, as Citi weighed in again saying shares have 75% downside rise as
investors work through the implications of Leucadia financing
REITs: low rate environment continues to provide support for sector; in research, SunTrust said is
selectively bullish on Retail and Self-Storage and relatively neutral on Office, Hotels, Industrials
(while positive on PLD), and Healthcare REITstop choices PLD, CUZ, GGP, PEI, EXR, CUBE
(upgraded), SSS, WYN and MPWbearish on REG, EGP and KIM
Mortgage services; OCN shares fell after reports that affiliate, HLSS defaulted on bonds worth
about $1 billion. BlueMountain Capital Management, which holds Home Loan Servicing bonds,
disclosed the default and said it is shorting stocks of both Ocwen and Home Loan Servicing,
according to Bloomberg News (shares of NSM, AAMC, ASPS all weak again)
Healthcare
Another quiet session for Healthcare stocks, but gets busier next week as earnings pick up; ISRG
was flattish after earnings overnight; while MDT advanced ahead of expected close of COV deal
for Monday; managed care stocks pare recent gains (UNH traded to record highs this week after
earnings); Biotech stocks were higher, despite no major news in space today (IBB trading near
record highs still); ARRY soared on news in pact to buy global rights to NVS LGX818
Industrials & Materials
Multi-industry; HON Q4 EPS/revs both top views and reaffirms guidance; GE Q4 results mostly inline with consensus expectations; shares of DOV/PNR declined in part on PCP speaking
negatively about inventory de-stock in oil and gas
Transports fall; package delivery firm UPS sees Q4 EPS $1.25, below est. $1.47 and sees 2015 EPS
growth slightly less than 9%-13% L-T target (had seen 10%-15%) on a weaker U.S. market (FDX
down in sympathy); in truckers, JBHT downgraded by analyst on valuation; in rails, KSU EPS
beat/revs miss and does not issue guidance (follows strong UNP report Thursday); airlines mixed,
though VA falls providing Q4 prelim PRASM/Capacity figures; FDX reaffirmed guidance
Metals & Mining; group mixed; Goldman Sachs with several comments as cuts X to neutral due to
exposure to the OCTG market and integration concerns into iron ore, but upgrades NUE to
buyin aluminum, reiterates buys on AA and CSTM, but cuts iron ore price estimates by 20% due
to structural oversupply (also downgraded VALE and TX); JP Morgan cut rating on CENX in
aluminum and cutting est./targets for AA, CENX, FCX, TCK and TC
Aerospace & Defense; COL Q1 EPS/revs beat and reaffirms guidance for year; PCP gets a few
analyst downgrades after co recently lowered guidance forecasts; HXL Q4 EPS revs mostly in-line
and reaffirms 2015 guidance
Chemicals fell; petro chemicals (LYB, WLK) moving with oil; CE Q4 sales missed views and guided
2015 $5.00-$5.50, below est. $5.52 (shares of HUN, DD, DOW lower)
Shipping sector; the Baltic Dry Index fell 4.1% to 720 Points in London; Jefferies increasing 2015
estimates for the crude oil, refined products, LNG, and LPG shipping companies while reducing
our 2015 estimates for the dry bulk shipping companies
Technology, Media & Telecom
Semis & Equipment; after a few rough reports the day prior (CY, SNDK, XLNX, FCS), group gets a
batch of better reports, led by SWKS and MXIM overnight (ALTR follows weak XLNX report
yesterday in PLD space); semi-equipment names fall after KLAC Q2 EPS/revs beat, but guides Q3
EPS 63c-87c, below est. 96c on big rev miss and lower orders (AMAT, LRCX fall)

Optical component makers rally after INFN soundly beating Q4 estimates and issuing strong Q1
guidance on the back of growing demand for its DTN-X optical transmission/switching platform
for 100G deployments (shares of CIEN, JDSU, FNSR up on report)
Media movers; DWA cutting 500 Jobs, and sees pre-tax charge $290M (2 analyst downgrades);
NYT rises after Mike Bloomberg reportedly made overtures to buy the company
http://goo.gl/LZ2rZO; LBTYA said looking at over the top assets content/says has got to be bigger
to compete with NLFX
Software/hardware; BOX opened at $20/20, after pricing 12.5M shares at $14; GPRO rises on
reports content from GoPro cameras to be used in NHL broadcasts; PKT shares spiked late day
after TheDeal.com reported PKT hired Stifel to sell itself (Bloomberg reported)
Internet movers; NFLX extends gains a 3rd day after earnings; AMZN momentum into next week
earnings; P rises as OTR global says Q4 spending by local ad buyers rose 88%-93% YoY; Z jumps as
FTC staff has made recommendation to agency to close investigation into Trulia/Zillow deal;
LNKD upgraded by one analyst
Online travel, EXPE acquired Travelocity from SABR for $280M in cash, while group (PCLN)
remains weaker as euro plunges (Deutsche Bank said sees additional risks for EXPE/TRIP around
the 2015 guidance, and see slowing growth in some of PCLNs key regions)
Internet Security; CHKP, PANW both downgrade at Macquarie as firm said it sees the risk/reward
less favorable, and should take profits as both stocks have valuations at multi-year highs;
however, the sector pretty strong with gains in FEYE, PFPT, IMPV, PANW

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