Closing Recap

Friday, August 28, 15

Index

Up/Down

Last

-11.90

0.07%

16,642

S&P 500

1.13

0.06%

1,988

Nasdaq

15.62

0.32%

4,828

Russell 2000

9.44

0.81%

1,162

DJ Industrials

Equity Market Recap

Markets ended little changed on Friday, much different that 200-1000 point swings earlier this
week amid China growth fears, in what was a very busy and hectic time week. There was
certainly a lot of data/macro news over the past two weeks moving markets (U.S. economic
data/stock market tantrum/impact of China yuan devaluation), and several opposing views from
Fed members today ahead of the Jackson Hole summit this weekendleaving question
unanswered as to a rate hike possibility in September, or in December, or this year at all (or
next). With several important data points upcoming (Aug jobs data next Friday), its probably safe
to say that no possibility is off the table. With that being said, todays action was more of a wait
and see approach ahead of the summit in Jackson Hole. The volatility index (VIX) closed up 2% at
26.71, down from high of 53 level on Monday.
Europe advanced Friday, ending the wild week on an up note (and in positive territory), as the
Stoxx Europe 600 rose 0.3% to end at 363.28, leaving it up 0.6% for the week (recovering from a
5.3% sell-off Monday). Germanys DAX dipped -0.2% today, but managed a 1.7% gain for the
week. In London, the FTSE 100 rose 0.9% to end at 6,247.94, adding 1% for the week (note UK
markets closed Monday for holiday.
Investors pulled a record amount of money out of stock funds in the week ended Wednesday,
signaling Total Risk Surrender, according to Bank America. Firm said equity funds saw $29.5B
head for the exits, the largest weekly outflow on record, citing data going back to 2002.
As for next week: the ECB rate decision and press conference on Thursday at 7:45AM and
8:30AM ET, respectively. Also the G20 Fin Min and central bank governor meeting next Friday

Economic Data
July Personal Income rose 0.4%, in-line with expectations, while Personal consumption rose
0.3% (which was below est. for a 0.4% rise); Core inflation rose 0.1% (in-line), while core PCE rose
1.2% YoY (light of 1.3% estimate); PCE prices rose 0.1% (in-line); said Compensation at 0.4% in
July vs 0.2% the prior month and savings rate at 4.9% in July vs 4.7% the prior month
The University of Michigan Sentiment final reading for August fell to 91.9 vs. 92.9 in the
preliminary estimate and below est. for 93.0 reading (the index was 93.1 last month); the
expectations index fell to 83.4 vs. 84.1 last month, while the current economic conditions index
fell to 105.1 vs. 107.2 last month

Fed Speakers today:

Recent market turmoil has gotten the attention of Loretta Mester, president of the Federal
Reserve Bank of Cleveland, but it hasnt altered her view that the U.S. economy is ready for a
modest increase in interest rates; said Fed policy has to move before goals are met
St. Louis Federal Reserve President James Bullard said that while world financial markets are
volatile, U.S. fundamentals are good and the interest rate-setting Federal Open Market
Committee shouldnt alter its forecast for the economy.
Federal Reserve Vice Chairman Stanley Fischer said though Federal Reserve officials have not
come to any decision on whether to hike rates in September, the case was strong before China's
currency devaluation. Fischer responded to the comment from William Dudley who said that a
September rate hike was less compelling, telling CNBC "it is too early to tell...I wouldn't want to
go ahead and decide right now what the case is - more compelling or less compelling etc.
Minneapolis Fed President Narayana Kocherlakota said he sees ways to lower interest rates
further, cites asset-purchase tools. He also said the Feds message shouldnt be about last 10
days, noting inflation is running way below Feds 2% target

Commodities
Oil prices surge on Friday, rising $2.66, or over 6% to settle at $45.22 per barrel (after touching 6
year low Monday of $37.75), adding 11.8% for the week, it largest weekly increase in 6-years
(after scoring over a 10% gain yesterday alone, best single day since March 2009). The short
squeeze in commodities came late week, helped as China stock markets bounced off recent
correction, with pretty much the whole commodity complex (outside of precious metals)
recovering off multi-year lows. Note, oil markets saw a late day spike Thursday after the WSJ
reported oil producer Venezuela requested an emergency meeting of OPEC in coordination with
Russia to stem the oil-price rout. Brent prices ended back above $50 (first time since Aug 12th).
Also noteworthy was the commodity gains came despite a late week surge in the dollar.
December gold prices advanced $11.40, or 1% to settle at $1,134 an ounce on Friday, but only
good enough to pare its weekly losses to -2.2% (biggest weekly drop in a month). The dollar
strengthened this week, putting pressure on the metal as boosted prospects for an interest-rate
hike this year by the FOMC (though given the Fed back & forth today, sides appear to remain
mixed on outlook timing). Weaker China markets weighed on gold early in the week, but
recovered today as China markets recovered off lows (gold snapped 4-day losing streak).

Currencies & Bond Market

The dollar advanced; the greenback had gradually risen throughout the morning, adding on to its
late recovery, only to get a boost midday as Fed Reserve Vice Chairman Stanley Fischer said the
door was still open to an interest-rate increase at the Feds next meeting, adding to speculation
the central bank will raise interest rates this year despite global market volatility. The dollar
finished Fridays session with weekly gains against the euro and the pound, but lost ground
against the yen which had a volatile week (the USD/JPY jumped over 550 bps from Monday low
of 116.18 to high of 121.55 today, but was below high of 122.13 earlier Monday morning).
Bonds stuck in fairly narrow range today, but still active after Fed Fischer suggested that the
Federal Reserve is still open to raising interest rates at its September meeting. The 10-year yield
was up a few bps to highs around 2.19%, but pared gains, while shorter term 2-yr posted wider
moves. Economic data, the Jackson Hole meeting this weekend and jobs data next Friday all
possible catalysts for direction of bonds moving forward. Note the 10-yr yield posted its biggest
1-week rise since end of June.

Jackson Hole Preview

Here are the names of some attendees of the invitation-only event, according to a partial list of
participants from the Kansas City Fed: for U.S. Fed governors Jerome Powell and Lael Brainard, as
well as regional Fed presidents James Bullard from St. Louis, Richmonds Jeffrey Lacker, Dennis
Lockhart of Atlanta, Eric Rosengren from Boston, Philadelphias newly installed President Patrick
Harker, and conference host Esther George of the Kansas City Fed
From Europe, ECB executive board member Sabine Lautenschlaeger, Bundesbank President Jens
Weidmann, Bank of England Governor Mark Carney, Bank of France Governor Christian Noyer,
Marek Belka, governor of the Polish central bank, Belgian central bank Governor Jan Smets and
Finlands Erkki Liikanen. Also, Swiss National Bank President Thomas Jordan will take part in a
panel Friday titled Central Bank Perspectives on Inflation Dynamics

Macro

Up/Down

Last

WTI Crude

2.66

45.22

Brent

2.49

50.05

Gold

11.40

1,134.00

EUR/USD

-0.0063

1.1183

JPY/USD

0.33

121.36

-0.017

2.184%

10-Year Note

Sector News Breakdown

Consumer
Retailers; it was another busy morning of earnings for retailers; falling on results: BEBE Q4 loss
narrows, but guides Q1 comps down mid-single digits; ARO Q2 comp and net sales miss
estimates; in non-apparel, ULTA reported another strong quarter fueled by healthy comps and
SG&A leverage (several positive analyst comments post earnings); RGS Q4 EPS/revenues both fall
short of expectations; sporting goods store SPWH Q2 results top consensus (guidance below)
Discount stores; BIG shares jump after Q2 EPS/revs/comps all top consensus and raised its year
profit forecast (follows weaker results from DG the day prior)
Consumer Staples/Restaurants; UNFI initiated with a sell rating at Pivotal Research and $36 tgt;
BGS is in late-stage discussions to acquire GIS Green Giant frozen and canned vegetable business
http://goo.gl/DUSx5P; in restaurants: HABT & LOCO both upgraded to buy at Stifel; ZOES a
mover after Q2 results/guidance
Casino, Lodging & Leisure; Bernstein said expect a bottoming of fundamentals by late 2015 with
rejuvenated growth in 2016 for Macau Gaming (WYNN, MPEL); Macquarie said PNK remains a
must own while also like MCRI and ISLE and remain on the sidelines for BYD, PENN, CZR and ER;
LAS Vegas strip casino gambling revenue falls 2.09% in July
Autos; TSLA extends gains after positive consumer report; supplier BWA cut at Baird as see
limited near-term catalysts to counter recent execution concerns

Energy
Energy stocks concluded the volatile week with gains in several majors (CVX, XOM, COP, MRO),
equipment, services, E&P and refiners; the group jumped on the surge in oil prices off fresh 6
year lows (WTI crude jumped over $45.50 per barrel today after touching low of $37.75 on
Monday); energy sector also propelled higher after M&A deal announced mid-week (8/26) in
service/equipment space as SLB offered to acquire CAM in $14.8B deal
The Baker Hughes (BHI) weekly rig count dropped -8 to 877 after rising 1 the prior week; oil rigs
increased by 1 to 675, its sixth week of increases (down 889 from last year); the decline in rigs
came from gas, which fell -9 to 202
Analyst calls; oilfield services at Stephens; HP upgraded as believe a valuation in the low-to-mid
$50 range poses an attractive entry for longer-term, value-oriented investors, while raises WFT
to Overweight as think shares in the mid-to-high single digits pose an attractive entry point.; cut
SSE rating as risk 2016 spending levels and prepare for another likely down year in U.S. CapEx
MLPS; a good move for MLPs this week, as the Alerian MLP Index (AMZ) trades to best levels
since Aug 19th, trading above the 362 level (off 52-week low 326.19 on Monday), helped by a
surge in oil prices this week; among top gainers today in index, LINE, SDLP, CMLP, HCLP, EXLP
Coal stocks; sector remain active as some names surging from the dead; ACI has jumped from
$1.00 back on August 5th to trade above $8 today after the company recently said to seek
compromise with lenderspared gains (has lifted group CNX, CLD, ARLP, BTU); BTU today cut
by Moodys to Caa1 from B3 and said may cut further
Financials
Financials/banks were little changed today, as offsetting comments from Fed members regarding
outlook for interest rates threw currencies/bonds up and down, causing further confusion to the
futures direction of banks; for the week, banks bounced off depressed levels Monday, while
those leveraged to energy loans also recovered with the higher move in oil
Banks upgraded C, CFG, HBAN, RF, USB upgraded to buy from neutral, and VLY to neutral from
sell at Guggenheim on amid stable-to-strengthening fundamentals, improved risk/reward, with
est. for NIMs off by only 0-2bps based on recent changes to Fed Fund futures curve
Other movers; AHP said it is exploring strategic alternatives, including a sale of the company
http://goo.gl/USuyfK ; MTGE was downgraded at UBS
Healthcare
Large Cap Pharma; MYL shareholders backed the hostile bid for PRGO, allowing it to launch a
tender offer for the company's shares in the next few weeks (MYL offered to buy Perrigo in April
for cash and stock then worth $205 per share but PRGO has rejected) http://goo.gl/w4m9pM ;
ENDP won order blocking generic version of Fortesta (AGN lost bid to sell copycat version); FDA
says DPP-4 inhibitors to treat diabetes may cause joint pain (LLY, MRK)
Biotech; AMGN said the FDA approved its pricey $14,100 cholesterol drug Repatha for certain
patients (Repatha belongs to a category of drugs known as PCSK9 inhibitors designed to help
patients with ultra-high bad, or LDL); Bloomberg reported BXLT is said to be in talks to buy ARIA,
in an effort to fend off $30B offer from SHPG, Bloomberg reported. Discussions with the
developer of leukemia and lung-cancer treatments continue and there is no certainty a deal will
be reached, said the people http://goo.gl/qVhnF8
Analyst calls; MDCO upgraded to buy at Jefferies given multiple pipeline assets could serve as
catalysts; PDCO upgraded to Overweight at Piper as recent pullback has created a good buying
opportunity; IDXX was downgraded at Raymond James as sees little upside, while upping GHDX
rating after being negative the last two-years/thesis played out

Industrials & Materials

Transports; UAL to replace HSP in the S&P 500 Index around September 2nd (airlines look to
bounce); in other transports, Raymond James upgraded KNX and Ryder (R) to strong buy
Metals & Mining; FCX adds to 28% gain yesterday as activist Carl Icahn reports stake of 8.46%,
says may seek board seat (share rose Thursday after cutting jobs/cap-ex amid falling copper
prices); another bounce in beaten materials/metals names with commodities trying to bounce off
multi-year lows (copper, steel, aluminum names); all about this group this week as commodity
prices with a nice bounce (but stock prices still very depressed)
Technology, Media & Telecom
Internet; after a week of swings, the Internet space was quiet; CTRP was upgraded to buy at Stifel
as growth is strong, margins expanding and economy good for online; QUNR also upped to buy at
Stifel calling it the fastest growing player in online travel with 2Q15 revenue growth of 120%;
QIHU Chairman weighing cut to $9B 'go-private' offer for the company, WSJ reported
http://goo.gl/kdr0Fa ; FB yesterday said that 1 billion people used Facebook on a single day
Semiconductors; after posting gains of 3.7% and 5% the last two days (though fell 6-straight days
prior), the semi index (SOX) was little changed, holding above the 600 level; OVTI slid as lowered
guidance lowered guidance due to a lack of visibility in the Chinese handset market and
competitive pressure; SLAB announces $100M buyback; big moves this week in names like SUNE,
SWKS, QRVO, MU, SNDK slipping and ripping
Software & Hardware; SPLK top-line beat was due to strength in cloud deals, EEAs, and security
and announced record 327 deals over $100k were closed YoY; AKAM upgraded to Outperform at
JMP Securities on sell-off; ADSK with noisy and generally lower-than-expected 2Q16 results (they
will accelerate the business model transition by halting the sale of Suite Licenses earlier than
originally expected); SNPS announces $100M stock buyback; LOGM analyst upgrade
Video games; GME reported solid Q2 results, with new store formats and categories (strong Q2
results and slightly raised guidance for FY15); ATVI to be added to the S&P 500 Index around
August 28th (replacing PLL)
Services/Hardware/other; ADP upgraded at William Blair/announced 25M share buyback as
well/files $2B debt sale; VMEM plunges on Q2 earnings results

Want a free trial to The Hammerstone Report 4x Daily ? Sign-up for a trial today at
www.thehammerstonereport.com
Please be sure to check out The Hammerstone Institutional Feed for News and Analysis for the
Informed Trader at www.hammerstoneinstitutional.com

***DISCLAIMER/LIMITATION OF LIABILITY: Hammerstone Inc. (the Report) provides information and data and does NOT provide any individual investment advice or money management
assistance and does NOT attempt to influence the sale or purchase of securities. The Report is intended for informational purposes only and does not claim to be actio nable for investment
decisions. The information contained in the Report has been obtained from sources deemed to be reliable but is not represented to be complete, and it should not be relied upon as such. The
Report does not purport to be a complete analysis of any security, issuer, or industry and is not an offer or a solicitation of an offer to buy or sell any securities. The Report is prepared for
general information purposes only and does not consider the specific investment objectives, financial situation, and particular needs of any individual subscriber, person, or entity