Closing Recap 4:05PM EST

Friday, December 19, 14

Index

Up/Down

Last

DJ Industrials

29.54

0.17%

17,807

S&P 500

9.50

0.46%

2,070

Nasdaq

16.98

0.36%

4,765

Russell 2000

4.03

0.32%

1,195

Equity Market Recap

New highs! The S&P 500 closes just below its prior record close (2,075.37 on December 5th), and
is now up about 100 points from Tuesday (we were at 1,972 on the S&PJUST 3 DAYS AGO). The
market moved firmly higher in the afternoon after trading most of the session near the breakeven line. Todays move comes after major averages posted their biggest 2-day gains in over 3years Thursday, so just more upward momentum continuing into year end. Oil prices jumped
today, rising about 5% in what appeared short covering, while the dollar advanced back to multi
year highs. At todays close we get quarterly quadruple witching (market index futures, market
index options, stock options, and single stock futures all expire), as well as S&P and Nasdaq
Rebalances. It has certainly been a wild week!
December has been marked by two significant macro events: the fall of the Russian ruble and the
continued decline in oil prices (can add Sony data base hack too). On Tuesday, the ruble hit
record lows against the dollar (traded to 80), despite the central bank raising interest rates from
10.5% to 17%. The same day, oil prices dropped to five-year lows. Russia news was quiet today,
as North Korea and the FBI confirming they were the source of the Sony hack, grabbed headlines

Fed Speakers
"I would say at this point that June 2015 seems like a reasonable starting point for thinking about
when liftoff could happen," San Francisco Federal Reserve Bank President John Williams
Explaining his dissent from the FOMC decision this week, Minneapolis Fed President
Kocherlakota says the Fed's continued gradual removal of accommodation creates
"unacceptable downside risk" to inflation and inflation expectations. "I see this risk to the
credibility of the inflation target as unacceptable, given how hard it would be for the FOMC to
respond successfully if this eventuality did indeed materialize."

Commodities
WTI crude oil rises, just about recouping the week's losses today, closing up nearly 5% to $56.52
per barrel, rising $2.41 on the session, in what appeared to be a short covering rally into the
weekend. Brent oil also jumped 4.5%, rising $2.70, to $61.97 per barrel. Gasoline climbed 3% to
$1.5724 a gallon
Gold prices ended Friday little changed, rising $1.20, or 0.1% to settle at $1,196 an ounce, with
gains capped at the dollar continued to strengthen. Gold for February delivery touched an
intraday high of $1,201.50 and low of $1,193.20 an ounce (still for the week, gold ended lower by
2.2%, first decline in 3-weeks). Silver prices ended the day up 10c to $16.03 an ounce

Currencies
The dollar index (DXY) climbed to 89.61 on Friday (5-year highs), up from its previous close of
89.24 late Thursday (traded high of 89.65 intraday/low of 89.18). The euro trended lower against
the dollar at $1.222 (3rd day of losses), down from previous close of $1.2285. The move higher
this today/this week came after FOMC comments (note Fed Williams earlier said June seems like
a reasonable starting point in regards to raising rates). The yen fell to more than a one-week low
after the BOJ maintained its monetary stimulus this week.

Bond Market
Amazingly enough, as equity markets retesting near record highs for the S&P, and Dow
Industrials about 150 points away from its record, treasury markets are still telling us something
else. Bonds rally after a few days of selling, with the 10-yr yield remaining depressed under 2.2%,
despite better economic data this week and a positive economic outlook from the Fed.

Macro

Up/Down

Last

WTI Crude

2.41

56.52

Brent

2.70

61.97

Gold

1.20

1,196.00

EUR/USD

-0.0062

1.2224

JPY/USD

0.67

119.51

-0.035

2.169%

10-Year Note

Sector News Breakdown

Consumer
Footwear apparel weaker; NKE Q2 EPS beats by 4c/revs as well, but global futures orders rise
11% (est. 11.3%), slowest in 4-quarters; FINL rpts unexpected Q3 EPS loss (vs. est. 2c), though
sales/comps beat; FY15 EPS misses as sees unchanged YoY vs. est. up 8% and also lowers its year
comp sales view to low MSD from up MSD (FL, GCO, DSW, BWS active) FINL, FL both
downgraded at Bank America to Underperform
Other retail; PIR trades higher despite missing analyst estimates with its FQ3 report; M fell as
Cleveland Research said sales tracking soft through mid-December; dollar stores fell on: 1)
reports the IRS would be significantly slower in processing tax refund checks than in prior years
reports (softer Spring qtr.?), 2) CNBCs David Faber said FDO to delay vote on DLTR deal
Auto sector; KMX Q3 EPS beats by 6c on stronger revs/comps (up 7.4% for used unit comps),
lifting shares of AN, PAG, GPI, SAH; TSLA beta tests battery pack swap between LA and SF
Gaming & Leisure; cruise line CCL Q4 revs short of consensus, but adjusted EPS handily beat due
to fuel drop; toy makers MAT & HAS weaker after BMO lowering sales and EPS estimates owing
to what they think has been disappointing holiday retail sales; after bottoming to fresh 2014 lows
on Tuesday amid reports China to start crackdown on illicit funds sent via Macau, shares of
WYNN, MGM, LVS have all bounced with market

Energy
Energy stock squeeze continued, with the weak performers of 2014 rallying despite a weaker
fundamental backdrop for the complex; oil drillers rise despite weaker fleet report from RIG; E&P
stocks also recovering off multi-year lows, as well as service stocks (WFT, HAL) and integrated oils
(HES, CVX, XOM) big gains across the board by days end with WTI crude spiking 5%
Oil drillers rise despite negative news; RIG fleet report showed will scrap 7 lower-specification
deepwater, midwater floaters; sees taking 4Q charge $100M-$140M; SDRL downgraded to
neutral at Goldman Sachs
Overall active rigs according to Baker Hughes has dropped from 1920 to 1875 in 2 weeks (down
45 rigs overall); Oil Rig Count Down 10 to 1,536 (lowest in 6-months); Gas rigs down 8 to 338
MLPs; rating changes at JP Morgan today, as cuts LGCY, MEMP, BBEP to neutral from
Overweight citing weak oil prices; Barclays said in a low oil price environment, our top 5
crude/refined product pipe picks are MPLX, PAGP, SHLX, SXL and VLP due to high cash flow
stability and growth visibility at reasonable valuations; the AMZ Index down small on day
Coals the EPA wont label toxic coal ash as hazardous in the first federal rules governing the
treatment of the waste product, Bloomberg reported (coal stocks were mixed however: ANR,
BTU, CNX, WLT)
Financials
Financials lagged overall market; but still end higher, led by banks/regionals, with modest gains in
insurance space; Treasury sells remaining 54.9M share stake in ALLY, priced at $23.25
Recent online lending IPOs LC and ONDK were under pressure (each down more than 7%
midday), but note both are still up from recent pricing (LC up 71% from its $15 IPO price, and
ONDK up 20% from its $20 IPO price
Consumer finance; RCAP defended at Citigroup as continues to see upside potential in shares
well exceeding" downside risk
REIT rating changes at KeyBanc; reiterates Health Care REIT sector at Underweight (cuts HR to
hold and MPW to UW); Triple Net REITs upgraded to market-weight and upgrade EPR to hold
Healthcare
Biotechs new 52-week highs (IBB); Roche/IMGN fall after saying Phase 3 Marianne study
showed neither Kadcyla-containing treatment arm significantly improved PFS compared to
Herceptin and chemotherapy (negative news lifted shares of PBYI with competing drug); JUNO
opened at $39.00 after 11M share IPO priced at $24 (above top end of range)
Movers on drug news; CERS said the FDA approved its INTERCEPT blood system for Platelets;
OREX and Takeda received EMA approval recommendation for its Mysibia in obesity; PETX said
its drug for dog osteoarthritis reduces pain in study; LGND said partner PFE won European
Commission approval for Duavive; HALO gets European Orphan Drug Designation for Pegph20
Pharmacy retail; SunTrust upgraded CVS to buy saying likes the integrated retail/PBM model and
see opportunities across several area and downgraded WAG to neutral noting shares have
roughly doubled in the past 2 years and are now at a 5-year valuation high
Pharma generally flat across the board, with JNJ outlier to downside after Competition and
Markets Authority says Reckitts proposed K-Y Brand buy (owned by JNJ) may lessen competition

Industrials & Materials

Ag & Machinery; POT was upgraded to buy at UBS; ag equipment/machinery stocks were
generally higher (JOY, TEX, MTW, DE) but a tough week for group with JOY earnings/ABI data
Materials/Metals; after lagging yesterday on mixed steel guidance, group catches a bid today,
with metals AA, FCX, iron ore CLF, VALE, and steels with modest gains; WOR was downgraded by
one analyst after softer earnings yesterday
Transports overall mixed; airlines generally weaker LUV, UAL, while logistics/truckers led (CNW,
R); not much in space after FDX weak report Wednesday (stock has almost fully recovered from
sell-off that day after Goldman upgrade yesterday)
Technology, Media & Telecom
Software; sector gets another good report, this time from RHT which posted a Q3 EPS/revs beat,
while billings up 19.3% vs. est. 11.9%/subs rise; (note the group surged yesterday as ORCL traded
to all-time highs following positive earnings); VHC to receive $23M from MSFT in patent
settlement; TDC announced stock buyback
Hardware; BBRY Q3 revs well short ($793M vs. $931M est.), while posting 1.9M new devices
(down 10% YoY); XRX sold its IT outsourcing unit to Atos for $1.05B; IBM rises for a 3rd day (after
falling to 3-year lows last week); GPRO falls ahead of Tuesday IPO share lock-up
Internet sector generally better; FB tgt raised to $91 at Citi as boosts Instagram valuation to $35B
form $19B; NQ fell after earnings/guidance; to sell FL Mobile to Tack Fiori for $570M-$630M;
broad based rallies for TWTR, YELP, YHOO, LNKD
Semiconductors weaker; Bank America downgraded ATML, XLNX, MXIM to Underperform from
neutral, ALTR & LLTC downgraded to neutral from buy; upgrades NVDA to neutral - maintains
cautious views/Underperform ratings on MRVL, AMD and FCS; says top picks include: INTC, TXN,
AVGO, NXPI, SWKS, RFMD
Internet Security stocks rising again (FEYE, SYMC, PFPT, PANW), group has been a focus following
the high profile hack into Sony (recent analyst upgrades for CHKP, IMPV)
Media/Telco; LIN and MEG fell on news of their shareholders approving the merger; EVC falls on
an analyst downgrade; TMUS to pay at least $90M to settle FTC cramming case

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