Closing Recap

Monday, May 18, 15

Index

Up/Down

Last

DJ Industrials

26.02

0.14%

18,298

S&P 500

6.43

0.30%

2,129

Nasdaq

30.15

0.60%

5,078

Russell 2000

13.55

1.09%

1,257

Equity Market Recap

Low volume, no major news, volatility at lowsso equity markets naturally push to new all-time
record highs, as the S&P traded above its April 27th intraday high level of 2,125.92, while the Dow
touched an intraday high of 18,324.04, surpassing its previous record set in early March
(18,288.63). The Fed punchbowl appears to be firmly in place as recent data points show the
U.S. economy is not rebounding strongly enough for the Federal Reserve to raise interest rates
before September. Leading markets higher today were financials (on rising rates), as well Dow
component AAPL (after Icahn with more + comments), and Healthcare (amid another t/o in the
sector and as Biotech bounce continues). Lesson learned again today, never short a dull
market, as volumes were down, breadth was weak, but markets rally. Market complacency
astounding, gold prices up about $50 from last week, bonds fall, dollar rises. Healthcare, Telecom
and Financials led, while Materials and Staples lagged
Greeces government said it wont back down on election pledges to end austerity even while
seeking to agree on a deal with creditors as soon as this week to unblock financing and avert a
default. Tsiprass so-called red lines include no further cuts to wages and pensions. More than
110 days of talks between Greece and its creditors have failed to produce an agreement to
unlock additional aid from a 240 billion-euro ($275 billion) bailout Bloomberg
Chicago Fed President Evans said there is no evidence that zero interest rates in the United
States, in place since late 2008, is too-easy. "There is no meaningful upward momentum in
inflation," Evans said in a prepared speech, and said businesses continue to sit on "piles of cash,"
he said. "This is a sign that they think the real rate of return on prospective investment projects is
quite low," said Evans, a voting member of the Fed policy committee this year

Commodities
Energy futures erase overnight gains, while Brent underperformed, after Goldman Sachs slashed
its forecasts on a persistently high supply outlook, offsetting fears over deepening violence in the
Middle East. Overnight oil futures advanced after reports of Islamic State militants in Iraq and
renewed air strikes by a Saudi-led coalition against Houthi militia in Yemen heightened concerns
(Brent traded as high as $67.88 a barrel, while WTI was above $60 earlier, but both ended lower.

 Natural gas pulled back slightly, ending a four-session rally; prices for the front-month June
contract fell 0.6c, or 0.2%, to $3.01 mln Btu; gas briefly surged to its highest intraday price since
Jan. 22, but it spent most of the day in losses
Gold rises for a 5th straight session (was up over 3% last week), closing at $1,227.60 an ounce
(highest since Feb 10th), rising $2.30 or 0.2%, up despite a surge in the dollar today.

Currencies
The dollar jumped, while the euro plunged, falling about 1.3% to $1.1302 level, its worst one day
drop in 2-months; the dollar index (DXY) rises more than 1%, back above 94 level, with no major
US data today (one weaker housing data point), but bounces after posting its 5th consecutive
weekly decline last Friday. The dollar traded up around 120 vs. the yen on broad rally in the dollar

Bond Market
Treasury markets weaker; bonds drop to start the week, as the yield on the 10-yr trades back
above 2.20% (to 2.23%); prices fell after gains last week tied to disappointing data that supported
expectations the Federal Reserve might postpone raising interest rates until 2016. Weakness in
European government debt markets added selling pressure in the U.S.

Economic Data
Confidence among U.S. home builders fell for the fourth time in five months, as the National
Association of Home Builders' (NAHB) confidence index fell two points to a reading of 54 in May
(below est. 56 and prior month 57)

Macro

Up/Down

Last

WTI Crude

-0.26

59.43

Brent

-0.54

66.27

Gold

2.30

1,227.60

EUR/USD

-0.0141

1.1310

JPY/USD

0.73

119.98

10-Year Note

0.080

2.221%

Sector News Breakdown

Consumer
Retailers; a deal in the space as ANN to be acquired by ASNA for about $2.15B/paying $47 per
share (ANN holders to receive $37.34 per share cash and 0.68 ASNA) http://goo.gl/x15sdW ;
URBN reports earnings after the close tonight (busy week of earnings for retail segment, in both
apparel (TJX, LB, ROST), and broadlines (TGT, WMT, HD, LOW); WMT tomorrow
Consumer Staples; CALM shares rise more than 7% on Stephens upgrade, up for 6 straight days
(8 of last 9) due to the issues relating to bird flu; Staples in general little weakness after dollar
bounces sharply after recent weakness; GMCR extends Fridays weakness
Housing & Building Products; TOL upgraded to Neutral at Sterne Agee CRT as sees news flow
more positive than negative through FY2016 as TOLs City Living business ramps; a weaker
monthly Housing economic data point (NAHB) did not weigh on sentiment in group
Casino, Lodging & Leisure; Goldman Sachs on casinos, as upgraded PENN to buy and raise tgt to
$21 as expects new capacity, the Plainridge and Jamul projects, and the recently purchased
Tropicana to drive EBITDA growth; downgraded LVS to Neutral and cut tgt to $52; SGMS rises
after Greenlight reported new 2.4% stake Friday afternoon

Energy
Goldman Sachs cut its long-term crude oil price forecasts cuts L-T Brent oil price for 2016-18 to
$65/bbl, introduces 2020 target $55/bb; Highlights 6 shale oil winners: CLR, EOG, PXD, COG,
CXO, RRC; in U.S., downgrades CVX to sell, and prefers buy-rated XOM; VLO, MPC, PSX are top
large cap refining picks; other E&P U.S. changes: upgrades CLR, NFX to buy, LPI to neutral;
downgraded: CHK, HES, RRC to neutral and MUR, GPOR to sell
European Integrated Oil comments at Goldman Sachs: downgrades sector rating to cautious from
neutral on negative oil price view, potential dividend risk; cuts BP and STO to sell; downgrades
GALP and OMV to neutral. In Latin America, downgraded PBR and GTE to sell
Alternative Energy/Solar; JASO said Q1 profit more than halved, as cell shipments plunged and
shipments in China and the Americas declined; CREE has filed for a potential IPO for its Power
and RF unit; CSIQ shares fell after presenting at investor day
MLPs/Pipelines; Goldman Sachs in sector note: keeps attractive sector view on midstream
infrastructure demand; but downgrades LNG and TRGP to neutral, and cuts LINE/LNCO and NGLS
to sell; while upgrades CQP, HEP to buy
Financials
Financials bounced, with shares of GS and JPM each hitting 52-week highs, as rising rates across
the board lifted banks/regionals
Insurance; AXS is not considering improving on its offer for PRE following rival bidder Exor SpA's
raised $6.8 billion bid, a person familiar with the matter said http://goo.gl/IbAepq ; Insurance
Insider reported failure to complete its proposed PartnerRe acquisition could leave AXS
vulnerable to a takeover approach, with ACGL considered a potential bidder http://goo.gl/fYGZqc
Brokers & Exchanges; AMTD cautious mention in Barrons saying shares may become
vulnerable if Fed delays raising interest rates amid anemic economic growth; BGCP agrees to
purchase Excess Space Retail Services; but group higher with jump in rates
Asset managers; The U.S. Supreme Court said 401(k) plans have a duty to monitor the investment
options they offer, in a ruling that may help investors press lawsuits over underperforming funds
and excessive fees (could have impact on BEN, TROW, BLK, IVZ) http://goo.gl/vMaq4R
Healthcare
Large Cap Pharma; another deal in the Pharma space as ENDP said it would buy Par
Pharmaceutical Holdings Inc. from private equity firm TPG Capital for about $8B, including debt
http://goo.gl/uYB53x; PRGO said there is price point where would engage with MYL Bloomberg
reported; LCI agrees to acquire Silarx Pharmaceuticals/no terms disclosed; DRRX rises on
successful Phase 1 safety study of DUR-928; JNJ trades best levels since January
Biotech lower early; EBIO shares plunge as its Oasis study in moderate to severe eye dry-eye
disease didnt show statistical difference between EBI-005 and vehicle control; CCXI rises on
upgraded at JPM; CELG helped lead biotech large caps higher (group has bounced nicely after
earnings related pullback last month (IBB higher); REGN/SNY announce positive pivotal Phase 2b
dupilumab data in asthma
Managed care stocks were strong early, with 52-week highs for AET, ANTM
Other movers; ABC downgraded to Market Perform at Cowen based on valuation and the
expectation for limited share price upside in the near-term
Industrials & Materials
Industrial/Multi-industry; MMM said Q2 will be very similar to Q1, sees pick-up in 2H; not much
else news worthy in sector today; CBI surges further (analyst upgrade following incremental LNG
awards) on continued momentum from Friday

 Transports; KSU another analyst downgrade (Bank America cut follows several last week after
recent guidance); transports still lagging overall market, with weakness in rails, truckers; airlines
have lagged for year as oil prices have recovered some, but little lift today after Dow Transports
down 5% YTD so far
Metals & Mining; SCHN upgraded to Overweight at KeyBanc noting the stock slumped more than
40% from its late-summer high amid falling recycling prices; GTI acquired by a Brookfield Asset
Management Inc. affiliate for $5.05 per share/$693M deal http://goo.gl/cyXYJ8
Technology, Media & Telecom
Internet; CTRP was upgraded to Overweight at JP Morgan and up tgt to $87 as return from
investments to drive faster and more sustainable growth; YELP downgraded to Neutral at Piper
and cut tgt to $46 from $70; some comments from likes of FB, etc. at JPM TMT conference; BABA
fell after a group of luxury goods makers sued the company (re counterfeit products); GOOGL
unveiled a new product called Preemptible Virtual Machines, in which companies get a 70%
discount for using (RAX lower)
Semiconductors; INTC & ALTR have resumed talks about a potential $13B-plus buyout after
earlier negotiations between the two broke down NY Post http://goo.gl/eG0jld ; the move
helped lift some semi names, as M&A has perked up in group over the last few months
(NXPI/FSLCY/ISSI); MU/SNDK active after JPM said for NAND sees earlier-than-expected
recovery followed by DRAM price stabilization in 2H
Software & Hardware; Carl Icahn said in open letter to AAPL CEO Cook, calling for buyback and
said shares worth $240 per share; GPRO was upgraded to Outperform at Oppenheimer saying
company has no notable near-term headwinds and that deeper penetration in Europe and its
entrance in East Asia should help it deliver growth this year; CMGE receives $21.50 takeover
proposal from Orient Hongtai http://goo.gl/sjZYxi ; SPLK falls on CTO change
Internet security/3D names; FEYE in strategic alliance with property and casualty insurer ACE
Group; DDD in cooperative R&D agreement with Naval Sea Systems Commands (NAVSEA) Naval
Surface Warfare Center Carderock Division; Security software sector likely to see more
consolidation as new threats are constantly emerging, Nomura said
Telecom & Media; several companies speaking at JP Morgan TMT conference; shares of T and
TMUS among names trading higher on the day; WIN fell again, while LVLT rises on positive
Barrons article this weekend; ZAYO upgraded by an analyst

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