Closing Recap

Friday, July 31, 15

Index

Up/Down

Last

DJ Industrials

-53.78

0.30%

17,692

S&P 500

-4.41

0.21%

2,104

Nasdaq

-0.50

0.01%

5,128

Russell 2000

6.59

0.54%

1,238

Equity Market Recap

Equity markets ended mixed, giving up early gains (after initial weakness), as markets were on
the fence of what economic data meant for Fed/economy. U.S. labor costs rose at the slowest
pace in at least three decades in the spring, a sign of continued sluggish wage growth, which
some speculated could weigh on the Federal Reserve's decision to raise short-term interest rates.
Dow components Exxon (XOM) and Chevron (CVX) weighed on the index, as CVX Q2 profit
tumbled as the company took over $2B impairments/charges to suspend projects amid lower
crude-oil prices, while XOM reported a 52% drop in Q2 profit, even as lower crude prices drove
its refining earnings higher.
Markets appeared tired on this last day of trading for the month, following the barrage of
earnings reports over the last two weeks (which have been mixed at best). The Shanghai
Composite dropped over 1% last night, falling 15% in July, the biggest monthly drop since August
2009. China weakness, along with oil rig count increase sent oil prices lower by more than 2%.
Puerto Rico's expected default on debt due Saturday would be the start to what could end up
becoming one of the largest municipal restructurings. Puerto Rico Governor Alejandro Garcia
Padilla shocked investors in June when he said the island's debt - totaling $72 billion - was
unpayable and required restructuring. Puerto Rico has flagged that it will likely skip a $58 million
payment due Aug. 1 on its Public Finance Corporation (PFC) debt, which has weaker investor
protection than some other bonds Reuters

Economic Data
The U.S. employment-cost index (ECI), a measure of workers' wages and benefits rose a
seasonally adjusted 0.2% in Q2 from Q1, which was below estimates of a 0.6% rise and marked
the smallest quarterly rise since record keeping began in 1982 (prior quarter unrevised at up
0.7%); wages rose 0.2% q/q after rising 0.7% in March
Chicago PMI Index rises to 54.7 from 49.4 prior, and above consensus of 50.8; despite a gain in
the production component -- a 12-point increase to 61.8 -- employment remained weak. The
employment component was below 50 for the third consecutive month

 U.S. July Final Michigan Consumer Sentiment fell to 93.1 from 93.3 in the preliminary estimate,
and below 96.1 last month; the expectations index fell to 84.1 vs. 87.8 last month, while current
economic conditions index fell to 107.2 vs. 108.9 last month
Home prices are still rising, and the economy is improving, but the ills of the housing crash are far
from cured: 7.4 million borrowers were still "seriously" underwater on their mortgages at the
end of June, according to RealtyTrac

Commodities
WTI crude prices fell -$1.40, or 2.89% to settle at $47.12 per barrel, posting its biggest monthly
plunge since 2008 amid persisting supply glut and renewed investors concerns on Chinese
growth affecting all commodities (oil fell for a 5th straight week). For July, U.S. crude dropped
more than 20%, while Brent crude is down over 17%, also the worst performance for an active
contract this year. Also weighing on prices, signs that top producers in the Middle East were
continuing to pump at record levels despite a growing global gut. A higher U.S. oil rig count for a
second week in a row added to the market's downside late day.
In metals markets, Gold prices climbed Friday, rising $6.40, or 0.6% to settle at $1.095.10 an
ounce, but still posted its biggest monthly decline since June 2013 (-6.5%). Gold reversed earlier
losses after a weaker-than-expected rise in U.S. labor costs, but still ended an ugly July with the
biggest monthly decline in more than two years. Copper prices fell on Friday on persistent
worries about demand in top consumer China, but losses were muted after weak U.S. data
prompted a slide in the dollar. The metal marked up its biggest monthly loss since January (down
9%), while aluminum touched a six-year low

Currencies
The dollar declined against rivals, but pared losses late day; the euro surged against the U.S.
dollar, jumping nearly 2% initially, after sluggish numbers for U.S. labor costs for Q2, showing
that wages are stagnating, possibly discouraging the Fed from raising interest rates soon. The
euro rose to highs of $1.1114 from $1.0977 prior and the yen slid to a low of 123.52. However,
the greenback pared losses (the euro also got a lift after data showed July Core CPI for the Euro
Zone came in +1.0% YoY, the highest since April 2014)

Bond Market
Bonds were strong; treasury markets jumped, led by economic data, sending yields to lowest
levels in about three weeks, after a report showed U.S. labor costs rose at the slowest pace in at
least three decades this spring. The yield on the benchmark 10-year Treasury note fell below
2.20%, lowest since July 9th, and below 2.268% late Thursday. Yields for the 2-yr, which tend to
be more sensitive to changes in the Fed's rate outlook, also pulled back from near the highest
level this year (0.665% vs. 0.731% Thursday). A stronger manufacturing report out of Chicago also
bolstered expectations for the Fed to push rate hikes out later into the year/or 2016.

Macro

Up/Down

Last

WTI Crude

-1.40

47.12

Brent

-1.10

52.21

Gold

6.40

1,095.10

EUR/USD

0.0049

1.0982

JPY/USD

-0.21

123.94

10-Year Note

-0.061

2.207%

Sector News Breakdown

Consumer
Retailers active on mixed results; HBI falls after lowers 2015 revenue forecast after Q2 revs miss
views; DECK Q1 eps loss narrowed, but widened year outlook; OUTR slumping amid its belowconsensus 2Q revenue; COLM shares jump on smaller Q2 loss and boosted year outlook; GIL
lower after cutting its outlook; home furnishing firm LEG declined on its quarter/outlook; SQBG
up on earnings; in research, URBN was downgraded at BMO, while Argus upgraded UA to buy
Consumer Staples; CCE rises after WSJ reported was in advanced talks about combining with
other Coke bottlers, WSJ http://goo.gl/koF9JJ; STLK to buy organic frozen fruit supplier Sunrise
Holdings from private equity firm Paine & Partners LLC for about $450M http://goo.gl/ePlXHd ;
NGVC jumped after guiding year eps outlook above views
Auto sector; auto supplier AXL falls as Q2 eps beat, but guides year sales below consensus (BWA
did same yesterday which hit suppliers); DLPH upgraded at CLSA
Lodging & Leisure: in lodging space, Credit Suisse cut CHH to Underperform to reflect full
valuation, limited net franchise growth, a slightly reduced RevPAR outlook, Sky Touch losses, and
competition while cut HST to neutral as see no near-term catalyst to drive the stock materially
higher from here; in cruise lines, RCL trades to all-time highs after quarterly results beat/raises
Energy
Energy stocks grabbing headlines this morning, led by weakness in CVX and XOM after both post
quarterly misses (and CVX said plans to cut 2016/17 cap-ex spending programs); E&P and MLPS
sectors remain under pressure as well; MUR downgraded at Oppenheimer on continued deficit
spending; the Baker Hughes (BHI) weekly rig count slipped 2 overall to 874, but the oil rig count
climbed 5 to 664 (but oil rig count down 909 from last year)
Utilities add to weekly strength, led by shares of CPN (upgraded at Evercore), PNM (better
guidance), FE (Q2 eps beat), and EIX (mixed results); Utility index quietly best performing sector
this week - rising again today with lower yields....the UTY on a 5-day winning streak, up over
1.35% todaytraded back above its 100 day of 556.37 earlier today
MLPs/Alternative energy; wrath of dividend suspension by LNCO/LINE felt today, as two sets of
analyst downgrade shares on distribution suspension; Alerian MLP Index remains near 52-week
lows (AMZ); GLBL priced IPO at $15 (opened at $14)
Refiners are rallied, led by West Coast dominant TSO, after XOM said that they have no time
table for their refinery in California that has been down to come back on line
Financials
Financials were fairly quiet, underperform slightly in grand scheme given the pullback in yields on
the day (weighs on banks/regionals); quiet in insurance, though ACE & CB both upgraded to
Outperform at Bernstein, while AON gives up early gains on organic growth. Asset managers up
on back of LM/WETF results
Lending; OCN downgraded by two analysts (Sterne/Bank America) after earnings; Canaccord
initiated LC and ONDK with Buy ratings; MGI shares jump on earnings; WU shares jumped after
beating estimates/raising forecast; ELLI another gainer post earnings
REITs outperform given the pullback in bond yields today following the low inflation reading this
morning (the ECI data); REITs across the spectrum did well, including mortgage reits

Healthcare
Healthcare complex strong, led by Biotech movers (AMGN), though Pharma names also move
higher (BMY, MRK). In Biotech; AMGN rises on earnings/revenue beat; MDVN rises as partner
Astellas reported U.S. sales of prostate cancer Xtandi were $298.4M in qtr ended June 30, up 33%
QoQ (also 2-for-1 stock split); JAZZ tgt raised to $220 at Leerink; NLNK smaller quarterly loss and
said MRKs Ebola vaccine candidate 100% effective in late stage study NLNK the licensor); NVAX
tgt raised to $14.15 at Ladenburg saying Phase II flu data supports continued funding; VTVT
breaks below $10 (7.813M share IPO priced at $15.00 yesterday)
Hospitals mixed on earnings; UHS shares rise after Q2 beat and boosted year forecast, while
LPNT lagged despite Q2 beat, as cut high end of year eps view (but raised rev view); Medicare
payments to nursing homes to rise under new rule
Movers higher on earnings; GB, IMGN, IMS, MOH (52-week high), PKI, VCRA, ZLTQ
Movers lower include: CPSI, MTD (guidance), OMCL
Secondary news; AMAG 3.15M secondary priced at $63.75; EYEG 1.19M share deal priced at
$8.50 in Offering, and Q priced 7M share secondary at $77.85
In analyst research calls; CPSI cut at Topeka after earnings miss; MDAS cut to Sector Weight at
KeyBanc; MOH raised to Buy at Stifel; RMD was upgraded at Morgan Stanley, but downgraded to
Sell at Deutsche Bank (after Q2 results)
Industrials & Materials
Transports; in airlines, SKYW shares jumped after better Q2 revs and upgraded at Evercore to
Buy; truckers led higher as YRCW surges after Q2 EPS handily top consensus; UPS to buy Coyote
Logistics from Warburg Pincus for $1.8B http://goo.gl/kxkdml
Metals & Mining; copper prices continue to fall; steel stocks pare earlier gains this week after
earnings were not as bad as feared in sector; gold miners mixed, as GG rises on analyst upgrade
(note several stocks in mining space with mixed earnings this week)
Aerospace/Defense; AVOL shares surged after receives unsolicited offers from two companies
http://goo.gl/sR71M7 (moved other leasing names early, ie AER, FLY, AYR, CIT);
Chemicals; BERY to buy Blackstone-owned Avintiv for $2.45B http://goo.gl/WPJEdP
E&C sector; FLR was downgraded at UBS after Q2 EPS miss and guides year well below prior
outlook/consensus; MTZ shares rose post results (though below ests.)
Technology, Media & Telecom
Internet; LNKD shares up 12% overnight, but falls today, as organic rev growth a concern, as a
bump in its annual revenue forecast to its acquisition of the education website Lynda.com,
raising concerns that growth is slowing in its main business; Z was cut to Underperform at Cowen
on decelerating growth concerns; EXPE jumps on very strong Q2 results lift online travel names
Semiconductors; group still remains under pressure as earnings/guidance this season has been
mixed to lower, weighing on overall complex (MU weak again today); in equipment space, KLAC
rallied despite mixed results overnight
Software movers; video gamer EA posts solid beat and raise quarter as beat came on the strength
of digital/catalog; Internet security maker FEYE falls the unexpected news of the resignation of
CFO Michael Sheridan, as well as a Q2 billings number that underwhelmed (but did raise year
outlooks for revs/billings); SSYS several analyst downgraded after earnings
Hardware; AAPL weakness continues post earning, with no real lift today, but held its 200 day
MA of 120.75 (120.91 low); GPRO was upgraded to Buy with $92 tgt at Citigroup; Jana Partners
dumped its entire stake in NCR as the companys search for a buyer hit a wall, NY Post
http://goo.gl/Tr9Szy
HDD stocks; get a lift yesterday on WDC results and comments about PC outlook, while STX
guidance today led investors to take profits in group (and PC related names)
Telecom & Media; CTL upgraded at Jefferies (off 52-week lows)
Movers higher on earnings: ATEN, CALX, CATM, IM, KLAC, MTSN, NSR, PDFS, PXLW, RNG
Movers lower on earnings: BCOR, DGI, LSCC, QLGC, ROVI, SQI, SYNA, STX

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