Closing Market Summary: S&P 500 Registers Second Consecutive Decline

The stock market ended Wednesday on a lower note after enduring a shaky session. The S&P 500 lost 0.6% after failing to overtake its 100-day moving average (2,038) for the second day in a row. Just like yesterday, the Nasdaq Composite (-0.8%) underperformed while the Dow Jones Industrial Average (-0.3%) displayed relative strength.

Equities began the day with modest gains, but the S&P 500 notched its high during the opening minutes of the session and returned to its flat line in short order. The index traded just above the unchanged level into the afternoon, but slid to lows shortly after 13:00 ET. The S&P 500 staged a late charge to its flat line, but could not overtake that level, dropping to a new low instead.

Although the market spent another day inside a relatively narrow range (21 S&P points), the same could not be said about the health care sector, which ended lower by 0.9% after showing a 1.0% gain at the start that briefly morphed into a 2.5% decline. The intraday volatility was brought on by a swoon in the biotech space after Citron Research published a report on Valeant Pharmaceuticals (VRX 118.61, -28.13), calling into question the company's relationship with Philidor RX, which is a specialty pharmacy. According to Citron, Valeant appears to have created a network of specialty pharmacies modeled after Philidor, whose purpose was to generate phantom sales of VRX products. Shares of Valeant were down nearly 40.0% during afternoon action, but they narrowed their loss to 19.2% after a brief trading halt was lifted. Valeant responded to Citron's allegations during the trading halt, calling them "erroneous." It is worth noting that the afternoon rebound was aided by comments from fund manager Bill Ackman of Pershing Square Capital Management who told CNBC that his fund bought an additional two million shares in VRX today. As for the remainder of the biotech space, the iShares Nasdaq Biotechnology ETF (IBB 304.48, -1.48) ended off its low, but still surrendered 0.5%. Notably, Biogen (BIIB 276.34, +10.53) spiked 4.0% after the company beat estimates, raised its guidance, and announced a restructuring plan.

Similar to the health care sector, energy (-1.0%), materials (-0.9%), and technology (-0.8%) ended among the laggards while most of the remaining sectors fared a bit better. The top-weighted technology sector settled behind the broader market, which masked a 0.2% uptick in the PHLX Semiconductor Index after SanDisk (SNDK 76.78, +1.59) agreed to be acquired by Western Digital (WDC 71.44, -3.42) for $86.50/share. Shares of SanDisk jumped 2.1% while another index component—KLA-Tencor (KLAC 63.98, +10.12)—surged 18.8% after agreeing to be acquired by Lam Research (LRCX 70.79, +0.76) for $67.02/share.

On the upside, the industrial sector (+0.1%) displayed relative strength throughout the day thanks to a 1.6% gain in Boeing (BA 141.19, +2.31) after the Dow component reported better than expected results and boosted its guidance.

Unlike stocks, Treasuries advanced into the afternoon, holding the bulk of their gains into the close with the 10-yr yield sliding four basis points to 2.03%.

Today's participation was in line with average as more than 830 million shares changed hands at the NYSE floor. Economic data was limited to the weekly MBA Mortgage Index, which jumped 11.8% to follow last week's 27.6% plunge.

Tomorrow, weekly Initial Claims (consensus 265,000) will be released at 8:30 ET while the August FHFA Housing Price Index will cross the wires at 9:00 ET. Also of note, September Leading Indicators (consensus -0.1%) and Existing Home Sales (expected 5.39 million) will be reported at 10:00 ET.

• Nasdaq Composite +2.2% YTD
• S&P 500 -1.9% YTD
• Dow Jones Industrial Average -3.7% YTD
• Russell 2000 -4.9% YTD

Gapping up
In reaction to strong earnings/guidance: ISRG +8.1%, ARMH +6.4%, LAD +5.9%, BABY +5.2%, ZIXI +4.7%, GM +3.3%, MANH +2.7%, CB +2.4%, BA +2.2%, CREE +2%, DFS +1.4%, ABB +1.2%, ILMN +0.6%, OC +0.6%

M&A news: KLAC +16.5% (KLAC to be acquired by LRCX for value of ~$67.02/share, or ~$10.6 bln), SNDK +5.3% (SanDisk to be acquired by Western Digital for $86.50/share, or ~$19 bln), IM +0.5% (agreed to acquire Brazil-based Grupo ACAO; expects $300 mln in annual value-add solutions revs, and be modestly accretive to 2016 FY non-GAAP EPS)

Select oil/gas related names showing strength: BP 1.8% (still checking), RDS.A 1.7% (still checking), TOT 1.5% (still checking)

Other news: XOMA +17% (Novartis acquires Admune Therapeutics and licensing agreements with Palobiofarma and XOMA Corp), KERX +8.9% (The Baupost Group disclosed 34.61% active stake in 13D filing; private placement was previously announced on October 15), EPAX +5.4% (approves an initial liquidating distribution of $2.85/share), ALLT +5.2% (receives a Q4, $10 million expansion order from a Tier-1 mobile operator), WTW +3.8% (cont strength), BWINA +3.4% (appointed Steven A. Shapiro as Executive Chairman of the Board), MT +2.7% (in symp with BHP), FIT +1.8% (still checking), BHP +1.6% (provided operational review for quarter ended Sept 30, 2015: Petroleum production declined 4% from prior year to 65 MMboe), ASML +1.2% (in symp with ARMH), F +1.1% (in symp with GM), RIO +1% (in symp with BHP)

Analyst comments: EXAS +3.2% (upgraded to Overweight from Equal Weight at a boutique firm)

Gapping down
In reaction to disappointing earnings/guidance: PSO -16.4%, VMW -11.3%, (EMC and VMware announce plans to form a new cloud services business, by combining their respective cloud capabilities under the Virtustream brand), BDR -8.2%, (thinly traded, says it continued to experience lower than anticipated sales during Q3, liquidity position has not improved), CMG -7.3%, WSCI -6%, IRBT -5.1%, CLS -3.2%, EMC -2.6%, CS -2%, YHOO -1.6%, NTRS -1.5%, IBKR -1%, PII -0.9%, RUSHA -0.8%, CSL -0.6%, FTI -0.5%, KO -0.4%

M&A news: LRCX -3.6% (KLAC to be acquired by LRCX for value of ~$67.02/share, or ~$10.6 bln), WDC -2.6% (SanDisk to be acquired by WDC for $86.50/share, or ~$19 bln; also reported earnings)

Select metals/mining stocks trading lower: SBGL -1.6%, HMY -1.5%, GFI -1.4%, SLV -0.8%

Other news: SNTA -59.3% (terminates Phase 3 GALAXY-2 trial of ganetespib and docetaxel), FWM -2.6% (following intraday spike higher on increased volume--ended the day +30%), EMC -2.6% (EMC and VMware announce plans to form a new cloud services business, by combining their respective cloud capabilities under the Virtustream brand), HSBC -2% (in symp with CS), GBSN -1.6% (received a notice from Nasdaq for non-compliance with the exchange's minimum market cap and $1 minimum price bid standards), JD -1.6% (Shanghai -3.1% overnight), AMD -1% (S&P downgraded Advanced Micro Devices to 'CCC+' from 'B-' on weak operating performance; Outlook Negative), QIHU -0.8% (Shanghai -3.1% overnight), DB -0.8% (in symp with CS)

Analyst comments: HOG TWTR -4% (downgraded to Underweight from Equal-Weight at Morgan Stanley), MU -1% (downgraded to Underperform at BofA/Merrill), -0.5% (downgraded to Neutral from Overweight at JP Morgan)

	(note attached)

BUZZ-Morgan Stanley cuts Twitter to "underweight", slashes PT by a third

21-Oct-2015 10:45:09

** Twitter TWTR.K cut to "underweight" at Morgan Stanley

** Broker takes knife to PT on stock, slashes it by a third to $24 making it the lowest on the Street, according to StarMine

** MS continues to see limited growth and declining user engagement

** Broker says Twitter could be hitting a ceiling for ad load -- advertising as a pct of total content a user may see. MS estimates that adjusted for time spent Twitter's ad load is already 10x higher than Facebook FB.O

** Still too early to say if co's latest offering -- "Moments" -- will fix user engagement issues, MS says

** Twitter shares off 4.4 pct in light US premarket trading

** As of Tuesday's close, shares had risen more than 25 pct from the post-IPO closing low on Oct 1