Market Review: April 09, 2020

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Closing Recap

Thursday, April 09, 2020





DJ Industrials




S&P 500








Russell 2000





Equity Market Recap

·     Stocks initially surge into the three-day holiday weekend on Fed stimulus – but lost steam late day amid a plunge in oil and roll in technology stocks. On a day where jobless claims once again topped 6M for the week (bringing the total amount of individuals in the U.S. filing for unemployment 16.6M in three weeks) and another round of surging coronavirus cases and deaths (US CDC reported 1,942 new deaths due to coronavirus as of yesterday as the total now 14,696 deaths vs. 12,754 the prior day and reports 32,449 new coronavirus cases as of yesterday as total cases now 427,460 vs. 395,011 prior), the Federal Reserve once again tried to backstop anything they can with another massive $2.3 trillion stimulus program (in turn fueling inflation – which sent gold futures soaring), in an attempt to help others parts of the economy that did not benefit from the original CARES Act a week ago. Details of all the Fed actions are below, but some of the most benefitted sectors included financials, beaten up travel, leisure, lodging and restaurant/retail with a boost off depressed levels. Energy names were active as the OPEC+ meeting results in a 10M production cut, in-line with current expectations, as the industry tries to solve the oversupply issue (but doesn’t help the lack of demand issue). Broader markets pared gains late day as oil prices reversed lower by -9% after earlier gains of +10%.

·     The Fed program will include a new fund to buy debt from banks issued to small and medium sized U.S. businesses with up to 10,000 employees and another to buy short-term notes issued by U.S. states and municipalities. Treasury yields bounce off lows after the Fed program, while the US dollar moved lower, prompting a spike in gold as the Fed moves are inflationary (Fed Chairman Powell noted he wasn’t concerned about inflation now – probably helped in part as we never reached their inflation targets – as they will focus on lending).

·     Earnings season kicks off next week with most of the large cap banks releasing earnings while many will watch for any commentary pertaining to lending and loans following the recent SBA loan program announced by the government to help small businesses. Treasury Secretary Steven Mnuchin said he will provide preliminary details to airlines on how to access billions of dollars in loans and grants as they cope with a dramatic drop in revenue amid the coronavirus crisis. Europe’s Stoxx 600 records best week since Dec 2011 with 7.2% gain, while Germany’s DAX posts 10.9% weekly rise in its best since Nov 2008. The major U.S. stock exchanges will be closed Friday in observance of Good Friday.

Fed Intervention for Markets

·     The Federal Reserve said it would pump $2.3 trillion into the economy through new and expanded programs it announced on Monday, ramping up efforts to help companies and state and local governments suffering financially amid the coronavirus. The Fed announced that it will use Treasury Department funds recently authorized by Congress to buy municipal bonds and expand corporate bond-buying programs to include some lower-rated and riskier debt (companies that only recently fell to BB or higher in credit rating). The Fed will also set up a business lending program that targets mid-size companies including those not eligible under a Small Business Administration loan program. This marked the first time it used its authorities to buy municipal debt or lower-rated company debt.

·     The Fed also said it will buy up to $600 billion in loans through its Main Street Lending Program, with the Treasury providing $75 billion in backup. That effort will offer 4-year loans to companies that employ up to 10,000 workers, or which have less than $2.5 billion in revenues. Banks will originate the loans and retain a 5% share, but will then sell the remainder to the Fed. Congress recently gave the Treasury Department $454 billion in funding to back up Fed emergency lending facilities, which need to be insured against losses when they have credit risk.

·     The Treasury will also ramp up its insurance on the Fed’s two corporate bond-buying programs and its so-called Term Asset-Backed Securities Loan Facility, or TALF. Those will now have $85 billion in Treasury backing as they expand. That’s in part because they are adding riskier debt: some companies that were downgraded to below investment grade after March 22, for instance, will now be eligible for Fed help. A new Municipal Liquidity Facility will purchase up to $500 billion of short term notes directly from U.S. states, according to the Fed release – NY Times


Economic Data

·     Weekly jobless claims jumped another at 6.6M, above the 5.5M estimate (over 16M jobless claims the last 3-weeks) and continuing claims at 7.45M vs. est.8.23M from 3.059M the prior week; the 4-week moving average rose to 4,265,500 from 2,666,750 prior

·     Producer Prices (PPI) for March final demand fell (-0.2%) vs. est. down (-0.4%) while core prices (excluding food & energy) rose 0.2% MoM vs. est. 0%; core PPI ex food, energy rose 1.4% YoY vs. est. up 1.2%

·     University of Michigan sentiment falls to 71.0 reading vs. est. 75.0 – declines most on record and down from 89.1 prior month; the current economic conditions index fell to 72.4 vs. 103.7 last month (31.3-point drop nearly double prior record decline of 16.6 points set in Oct. 2008) and the expectations index fell to 70.0 vs. 79.7 last month

·     Wholesale Inventories for February fell (-0.7%) vs. estimate of a (-0.5%) decline as wholesale inventories decreased to $655.8b vs $660.2b in prior month; wholesale sales fell 0.8% in Feb. after rising 1.3% the prior month



·     Oil prices slide, unable to hold big gains earlier as the OPEC+ meeting delivered a production cut of around 10M barrels per day, but was only in-line with expectations, causing a “sell-on-the-news” reaction after prices rose yesterday on hopes for bigger cuts to help ease oversupply issues. WTI crude prices ended lower by -$2.33 or 9.29% to settle at $22.76 per barrel, after rising more than 10% earlier in the session to highs of $28.36 per barrel as OPEC+ production cuts underwhelm markets (still doesn’t fix demand issue). Baker Hughes also said the U.S. oil drilling rig count was down 58 to 504 in the week (4th straight weekly decline in rigs).

·     Gold prices surged on rising expectations the US dollar is going much lower following the Fed actions this morning such as buying High Yield bonds in addition now to the muni market and investment grade. June gold rose $68.50 or 4.1% to settle at $1,752.80 an ounce, its best levels since October 2012 and remains up 12% YTD (and up 7% for the week). The inflationary measures by the Fed today boosted the appeal of the precious metal, which is also drawing safe-haven interest amid the rising coronavirus cases and deaths daily.


Currencies and Treasuries

·     Treasury prices ended the day higher, with the benchmark 10-year yield falling about 5 bps to 0.71%, but the dollar remains the focus given the additional $2.3 trillion in lending and purchases announced today by the Fed which is dollar negative as they open up the printing press to fully backstop the US economy. The dollar decline was broad based falling vs. all major currency rivals as well as emerging markets.






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10-Year Note





Sector News Breakdown


·     Retailers; COST reported March comps for 5 weeks ending 4/5) of 12.1% for US (x-gas) and 12.3% for total company (x-gas & FX) as strength in food/sundries (+mid-30s% comps) and fresh food (+mid-20s) reflected strong COVID-19 stock-up that began end of Feb into mid-March; BIG announced a sale-leaseback agreement, which should yield $550M of after-tax proceeds (65% EV and 89% of the market cap at Wednesday’s close)/deal expected to close in fiscal 2Q; NLS surges after the company said preliminary sales for Q1 rose 11% to $94 million, the first time quarterly sales have grown year-over-year since 2018 driven by home exercise equipment

·     Restaurants; SBUX said it sees Q2 EPS about 32c, below ests of 39c saying business disruption related to Covid-19 in China hurt results by 15c-18c and expects the negative financial impacts to Q3 will prove "significantly greater" than in Q2 and extend into Q4; BLMN reached settlement with activist shareholder Jana Partners as agreed to add two new independent directors to its Board after Jana pushed for board changes few months ago



·     Energy stocks were very volatile after the OPEC+ meeting produced a production cut that was mostly in-line with consensus forecasts, but not as deep as some investors had hoped in an effort to help limit supply while demand trends are very low. Saudi Arabia and Russia reached an agreement in principle to cut oil production after a month-long feud that devastated oil prices. For Saudi Arabia, the output curbs will involve removing 4 million barrels a day from its April production levels, while Russia has agreed to cut 2 million barrels a day with total cuts coming to roughly 10M barrels a day as the coronavirus outbreak moves across the world and leads to travel restrictions and work stoppages, and forcing a collapse of oil consumption. Energy stocks had been rising into the meeting, adding to gains today before slipping late day. Also, Baker Hughes said the U.S. oil drilling rig count was down 58 to 504 in the week – markets the 4th week in a row of rig count cuts, while overall rigs fell -62 to 602. Energy stocks erased gains midday, falling sharply as WTI crude fell 9% after earlier gains of 10%.



·     Bank movers; banks were massive winners on Thursday following the new stimulus efforts offered by the Fed today to help businesses, back stopping lending along other measures for buying high yield bonds, muni’s and other markets. From a Small Business Administration Official (as per Fox news): the SBA approved 465,000 loans, processing more than $120B through more than 3800 lending institutions. Again these are community banks. The big banks have accepted applications, but not yet processed through their loans.

·     Info Services; Goldman Sachs said amidst broadening impact from COVID-19 they revise estimates across Information Services stocks lower. Focus on companies with defensive end-markets, a higher mix of recurring revenue streams, and flexibility to reduce costs – they said to buy CSGP, INFO, SPGI and upgraded CCC to Buy while Sell FDS

·     Consumer finance and lending; AGNC reduced its monthly dividend from $0.16 to $0.12 per month and reported a tangible book value of $13.60 per share (better than fears); mortgage finance names got a bounce as well on the Fed news (TWO, CIM, MFA, NYMT, IVR)

·     Asset managers; WDR preliminary assets under management of $56.0 billion for the month ended March 31, 2020, compared to $65.0 billion on February 29, 2020; CNS preliminary AUM $57.4B as of March 31, a decrease of $11.9B from assets under management at February 29; BEN prelim AUM at $580.2 billion at March 31, 2020, compared to $656.5 billion at February 29, driven lower by sharp market declines

·     Business Development sector; late yesterday, the SEC gave business development companies additional flexibility, on a temporary basis, to issue and sell senior securities in order to provide capital to small and medium-sized businesses. It will also allow BDCs to participate in investments in these companies alongside certain private funds that are affiliated with the BDC (names to watch MAIN, ARCC, AINV, HTGC, GAIN, among them)



·     Biotech movers; BNTX rises after saying PFE to make an equity investment of $113M as part of joint effort to develop COVID-19 vaccine/PFE investment is part of $185M in upfront payments, including $72M in cash and BNTX eligible to receive future milestone payments of up to $563M; PTLA said it would be regaining its rights to andexanet alfa in Japan, after terminating its agreement with its two pharma partners and gets upfront payment of $15M and lose the right to regulatory milestones of $20M and sales-based milestones of up to $70M and royalties; IBIO signed two master services agreements and a memorandum of understanding with the Infectious Disease Research Institute in support of its SARS-CoV-2 Virus-Like Particle vaccine development.

·     Medical equipment and devices; MDT gave update on its manufacturing plans for its ventilator portfolio to aid in the fight against coronavirus, indicating it would be scaling its production of ventilators to a 1000/week target by end of June, representing a five-fold increase in production vs. pre-pandemic levels; ZBH was downgraded to in-line from outperform at Evercore ISI as orthopedics faces a slow recovery from COVID-19 disruption and cuts its tgt to $115 from $170

·     Healthcare services and providers; ANTM was downgraded to hold at Jefferies saying the far-reaching impact of the spread of the novel coronavirus and a likely recession will overshadow the near-term benefit for some managed care companies; VAPO rises after the FDA recently granted "breakthrough device" designation for co’s Oxygen Assist Module


Industrials & Materials

·     Industrial & Machinery; GE said view of Q1 results indicates adjusted EPS materially below prior guidance of about $0.10/industrial free cash flow near the prior guidance of negative $2 billion

·     Transports; UPS was downgraded to neutral from buy at UBS as expect the impact of COVID-19 to drive a sharp reduction in B2B volumes with the most notable decline in UPS’s highest margin customer group of small and mid-sized businesses (SMB); KSU was downgraded at JPMorgan to underweight given the stock does not reflect the recent surge of COVID-19 cases in Mexico where our economists see downside risk to -7% GDP in 2020 based on lagging policy responses and insufficient healthcare facilities; YRCW inches higher after activist investor Barna Capital says it plans to initiate changes at co’s board

·     Aerospace & Defense; FLIR was downgraded to sell from buy at Goldman Sachs following outperformance and as they estimate downside risk to estimates amidst persistent weakness in fundamentals and elevated valuations (cut tgt to $31 form $44) while upgraded ERJ to Neutral as challenges to its business are likely priced in; Cowen said defense will see much less COVID-19 disruption than industrial markets with generally stable cash flows although we could see some guide tweaks – big cap favorites are RTX and LHX and see HII as a short-term relative safe-haven

·     Chemicals; JPMorgan upgraded EMN to overweight in tough chemicals sector as view it a cyclical company that is likely to have a difficult 2020 but says its earnings should rebound with the transportation and construction industries; CE was downgraded at JPMorgan to neutral saying sees EMN a better value and cut LIN to neutral noting it has been an excellent performer over the previous year, increasing 2% versus an S&P Average that is (4%) lower.


Technology, Media & Telecom

·     Internet; YELP announces cost-cutting measures, including laying off about 1,000 employees and furloughing an additional 1,100; to also cut salaries; BIDU suspended updating its content on certain newsfeeds channels within Baidu App and conduct maintenance, beginning from April 8.

·     Semiconductors; the semi index (SOX) dropped late afternoon, down over 15% – more than 50 points off earlier highs above 1,673; MCHP said it expects net sales growth of 3% Q/Q for its quarter ending on March 31/said it received record bookings in the quarter, and the backlog for the June quarter is currently up 9% Q/Q; KeyBanc said on Apple suppliers (SWKS, QRVO, CRUS, AVGO, SYNA) that spend analysis indicates March iPhone sales declined 56% y/ y, while unit sell-through declined 42% y/y, which indicates online sales have not been able to compensate for store closures. Additionally, we observed a significant drop in blended ASPs, which declined ~20% y/y in March; INTC a standout decliner in generally mixed sector

·     Software movers; SAP lowered its FY20 cloud revenue is expected between EU8.3B to EU8.7B compared to the prior EU8.7B to EU9.0B and sees total revenue of EU27.8B to EU28.5B (down from EU29.2B to EU29.7B); BILI active after Sony Corporation of America, a subsidiary of SNE, entered into an agreement, pursuant to which SCA will subscribe for 4.98% of the total outstanding shares of the company; MSFT said its Teams platform posted huge gains in March to a record of 2.7B meeting minutes were logged on March 31, an increase of 200% from 900 million in mid-March and total video calls grew 1,000% in March

·     Media & Telecom movers; DIS shares rose after saying paid subscriptions to its Disney+ streaming service soared past 50 million (the service that launched in November was previously was at 28 million but has surged with the closure of schools); EB launched an expense reduction effort in reaction to the pandemic that will see it cut its global workforce by 45%; measures are expected to save $100M a year, the company says

·     Hardware & Component news; ANET downgraded to neutral from overweight at Piper noting shares have rallied due to the shift to the cloud in a remote work environment, but there is no clear catalyst in the near-term; ZM remained active after the U.S. Senate has told its members to not use Zoom’s video conferencing app due to data security concerns, Financial Times reported


Market commentary provided by Catena Media Financials US, LLC, a firm separate from and not affiliated with Regal Securities. Regal Securities has not participated in the creation of the content, and does not explicitly or implicitly endorse the content.

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