Market Review: June 11, 2020

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Closing Recap

Thursday, June 11, 2020





DJ Industrials




S&P 500








Russell 2000





Equity Market Recap

·     U.S. stocks were in free-fall mode, with only a handful of stocks and assets holding gains in what was the worst selling day for major averages in about 12-weeks after Fed Chairman Powell painted a grim picture of the domestic economic outlook the day prior (jobs specifically and its impact) and as cases of COVID-19 were resurging in some 20 states in the U.S., raising fears of second wave of the deadly infection that forced a global economic and travel shutdown. The U.S. CDC reported 1,994,283 cases of the new coronavirus, an increase of 20,486 cases from its previous count, and said that the number of deaths had risen by 834 to 112,967. The Dow Jones Industrial Average fell more than 1,800-points or over 6%, while the SmallCap Russell 2000 dropped the most off over 7%, and the tech heavy Nasdaq Composite fell over 5% just a day after touching above the 10,000 level for the first time ever in what was a broad day of profit taking. Where stocks have been rallying sharply the last 2-months (recovering more than 45% off the March lows) all on quick economic recovery hopes – today was a reminder of just how sensitive the market is as just a few instances of rising coronavirus cases, and cautious commentary about the economy (which is widely well known) was enough to crush stock prices.

·     Major stocks averages (in some instances) fell back below key technical levels, while safe-haven/defensive assets such as gold and Treasuries saw renewed buying interest. The hardest hit sectors were travel (airlines) and leisure (theme parks, cruise), falling for a third consecutive session as a second wave of coronavirus cases has emerged in the U.S. with the number of confirmed cases pushing past two million, while energy names extend losses as oil prices tumble on slowing demand fears now if second wave hits. Financials/banks dropped sharply on Wednesday, erasing a good part of the recent rally, and extend those losses this morning as the reality of Fed keeping rates low through at least 2022 combines with likely high default rates, anemic loan growth, and low net interest income sunk shares of WFC, USB, C, and JPM. The CBOE volatility index (VIX) crosses 40 for first time since May 4. Every pullback (though there haven’t been many) since the March lows has been met to this point with heavy buying – tomorrow will be interesting to see if investors take the opportunity again.

Economic Data

·     Weekly jobless claims reported at 1.542M vs. est. 1.55M (last week revised to 1.897M from 1.877M), while continuing claims were 20.929M vs. est. 20.0M (last week revised to 21.268M from 21.487M); the 4-week moving average fell to 2.002M from 2.228M prior week

·     Producer price index (PPI) for May MoM rises 0.4% vs. est. up 0.1% while the core PPI (ex: food and energy) falls -0.1%, in-line with estimates. The PPI for May YoY fell -0.8% vs. est. decline -1.2% and core PPI YoY rose 0.3% vs. est. 0.4%



·     Oil prices plunged on Thursday as WTI crude slid -$3.26 or 8.23% to settle at $36.34 per barrel in what was one of its worst trading days in about 6-weeks amid worries over the US economic outlook and an uptick in coronavirus infections. Gold prices rise to its best levels in over a week, benefitting individuals reducing risk trade today, as August gold rises $19.10 or 1.1% to settle at $1,739.80 an ounce with investors rotating into safe haven assets.


Currencies & Treasuries

·     Safe haven assets jump with Treasury prices rising and yields tumbling following the mass sell-off in U.S. stocks amid rising coronavirus cases and the somber tone of Fed Chairman Powell yesterday related to the jobs situation. The 10-year yield fell for a 4th straight day, down 7 bps today to 0.65% (off multi-month highs last Friday of 0.95% after the strong jobs report), while the 30-yr yield fell around 7 bps to 1.43%. The U.S. Treasury sold $19B in 30-yr notes at a yield of 1.45% vs. the 1.444% when issued prior with the bid to cover (demand) at 2.3% in-line with prior and indirect bidders awarded 62.2%. The U.S. dollar turned positive midday against the euro, erasing its more than 1-week decline that took it to 3-month lows (euro fell off yesterday highs around 1.145 to lows around 1.13 this afternoon), given the aggressive sell-off in stocks and subsequent rotation into perceived safe-haven currencies such as the dollar and Japanese yen (the yen was one of the few currencies that the dollar slipped against).






WTI Crude















10-Year Note





Sector News Breakdown


·     Retailers; a lot of give back in recent “economic re-open” themes today with boost on COVID-19 cases in many states, taking the “wind out of the sails” for many retailers; PLCE reported Q1 adjusted EPS loss of $1.96), while sales fell -38% YoY to $255.2M; OXM shares another retailer that posted a miss on the top and bottom line for Q1 while suspended guidance; earnings tonight from PVH; retailers among top decliners early in the session; TUP shares fall after the company reported the early tender results of its previously announced offer to purchase for cash up to $175 million of its outstanding 4.750% senior notes due 2021

·     Consumer Staples; as second wave of coronavirus fears play out in markets, stay at home beneficiary stocks such as grocers, food names seeing some gains (KR, CHD, CLX, CL, TGT); food stocks CPB, GIS, K, and SJM all downgraded to underperform at Bernstein as market recovers & sales growth slows/believe that estimates are simply too high for these names in FY21 as they lap the meaningful COVID benefits; in tobacco, PM said it is on-track to deliver Q2 reported diluted EPS toward the upper end of its previously communicated range of $1.00 to $1.10; KDP upgraded to buy from hold at Jefferies citing compelling valuation and calls it a structural winner from COVID-19 mega-trends

·     Restaurants; JACK reported quarter-to-date comparable sales trends that have topped Wall Street expectations, and have been better than peers, saying comps for the first eight weeks of its fiscal third-quarter rose about 5%; BLMN said as of June 7, 2020, over 760 company-operated U.S. restaurants (approximately 74% of U.S. restaurants) have reopened with limited in-restaurant dining capacity in accordance with local mandates; SBUX downgraded from Overweight to Sector Weight at KeyBanc as current sales trends remain challenged and believe NT upside is limited due to its elevated valuation and the prospect of a more gradual SSS/ EPS recovery than previously expected

·     Housing & Building Products; JPMorgan upgraded homebuilders PHM, MTH, TMHC and GRBK all to overweight from neutral and LGIH upgraded to neutral while downgraded DHI to neutral and KBH to underweight to reflect reversion to pre-pandemic approach focused on P/E from a valuation perspective, vs approach over past three months, which had focused on price/book and allocated ratings based on risk-averse model; Wedbush downgraded DOOR to neutral as do not see an emerging catalyst following rally in shares

·     Casino & Leisure movers; leisure stocks such as SEAS, SIX, FUN, RCL, CCL, declined amid concerns that a second wave of a Covid-19 cases is imminent as cases of the virus tick higher in some states; in casinos, WYNN Macau said Macau table games win % negatively impacted adj ebitda, Macau ops has avg monthly adj property ebitda loss $61.2M and sees Macau ops rev $17.9M-$19M for two months ended May 31



·     Energy stocks another blood-bath of a sector as investors took “risk-off”, with oil prices tumbling on renewed slowing demand fears give the resurgence of some coronavirus related cases in parts of the country. Also weighing on prices a record build-up in U.S. crude inventories, bearish Fed commentary on the jobs industry and profit taking after the big spike in prices over the last month. Names across various sub-segments all fell including majors (CVX, XOM), E&P (APA, PXD), refiners (VLO, MPC) and equipment and services (SLB, HAL); OKE was downgraded at Bank America to neutral as view OKE’s risk/reward profile as balanced with near-term recovery optimism and NGL price improvement offset by longer-term caution around natural gas and NGL production in the Bakken, Rockies and Mid-Con.



·     Bank movers; many of the big bank stocks slumped into a third session along with additional pressure in regional banks (KRE) on the 4th day of declines in Treasury yields (which effects lending margins for banks), as well as cautious comments this week at conferences. WFC shares plunged yesterday (follow through today) after its CFO predicted sinking net interest income and higher reserves at Morgan Stanley’s financial conference – the comments pushed financials broadly lower in what was an already tumultuous day of trading.

·     In the insurance space, PGR was downgraded to Neutral from Overweight at Piper as believe a combination of fears about increasing personal lines competition, a lack of pricing upside relative to commercial insurers and concerns about slowing top-line growth will cause PGR’s stock to pause. Credit card companies took a breather again (ADS, AXP, COF, DFS), one of the top performing sectors over the last 2-weeks in financials given the hopes of increased spending with the economy reopening.



·     Pharma movers; EBS signs agreement to be U.S. manufacturing partner for AZN’s Covid-19 vaccine candidate; in cannabis, HEXO Q3 net revenue jumps 70% to C$22.1M and gross revenue of adult-use cannabis rose to C$29.8M from C$14.6M a year earlier saying primary driver was increase in sales from co’s Original Stash brand during the quarter; SRNE rises following its announcement that an application for Emergency Use Authorization (EUA) is under FDA review for company’s COVI-TRACK in vitro diagnostic test kit; RETA surges after securing $350M investment for drug development

·     Biotech movers; MRNA shares held steady after confirming plans to begin late-stage trial of its experimental coronavirus vaccine in July which will test vaccine in 30,000 volunteers with main goal of preventing symptomatic COVID-19; REGN begins human trials of its potential COVID-19 treatment and said expects to go into second phase of testing within a week or two, and have clear data on effectiveness of the antibody cocktail within a month; CCXI 5.2M share Spot Secondary priced at $58.00; MGTA said it made a strategic decision to discontinue enrollment in Phase 2 study of MGTA-456 in inherited metabolic disorders and prioritize resources toward stem cell mobilization

·     Medical equipment and devices; CDNA 3.91M share Secondary priced at $32.00; SWAV was upgraded to perform from underperform at Oppenheimer after having rallied ~40% since early April (vs. the S&P 500 up ~24%), and now trades at ~15x FY21E P/S, one of the highest valuations in MedTech-land (notes has been dead wrong on name); in services and providers; CTLT 7.75M share Spot Secondary priced at $71.25


Industrials & Materials

·     Aerospace & Defense; BA shares weak as the Dow component said yesterday it is targeting a 737 MAX recertification flight for late June, but the U.S. plane maker has directed parts supplier SPR to "pause additional work on four 737 MAX shipsets and avoid starting production on sixteen 737 MAX shipsets to be delivered in 2020”. SPR also believes there will be a "reduction to its previously disclosed 2020 737 MAX production plan of 125 shipsets."

·     Transports; the Dow Transports dropped as much as 6% to lows below the 9,000 level, down more than 1,000 points off its highs on Monday of 10,096 as airlines sink, leading decline (AAL, JBLU, DAL, LUV, UAL), but weakness was broad based in rails, truckers, and car rental names as the hopes for a quick economic recovery subsided.

·     Chemicals; busy sector related to analyst research as WLK was upgraded to overweight and tgt raised to $70 from $57 at Wells Fargo saying based on recent checks, they believe caustic soda prices are moving up while PVC prices are falling less than expected, which are positives for both OLN and WLK; AXTA was upgraded to buy at Citigroup after hosted virtual Paints Day with SHW, AXTA, PPG and TZMI (TiO2 consultants) and firm is raising multiples on paints as the business models have proven resiliency; AkzoNobel April/May revenues were down around 25% slightly worse than analysts expecting around a 17% decline overall in Q2; decorative paint demand is back in China and EU but industrial coatings continue to drag


Technology, Media & Telecom

·     Overall tech saw profit taking after the recent run in the space; GRUB reached an agreement to be acquired by Just Eat in an all stock deal valued at $75.15 a share, or a total of $7.3 billion ; SNAP said more than 170 million people use its augmented-reality tools daily, a sign that the technology is going mainstream. Overall really quiet in news for the tech sector, falling sharply after the NASDAQ touched record highs above the 10,000 level on Wednesday led by software and large cap giants. Shares of FB, NVDA, AMZN, NFLX, AAPL among the stocks pulling back from record highs just yesterday. ZM bounced off lows as renewed fears arise of second wave COVID, stay at home beneficiary names saw a bounce; ZEN pressured after COO announces departure and plans to offer $1B of convertible senior notes due 2025 in a private offering; ZNGA and SNAP announces a multi-game partnership


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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