Market Review: May 26, 2020

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Closing Recap

Tuesday, May 26, 2020





DJ Industrials




S&P 500








Russell 2000





Equity Market Recap

·     U.S. stocks end the day mostly higher with today’s theme summed simply as: YTD winners were sold while YTD losers were bought. The details were evident as financials surged (JPM, GS, and AXP among top gainers in the Dow), along with sectors hardest hit by the coronavirus global lockdown such as airlines (jumped as Dow Transports gain over 5%), leisure, cruise lines and theme parks (SIX, RCL) and investors took profits in defensive asset classes as gold and Treasury prices slid. At the same time, biotech stocks (IBB) fell after touching 52-week highs last week, along with weakness in software and large cap tech winners (NFLX, AMZN, AAPL) on no particular news. U.S. stocks overall jumped, propelling the S&P 500 past the key psychological level of 3,000 points as optimism about developing coronavirus vaccines and the revival of business activity helped investors overlook simmering China-U.S. tensions. Today’s move above the 3,000 level was the first time since March 5, topping its 200-day MA in the process and is now up over 35% from its March lows. Central Bank and Government stimulus at a time when the U.S. economy is seeing its biggest job losses since the Great Depression has given stocks the needed boost. At this time, all 50 states have at least partially re-opened parts of their economy, with more getting done each day, raising optimism and sentiment for businesses. Data showed U.S. consumer confidence nudged up in May, adding to hopes that the worst of the economic impact of the shutdown is in the past. Stocks started the day higher amid positive vaccine data headlines from NVAX, and MRK. The S&P 500 and Nasdaq Comp gain for the 6th time in the last 8-sessions while the Dow Jones Industrial Average held early gains, rising over 600 points to top the 25K level for first time since mid-March. The Nasdaq Comp trades above 9,500, not far from its February all-time highs of 9,838 (but well off the March lows of 6,631). Stocks pared gains late day after headlines that the Trump administration is considering a range of sanctions on Chinese officials, businesses and financial institutions over Beijing’s effort to crack down on Hong Kong.

Economic Data

·     New Home Sales for April rose 0.6% to 623,000 annual rate, far better than the estimate decline of over 23% at 480K; new home sales rose 4k in April from prior month, the Census Bureau said; the median new home price fell 8.6% y/y to $309,900 as average selling price at $364,500; US April home sales Northeast +8.7%, Midwest +2.4%, South +2.4% and West -6.3%

·     Consumer confidence reported at 86.6 vs. est. 87.5 as April revised to 85.7 from 86.9 as the expectations index 96.9 in May vs. April revised 94.3 previous 93.8; while the present situation index 71.1 in May vs. April revised 73.0 vs. previous 76.4

·     Dallas Fed Texas manufacturing output index -28.0 in May vs. -55.6 in April and index of general business activity -49.2 in may vs -74.0 in April

·     Chicago Fed Nat Activity for April falls -16.74 vs. est. -3.5 (prior month to -4.97 from -4.19)

·     Housing data: CaseShiller March 20-metro area home prices +3.9% vs. est. 3.4%; March home prices in 20 metro areas +0.5% seasonally adj vs. est. 0.4%; March home prices in 10 metropolitan areas +3.4% from year ago vs. revised +3.0%



·     Oil prices advance along with stocks, as WTI crude rose $1.10 or 3.31% to settle at $34.35 per barrel, helped by growing confidence that oil producers are following through on commitments to cut supplies and as fuel demand picks up as coronavirus lockdowns ease as evident by last week’s weekly inventory data. Russia’s energy ministry on Monday quoted Minister Alexander Novak as saying that a rise in fuel demand should help to cut a global surplus of about 7 million to 12 million bpd by June or July. June Gold prices end lower, sliding -$29.90 or 1.7% to settle at $1,705.60 an ounce as investors add to riskier assets such as stocks and oil and rotate out of defensive safe-haven assets.


Currencies & Treasuries

·     The U.S. dollar slipped vs. most rival currencies, as the British pound rose above the $1.23 for the first time in over 2-weeks, boosted mainly by improving global risk appetite which saw the dollar fall. World stocks pushed higher and commodity markets bounced as investors became more optimistic about global economies re-opening. The safe-haven dollar fell overall. Treasury prices slipped given the “risk-on” continuation in trading, as stocks and oil rise and gold, the dollar and Treasury prices slide. The yield on the 10-year inched higher, rising over 4bps to 0.70% while the 2-yr yield gained 1 bps to around 0.18% (yields still remain pressured).






WTI Crude















10-Year Note





Sector News Breakdown


·     Retailers; strength in beaten up retailers initially as businesses slowly reopen, and sentiment improves; Macy’s (M) said it is offering $1.1 billion in senior secured notes due 2025 to repay all amounts outstanding under its revolving credit facility as it continues to grapple with the Covid-19 pandemic; IRBT upgraded to neutral from underweight at JPM citing recent positive developments, including a new technology licensing agreement and Mother’s Day data; HIBB said current sales are robust and traffic at the reopened stores has been positive in recent weeks while also tops estimates for first-quarter profit and sales, helped by an increase in digital traffic, conversion and new customer acquisition

·     Consumer Staples & Restaurants; TAP suspends quarterly dividend and cuts capex spending by $200M; OLLI was downgraded to neutral at Credit Suisse while Craig Hallum upgraded the shares to buy while boosts its tgt to $104 from $45; stay at home recent winners such as food and delivery names CHD, KMB, CMG, DPZ were among the S&P 500 top decliners today

·     Housing & Building Products; housing stocks jumped (TOL, KBH, PHM) following surprisingly strong monthly new home sales data for April as sales rose 0.6% to 623,000 annual rate, far better than the estimate decline of over 23% at 480K (though as median prices declined)

·     Casino & Leisure movers; theme parks stocks break higher as a healthy portion of the U.S. appears to be ready to take up summertime activities and as SIX said it will reopen its theme park in Oklahoma City on June 5 in preview mode and will gradually increase attendance using its new reservation system (SEAS, FUN, DIS other park movers); hotels (HLT, MAR, H) as well as cruise lines (CCL, RCL, NCL) among early top gainers on improved sentiment about the pandemic; camping and RV names jumped early (CWH, THO, WGO) after RV dealerships are reporting a surge in customer demand as people are desperate to travel but wary of cities/crowds; movie theatre names (AMC, IMAX, CNK) rose after IPIC Theaters LLC said it will start reopening its 14 theaters and seven restaurants, beginning with its Texas locations next week

·     Autos; AZO posted a Q3 earnings beat and said over last 4 weeks of qtr, as stimulus checks began to flow, same store sales turned meaningfully positive (though for quarter, comp sales fell -1% vs. up 3.9% YoY); KAR announced $550M strategic investment led by funds advised by Apax Partners; NIO was upgraded to buy from neutral at Bank America as sees higher sales volume for Nio in 2020-21 and easing of uncertainty associated with fund raising after the investment agreement with Hefei government; Nikkei Asian Review reported NSANY will scrap a production line at a U.S auto assembly plant in Mississippi as part of an effort to cut $2.79B in annual costs; HTZ announced that it and certain of its subsidiaries have filed voluntary petitions for reorganization under Chapter 11 in the U.S. Bankruptcy Court for the District of Delaware



·     Bank movers; bank stocks were strong, with GS (upgraded at Odeon today – Dick Bove) and JPM up pacing the early gains along with AXP; TCBI falls following the termination of the planned merger with IBTX citing the significant impact of the COVID-19 pandemic on global markets and on the companies’ ability to fully realize the benefits expected from the deal (downgraded at Piper and KBW on news); insurance stocks rise again (MET, TRV, PRU) as broader market gains on business restarts and optimism about a potential coronavirus vaccine; RF raises 2q NII growth outlook to 3.5%-4.5% from 2%-3% as DBAB hosted virtual financial svcs conference today

·     Consumer finance and lending; PYPL turns lower after reaching new all-time highs of $154.55; Credit Suisse downgraded a few mortgage finance names as IVR and MITT both downgraded expects continued uncertainty around financing, leading to further risk to book value while they upgraded ARR to neutral amid the combination of an improved earnings outlook, resumption of a dividend, and the current discount to book limiting its downside; gains in ADS, AXP, COF, DFS, SYF as credit card names strong given expectations of increased spending as economy continues to reopen



·     Pharma movers; Dow component MRK rises as announces collaborations to develop COVID-19 vaccine and antiviral drug/to acquire vaccine-maker Themis, develop a vaccine program/to work with non-profit research organization IAVI to advance development and clinical evaluation of a vaccine candidate/also announces agreement with biotech co Ridgeback Biotherapeutics LP to develop EIDD-2801, an orally available antiviral candidate for COVID-19, currently in early clinical development; ARGX reported positive top line results from its Phase III study for efgartigimod in myasthenia gravis with trial meeting its primary end-point; MNTA positive mention at Stifel on AGRX news saying the results further validate the anti-FcRn mechanism in MG and increase the probability that nipocalimab will demonstrate positive results in its Phase 2 study expected to read out in the coming weeks; ZYNE said data from two year-long mid-stage study shows its Cannabidiol gel, Zygel, sustained statistical improvements in aberrant behavior in patients with neurological disorder- Fragile X

·     Biotech movers; NVAX jumps after saying it has started a phase 1 clinical trial of its coronavirus vaccine candidate code-named NVX-CoV2373, and expects to issue preliminary immunogenicity and safety results in July; REGN shares slipped after SNY disclosed its intention to sell the vast majority of their 20.6% (23.2M share) ownership of REGN with REGN committing to repurchase $5B of these shares/sale could raise ~$13B+ for SNY; SGEN upgraded to Conviction Buy list with $245 tgt at Goldman Sachs saying it is poised for both near- and long-term growth on the back of three approved drugs with multiple label expansion opportunities and a robust R&D pipeline built on a proven antibody-drug conjugate platform; GILD was upgraded to Hold from Sell at SunTrust and raising tgt to $73 from $70 as see potential commercial sales near-term as remdesivir is the only approved drug (EUA) to treat hospitalized COVID patients; ATRA with updated data from a Phase 1 clinical trial evaluating its ATA188 in patients with progressive forms of multiple sclerosis showed that it was well-tolerated across all four dose arms


Industrials & Materials

·     Industrial & Machinery; ROK was upgraded to Buy at Bank America with $250 tgt saying COVID-19’s disruption of supply chains, along with tariffs and rising geopolitical tensions, are leading to a rebuilding of US manufacturing capacity; KBR was upgraded to Buy from Neutral at UBS as think the company’s decision to reduce energy’s contributions to earnings to zero in its guidance is a further step in its transformation from a historically energy driven business to a government services business, and the new mix warrants a higher valuation in their view

·     Transports; airlines taking flight as more countries lift restrictions, after plans by Italy and Greece to lift travel restrictions by early- to mid-June (AAL, UAL, JBLU, LUV, ALK helped lead the Dow transports higher by around 5% midday); LUV was upgraded to Buy from Neutral and $41 tgt at UBS as they see a clearer path for domestic travel recovery (weekly domestic traffic down 83% from 94% 3 weeks ago) and have started to see enough evidence of LUV’s cash burn reduction that some of the tail risk is removed/also positive on co balance sheet; Maersk (AMKBY) downgraded to Hold at Jefferies in view of increased risk of an oversupplied container with mounting volume pressure of up to 25% in 2Q20E and 10% in FY20E

·     Chemicals; LYB was upgraded to Buy from Hold at Deutsche Bank and raised the price target to $72, upside potential of 20%, as the outlook for the US polyethylene market has improved significantly over the past month; LIN was upgraded to Buy from Hold at Argus with $236 tgt saying the co has a strong presence in defensive end markets that should generate steady revenue despite the impact of the pandemic; SMG downgraded from Strong Buy to Market Perform at Raymond James as the shares have performed extremely well since March 16, appreciating 53% over the past ten weeks vs. 9% for the S&P 500


Technology, Media & Telecom

·     Semiconductors; the Philly Semi index rises over 2% as the index back to best levels since February; AMD, NVDA lagged (after recent outperformance) while MCHP among top gainers as well as CREE after being upgraded at JMP Securities; IPGP was downgraded at Raymond James

·     Software movers; for ADBE, Cleveland research said F2Q appears tracking slightly below on moderation in Digital Experience from less new large deals/Digital Media seen tracking in-line with pre-COVID expectations; PLAN shares slide after Q1 loss (though better than est) on slightly better revs and withdraws forecast for year/reported Q1 subscription revs rose 44% YoY; DBX positive mention in Barron’s saying with shares trading around $22, is just 4x enterprise value to estimated 2021 sales, while ZM trades at 46x EV to sales, WORK goes for 18x and TEAM trades at 20x; ZM among names that slipped early as “stay-at-home” beneficiaries pare recent gains; FSCT adds to Friday’s gains after the company agreed with Advent International to extend the deal termination deadline to Aug. 6 from June 6 after filing a stipulated temporary restraining order

·     Media & Telecom movers; Warner Music, which will trade under WMG, will sell 70mm shares at $23-$36 per share in its IPO, raising $1.8B at the top end of the range and list on Nasdaq; SPOT shares slipped after an earlier Axios report that AMZN was interested in investing in localized podcast content


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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