Mid-Morning Look: April 07, 2020

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Mid-Morning Look

Tuesday, April 07, 2020






DJ Industrials




S&P 500








Russell 2000






U.S. equities extend their rally as major averages have bounced nearly 25% since their March lows (though still remain down between 10%-18% YTD for major averages) as investors remain hopeful the liquidity measures, rate cuts, and QE programs by the Fed, as well as the stimulus/relief programs for American citizens and small business from the government will help save sectors that have been severely affected by the global economic shutdown due to the COIVD-19 virus. The Nasdaq Composite rises early, looking for its first back to back daily gains since March 2nd, as it moves back above the 8,000 level for the first time since March 11th. The S&P 500 index (after bottoming on 3/23 at 2,191) also at its best levels in nearly a month adding to yesterday’s 7% advance while the Dow touches highs above 23,600 before paring gains. There hasn’t been one specific headline driving stocks the last 2-days other than slowing coronavirus cases and deaths in Europe over the last week, raising hopes the worldwide “social distancing” effort is working as people stay home from work and schools and many non-essential business remain closed to slow the pandemic. The Trump Administration has also taken a more positive approach noting the many potential treatments in the pipeline for a cure and claiming that a “peak” of the rising cases could come in the next week or so. Many sectors are higher early (after all 11 rose yesterday), but gains led by those hit hardest during the last few weeks such as transports, leisure, retailers, restaurants and cruise lines). Markets however have seen profit taking since the open.


Treasuries, Currencies and Commodities

·     In currency markets, the U.S. dollar giving up recent gains, pulling back broadly as stocks surge, with the euro rising over 1%; the dollar also slipped against the Canadian dollar as oil prices resume upward move ahead of the OPEC+ virtual meeting on Thursday where production cuts are expected. Commodity prices are mixed as oil edges higher but gold pares reverses lower after topping $1,700 an ounce earlier. Treasury market’s slip as yields rise across the board with investors have been adding to riskier bets and paring investments in safe haven assets, as the 10-year yield tops 0.7% for its highest levels in about 2-weeks.







WTI Crude















10-Year Note





Sector Movers Today

·     Housing & Building Products; very busy sector of news as two homebuilders with updates, with DHI order backlog of homes under contract at March 31, 2020 increased 14% to 19,328 homes and 18% in value to $5.9B. At March 31, 2020, the company had 33,400 homes in inventory, of which 16,700 were unsold; BZH March cancellation rate surged to 25% of gross new orders vs. 15% in March 2019/net new orders for the month of 405 fell 26% Y/Y and Q2 ending backlog of 2,231 is up 12% Y/Y; In home improvement retail, LOW upgraded to buy at Loop Capital citing expectation that the home improvement retailer will take share from smaller competitors.

·     Building products, distributors; RBC Capital cut tgt prices by 28% on average, reflecting a combination of lower earnings ests. (EBITDA by 19% and EPS by 34%) and multiple contraction given a weaker demand outlook, plant shutdowns/under-absorbed fixed costs, supply chain disruptions, and elevated costs (upgraded MAS, MHK and downgraded OC). For Building Products Distributors lowers tgt by 27% for the group as decrease reflects a 21% reduction in CY’20 EBITDA ests. (38% decline in EPS ests) and multiple compression given a weaker demand outlook (downgraded BECN, FBM, GMS, and SKY)

·     Retailers; a massive bounce in retailers carries into a second day as KSS, CPRI, JWN, PVH, among the top gainers in the S&P early, all rising around 20% or better as investors look to scoop up heavily beaten sectors most impacted by the COVID-19 virus, as stores remain closed throughout the month, but hopes are won’t be much longer afterwards

·     Energy, E&P sector; XOM said it is reducing its 2020 capital spending by 30% and lowering cash operating expenses by 15% in response to low commodity prices resulting from oversupply and demand weakness from the COVID-19 pandemic/cap investments for 2020 are now expected to be about $23B, down from the previously announced $33B; CLR the latest E&P to suspend its quarterly dividend as it looks to manage cash and said with global crude oil and product demand estimated to be down 30% as a result of the COVID-19 pandemic, it is reducing its production by a “similar range” for April and May; SND cuts its 2020 capital spending budget by as much as $20M, including a significant reduction in its SmartSystems manufacturing plans

·     Biotech movers; REGN announces that it has restructured its Praluent (alirocumab) agreements with collaboration partner SNY as it will increase efficiency and streamline operations; KPTI to evaluate low dose selinexor as a potential treatment for hospitalized patients with COVID-19 and will initiate global randomized clinical trial/says BOSTON sNDA Submission on target for 2Q; LVGO rises early as guided Q1 revenue $65.5M-$66,5M vs. est. $61.2M and above its prior guidance of $60M-$62M

·     Transports; airlines jumped early (AAL, DAL, JBLU, LUV, UAL) after Treasury Secretary Mnuchin notes he is meeting with advisers on airline program this week; CNBC noted the TSA screened just 108K people yesterday, down 95.9% same day a year ago; Credit Suisse lowers rail ests (CSX, UNP, NSC) cutting 2020 by ~13% on average and cut target prices; in trucking, SAIA was downgraded at KeyBanc saying they are incrementally cautious ahead of 1Q20 LTL earnings as they expect manufacturing outages to be more pronounced in tonnage trends going forward (said combined with relatively high fixed costs and lower fuel surcharges, we lower our 2020E and 2021E by ~20% on top of prior revisions mid-quarter)

·     Media & Telecom movers; in the tower sector, AMT and SBAC both upgraded to overweight at Wells Fargo and reiterate OW on CCI saying given the large percentage of recurring revenue (90%+) in the models, they expect the overall outlooks from the companies to be fairly stable (beyond FX) in the face of COVID-19; AT enters a term loan agreement with Bank of America acting as agent/says loan will be used for general corporate purposes


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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