Mid-Morning Look

Friday, March 06, 2020

U.S. equities extend yesterday losses, opening significantly lower as the impact of the coronavirus on global economies and the uncertainty of it in general has created mass volatility for global stocks as major averages touched or broke below key technical levels again today, but have since bounced well off their lows as investors scoop up heavily beaten sectors (transports, leisure, cruise names). Energy names absolutely no rebound as oil prices tumble to 2-year lows on demand fears and no OPEC deal reached on additional production cuts, while financials tripped up again given another round of record low Treasury yields (10-year hit 0.65% and 30-year 1.20%). The dollar plunges further as gold reverses earlier highs to trade lower in what has been a big week of volatility (now 5-straight days the S&P 500 has swung more than 2.8% in any direction). The latest tally of worldwide coronavirus cases is 100,330, still led by China (80,566), South Korea (6,593), Iran (4,747) and Italy (3,858). The U.S. total is 233 with 14 deaths as sentiment weakens heading into the weekend on fears the number will grow substantially.

Treasuries, Currencies and Commodities

·     In currency markets, the U.S. dollar pummeled, with the dollar index down over 1.1% to around 95.75 level despite the strong jobs report as expectations rise for a U.S. recession and further FOMC interest rate intervention (lower rates again at meeting next week); the euro touches highs of 1.1355 (best levels since early July of ’19 and now well below its 52-week low of 1.0778 on Feb 20^th two weeks ago); the Japanese yen falls 0.9% to 105.20 (nearing 52-week low of 104.46 in August of last year); down vs. most currencies overall.

·     Commodity prices are lower as gold extends gains on virus fears initially before reversing lower (sharp turnaround), while oil prices fall further two-fold, disappointed at OPEC+ talks end in Vienna end talks without a deal as Russia refused to agree with OPEC call yesterday for a 1.5M barrel a day cut to production to help plunging oil prices

·     Treasury market’s rally remain strong with yields falling across the board in the U.S. (and globally as German 30-year bond yield record low as well); the 30-year yield falls as much as 30 bps to record low of 1.203% (now down 22 bps at 1.32%), while the 10-year yield touched a low of 0.65% down 25 bps before paring losses to 0.75% as safe haven investments surge.

Economic Data

·     The U.S. added 273K new jobs in February, well ahead of the 175K economist estimates, while the unemployment rate fell a notch to 3.5% from 3.6% and matched a 50-year low. Average hourly earnings rose 0.3% to $28.52 an hour (in-line with forecasts); the government revised the increase in new jobs in January to 273K from 225K while December’s gain was raised to 184K from 145K; Feb private payrolls 228K vs. est. 160K and manufacturing rose 15K vs. est. decline -3K

Sector Movers Today

·     Bank movers; probably the hardest hit sector over the last week given the significant collapse of Treasury yields, which will likely have a significant impact on lending margin returns for future quarters, taking its toll on large cap/regional banks and brokers, sending several names tumbling to 52-week lows such as MTB, RJF, BK, SIVB, SCHW, NTRS, C, USB, BAC, FITB; in stock news, JPM CEO Jamie Dimon successfully underwent emergency heart surgery and is recovering, the bank said Thursday; in analyst calls, Wells Fargo downgraded shares of RJF and said it is going neutral to negative on brokers, reducing EPS estimates because of the current, much lower interest rate environment, expectation for more Fed rate cuts this year and neg EPS estimate revisions; Piper said it is taking down our 2020E/20201E EPS estimates by a median 5.4% and 9.8%, respectively

·     Casino & Leisure movers; cruise line RCL changes cancellation policy to allow guests on Royal Caribbean International, Celebrity Cruises, Azamara and Silversea to cancel up to 48 hours before sailing/applies to new and existing bookings; shares of cruise lines (RCL, CCL, NCLH), hotels (MAR, HST, H), theme parks (SIX, FUN, DIS, SEAS), and concert venues (LYV, MSGN) have been among the hardest hit on the coronavirus impact on travel bans, quarantines – tried to bounce today; online travel names mixed with BKNG downgraded at Argus but was initiated buy at Citigroup today along with EXPE in a group that has seen selling pressure as well

·     Restaurants; SBUX shares slipped amid growing concerns over the impact of the coronavirus outbreak as the company said Feb China comp sales down 78% versus prior year but says believes impacts to operations are temporary; CMG was upgraded to outperform at William Blair following the more than 20% drop over the last month; separately, CMG founder, Steve Ells, has relinquished the position of Executive Chairman and has stepped down as a director; casual dining and restaurant names under pressure again early on expectations that virus will keep customers home as CAKE, TXRH, DRI, RRGB, CBRL among names hit hard lately); LOCO shares got a bounce on better earnings results while CHUY also a beat and better guidance for 2020

·     Semiconductors; AMD said it will maintain its revenue guidance for the current quarter despite the spread of COVID-19, though admitted that sales will likely come in toward the low end of its $1.8 billion, plus or minus $50 million range; CY continues it drop from yesterday after MLex said that it facing CFIUS pressure over merger deal announced last year; ON becomes the latest of a string of semiconductor companies to warn on revs due to the impact of the coronavirus on operations as cuts Q1 rev guidance to between $1.28B-$1.33B from $1.36B-$1.41B prior flagging soft order trends in the weeks after the Chinese new year, but says orders have picked up since; Oppenheimer reducing near-term estimates for the group as semiconductor companies continue to wrestle with the depth/duration of the coronavirus drag on supply/demand

·     Energy stocks slammed again, with absolutely no bounce as news flow continues to weigh on sentiment and disappoint investors. Oil prices fell further two-fold, disappointed at OPEC+ talks end in Vienna end talks without a deal as Russia refused to agree with OPEC call yesterday for a 1.5M barrel a day cut to production to help plunging oil prices and on fears of slowing demand due to the virus impact. Oil and gas companies fall, tracking crude prices that dive more than 4% to their lowest since July 2017 as major oils (XOM, CVX, COP), E&P companies (EOG, FANG, APA), gas companies (SWN, RRC, COG), services (SLB, HAL) have been hammered

Stock GAINERS

·     ALK +6%; seeing bounces in some of the hardest hit sectors over the last week including travel, transports, cruise lines, gaming and leisure, theme parks and hotels

·     AMD +1%; said it will maintain its revenue guidance for the current quarter despite the spread of COVID-19, though admitted that sales will likely come in toward the low end

·     BIG +10%; after activists Macellum Advisors and Ancora Advisors nominate nine candidates for election to company’s board and send a biting letter calling for changes

·     BGG +8%; after announces details of its planned strategic repositioning/says actions include a sharp focus on the company’s global expertise in power application, a simpler organization through strategic divestitures and a streamlined overall business to drive improved capital

·     CBB +3%; as determines Macquarie’s $15.50 per share offer is a ‘superior’ proposal to Brookfield Infrastructure’s at $14.50 per share

·     STIM +12%; in reaction to Breakthrough Device Designation in the U.S. for NeuroStar for the treatment of bipolar depression

·     TGNA +19%; after Reuters reported TV station operator GTN offered to buy its larger rival for $8.5 billion, including debt, for about $20 a share in cash and stock for Tegna, citing unidentified people familiar with the matter https://reut.rs/3cBISva

Stock LAGGARDS

·     AOBC -33%; after posting a significant quarterly miss for the third straight quarter (Q4 revenue $166.7M vs. $187M est.) and sees full-year revenue of 650M to $660M vs. $690M consensus and EPS of $0.58 to $0.62 is anticipated vs. $0.81 consensus.

·     CY -13%; continues it drop from yesterday after MLex said that it facing CFIUS pressure over merger deal announced last year (many analysts weighed in today arguing for company’s value)

·     HRB -12%; as earnings beat but mgmt noted that HRB’s assisted tax preparation volumes were down slightly versus the IRS’s data through the first four weeks of the 2020 tax season

·     JPM -3%; shares slide two-fold as banks hit by plunging Treasury yields and rising expectations of a recession, while also dealing with news that CEO Jamie Dimon successfully underwent emergency heart surgery and is recovering

·     OXY -10%; among hardest hit energy stocks in a sea of red for all sub-sectors of energy names (majors, services, drillers) as OPEC meeting ends without deal to cut production

·     SQ -4%; cut its adjusted loss per share forecast for Q1 to (2c-4c) down from prior view up 16c-18c (est. 17c) and sees FY adjusted EPS 88c to 92c, compared to prior 90c-94c (est. 93c)