Mid-Morning Look: March 23, 2020

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Mid-Morning Look

Monday, March 23, 2020






DJ Industrials




S&P 500








Russell 2000






U.S. equities are mixed as energy stocks along with financials, discretionary and industrials are lower while the tech heavy Nasdaq Composite outperforms as markets react to additional stimulus measures from the Fed, while broader stimulus for small business and out of work employees failed to pass last night in Washington. Massive volatility in markets initially the Nasdaq trading in a 130-point range in just the first ten minutes of trading, while major averages swing between 2%-4% as investors weigh new moves from the Fed today against the softer economic backdrop given the impact of the coronavirus on business and citizens around the world facing a worldwide shutdown. U.S. stock index futures surged more than 3% initially, reversing overnight declines (we were limit down last night when futures initially opened) after the Federal Reserve took unprecedented steps to support U.S. households and companies more directly with credit. After already aggressively easing monetary policy this month, including sending interest rates to near zero, the central bank said it would now lend against student loans and credit card loans as well as buy bonds of larger employers. The Federal Reserve announced it would purchase an unlimited amount of Treasury’s and mortgage-backed securities in order to support the financial market. The Fed said it would buy assets “in the amounts needed” to support smooth market functioning and effective transmission of monetary policy. The Fed had previous set a $700 billion limit for asset purchases. In addition, the Fed announced several new lending programs worth $300 billion to support companies hurt by the shutdown of the U.S economy. Markets dealing with the ongoing headline risk of rising global coronavirus cases which topped 350,000.


Treasuries, Currencies and Commodities

·     In currency markets, the U.S. dollar paring some of last week’s gains, pulling back slightly after the dollar index posted gains of roughly 4% over the last two weeks in flight to perceived stronger currencies; commodity prices are mixed with a big surge in gold prices amid stock volatility and the pullback in the dollar; Treasury market’s rally as yields fall with the 10-yr yield down 9 bps to 0.75% (hi 0.87% earlier and low 0.685% in another volatile start).







WTI Crude















10-Year Note





Sector Movers Today

·     Transports; Morgan Stanley upgraded ODFL in trucking and both CSX, UNP to equal-weight in rails while raised broader view on the Freight Transportation industry to In-line from Cautious noting the average transportation stock now down 25% year-to-date, and believes the risk-reward for stocks may be approaching a balance given that transportation data points have held up relatively well so far and the air pocket will likely not be as severe as other sectors; CAR withdrew its outlook due to virus impact and said reservations down about 60%

·     Airlines; DAL suspended its capital return program, including the company’s stock repurchase program and the suspension of future dividend payments; entered into a $2.6B secured credit facility, enhancing liquidity and also drawing $3B under its existing revolving credit facilities; Raymond James upgraded perceived airline sector/region winners with strong balance sheets to Strong Buy including LUV, CPA, RYAAY and SKYW as well as LTM to outperform as believe it will be a big beneficiary of capacity rationalization among weaker competitors (outside of Brazil). Among network airlines, continue to favor DAL and IAG in Europe and maintain strong buys on ALK, MESA and outperform on SAVE while downgraded AAL to market perform on risk-reward

·     Consumer Staples; KO was upgraded to overweight at JPMorgan with $44 tgt as believe investors are not assuming an uptick in in-home demand or a recovery in the next 12-18 months, which we find too pessimistic; RBC Capital upgraded beverage names PEP and SAM to outperform, raise estimates modestly for CLX, REYN, KMB, CHD, CL, PEP, CPB, K, while cut EPS for 2020/2021 estimates by 10%+ for NWL, SPB, ENR, COTY, and E and believe STZ, MO and SAM are higher risk ideas that could rebound sharply as the feared hit to EPS does not materialize; Morgan Stanley also changes in space upgrading PEP, MDLZ, PG, CL in consumer staples

·     Financial movers; Private Equity/Asset Managers AB, APO downgraded to neutral from buy at Bank America and cut CG to underperform from neutral citing expected impact of the assumed recession scenario on earnings and valuations in stocks, but upgraded SCHW to buy from neutral citing its quality brand, strong relative organic growth, rising cash balances, and upcoming deal synergies in TD Ameritrade merger; WFC will halt residential property foreclosure sales, evictions and involuntary automobile repossessions in response to the coronavirus pandemic; it also asked the Fed to temporarily or permanently lift an asset cap it introduced in the wake of a scandal over fake accounts, the Financial Times reported



·     BA +3%; upgraded to buy from neutral at Goldman Sachs saying news could turn more positive, if travel bans eventually let up, if the US federal government provides assistance to the airlines

·     DHR +4%; shares rose as its molecular diagnostics company Cepheid received the U.S. FDA approval for the first rapid coronavirus diagnostic test

·     HAS +15% after its CEO said in CNBC interview that supply chains are back up and running in China and doesn’t expect any layoffs, while remains in good financial state/warns it may miss shipment targets in Q1, but expects shipments to fully catch up by April

·     MCHP +10%; outperforms other semi’s after announced the restructuring of a small portion of the company’s total debt

·     PCG +9%; rises as its new commitments to its bankruptcy reorganization plan on Friday won the support of California Governor Gavin Newsom, who had raised concerns about the plan earlier

·     ZM +16%; as the video teleconferencing company continues to benefit from expected increased demand for its product due to workers forced to work from home (trades record highs)



·     KIM -10%; weakness in mall based REITs given the downturn in retailers, fears of extended store closures and bankruptcies, while many unable to possibly pay rents

·     M -14%; said it accessed the $1.5B available under revolving credit facility, suspends quarterly cash dividend and withdrew guidance (KSS, JWN down in retail as well)

·     T -4%; downgraded by two analyst as Baird and Cowen both downgraded shares


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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