Mid-Morning Look: March 25, 2020

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Mid-Morning Look

Wednesday, March 25, 2020






DJ Industrials




S&P 500








Russell 2000






U.S. equities with a wild ride to start the day, surging initially out of the gate and extending yesterday’s massive gains after the Senate agreed on a $2 trillion stimulus plan overnight to help “right” the economy following the global business shutdown to prevent the further spread of the Covid-19 virus. But markets couldn’t hold onto gains, falling quickly as markets lack conviction and fear remains. Stocks are still looking to post their first back-to-back daily gains for the S&P 500 since 02/11 & 02/12, while the Dow looks to add to yesterday’s 11% advance (its biggest one day gain since 1933). St. Louis Fed President James Bullard said on CNBC that Q2 is likely to see the most disruption due to the coronavirus outbreak, but the economy should bounce back by year’s end. Also, former Federal Reserve Chairman Ben Bernanke said on CNBC that the coronavirus economic halt is more like natural disaster than a classic depression. “It’s really much closer to a major snowstorm or a natural disaster, than it is to a classic 1930s-style depression,” he said in a “Squawk Box” interview. While they try and downplay the long-term impact of the virus on global economies, stocks have been “whippy” this morning. The Dow Jones Industrials outperform due to strength in Boeing (BA) on reports the company plans to restart the output of 737 MAX aircraft by May.


Lawmakers and members of the Trump administration agreed on a massive $2 trillion stimulus plan to help American citizens as the economy remains shuts down due to the coronavirus impact. The package includes direct deposits for all Americans, $367 billion for loans to small businesses )business for 500 employees or less, get 8-weeks cash flow assistance through 100% federally guaranteed loans as long as they retain/rehire workers), and a program that will allocate $500 billion to the Treasury Department. Some of that money will be used to guarantee a Federal Reserve loan program for small and medium-size businesses. Most adults would receive direct payments of $1,200, while children would see $500 checks. Hospitals would receive some $150 billion under the deal and small businesses would get $367 billion in aid. The measure also includes a major boost to unemployment insurance, allowing workers who are furloughed but not laid off to be paid their regular salaries for up to four months. Airlines rally as the announcement includes a $50 billion package for the US airline and air cargo industry.


Treasuries, Currencies and Commodities

·     In currency markets, the dollar index on track for third straight decline after touching 3-year highs last week for the dollar index. Commodity prices weak with stocks as oil prices resume downward momentum and gold prices down roughly 1.5% around $1,635 (follows two days of nearly 6% gains each 0 off lows of $1,489 on Monday). Treasury market’s rally, with the yield on the 10-year down at 0.8% as stocks pullback off earlier gains.


Economic Data

·     Durable Goods Orders for February rise 1.2% vs. est. down (-0.9%) while Durable goods new orders revised up to 0.1% for Jan. from -0.2%; new orders ex-trans. fell 0.6% in Feb. after 0.6% rise and new orders ex-defense rose 0.1% in Feb. after 3.6% rise. Non-defense capital goods orders ex-aircraft fell 0.8% in Feb. after rising 1.0% in January







WTI Crude















10-Year Note





Sector Movers Today

·     Transports; airlines soared early behind the large stimulus plan announced by the government, prompting an upgrade of several names at Deutsche Bank today (SAVE, LUV, HA, JBLU, AAL, DAL, UAL all to buy), while Cowen significantly reduced 2020 & 2021 estimates to account for declines in traffic and a prolonged recovery due to COVID-19 and are upgraded LUV to Outperform but downgraded MESA to market perform as 2021 revenue assumptions are now 12% below 2019 and we are estimating losses for the airlines this year

·     E&P sector; OXY entered into an agreement with Carl C. Icahn and affiliated entities to add three new Icahn designated directors to Occidental’s Board – the move follows OXY earlier cutting its cap-ex for the year to $2.7B-$2.9B from prior $3.5B-$3.7B as cut year operating costs by at least $600M; in research, Piper transferred coverage and downgraded CLR, DVN, EOG, FANG, MRO, NBL, PXD to Neutral as think we have yet to witness the worst of the current oil market turmoil play out in the physical markets, which we expect to see in the coming months; SLCA announced annualized SG&A cost reductions of approximately $20M in response to drop in oil prices

·     Chemicals sector; Citigroup upgraded shares of DOW & LYB to buy saying according to their analysis, both are trading at 23% and 24% of replacement value (historically, these shares have bottomed out at ~25-30% of RV); also said even in their stress test, CE and EMN cover their dividend with FCF by >2x; EMN said it will reduce planned 2020 capital spending to $325M-$375M, a 24% reduction at the midpoint from the previous expectation of $450M-$475M, which it says will provide a strong foundation during the coronavirus/expects Q1 earnings to come in above the prior year period and above previous expectations

·     Retailers; Dow component NKE rises after quarterly earnings were in-line on better than expected sales above $10B (+6% ahead of consensus) and gross margin (was ~+10bps vs. est.), while also showed clear evidence of brand momentum and success evolving consumer engagement to higher return models (digital +36%); Goldman Sachs double upgraded ROST to buy from underperform as stress test analysis suggests the company can handle a prolonged period of closures due to a “strong balance sheet and flexible cost structure, while downgraded UAA to neutral from buy amid low operating margins and limited brand momentum and cut KTB to sell saying valuation looks dislocated relative to other; TJX upgraded to outperform at RBC Capital as see longer-term market share opportunities ahead as this event accelerates industry consolidation and provides ample future product availability and balance sheet strength; DKS said it is reducing its planned capital expenditures, temporarily suspending its share repurchases and evaluating its dividend program.

·     Restaurants; YUM indicated that it expects 1Q20 same-store sales to decline mid-to-high single-digits as a result of the global coronavirus outbreak with a greater decline expected in 2Q20; CBRL said a significant majority its restaurants have been operating through the coronavirus outbreak, with virtually all of them operating, pick-up and delivery only with no dine-in service while is deferring its dividend and suspending its repurchase program; Cowen cut its 2020 and 2021 EPS by 29% and 6% based on an average 20%+ declines in same store sales through July for restaurants, a 20% reduction in the number of global store openings in 2020 and 2021, and full restoration in lost sales volumes in 202 while downgraded JACK and cautious on SHAK was upgraded to overweight at Stephens calling it a solid recession play; TXRH also suspends dividend



·     AIR +3%; rises as Q3 adjusted EPS 67c beat the 64c estimate on better sales along with lowering headcount/costs

·     BA +15%; after Reuters reported last night that the company plans to restart the output of 737 MAX aircraft by May

·     NKE +9%; on better than expected sales above $10B (+6% ahead of consensus) and gross margin (was ~+10bps vs. est.), while also showed clear evidence of brand momentum and success evolving consumer engagement to higher return models (digital +36%)

·     SAVE +10%; airlines rally as the announcement that the White House and the Senate have reached a deal on $2 trillion stimulus package which includes a $50 billion package for the US airline and air cargo industry (AAL, UAL, DAL)

·     SYF +6%; along with gains in DFS, SC, ALLY – Credit Suisse noted the Federal Reserve is attempting to ease consumer loan credit markets: noted the Federal Reserve announced a $100B facility yesterday to back buyers of consumer ABS securities similar to 2008’s TALF program



·     CTL -10%; downgraded to sell at Citigroup with target of $6 as expect the risks of faster revenue erosion, higher net debt leverage and future fiber investment needs may weigh

·     DVN -9%; as energy stocks remain hardest hit on plunging oil prices, minimal demand with no travel and price war between Saudi/Russia keeping prices low/supply plentiful

·     FB -4%; warned it is seeing a “weakening” in its advertising business for some key geographies as a result of the Covid-19 pandemic/said “our business is being adversely affected like so many others around the world”

·     HOME -22%; shares downgraded to neutral at Guggenheim citing uncertainty in the form of both store closures and, more importantly, post-reopening demand for discretionary product

·     MYL -8%; extends yesterday declines after FDA warned of some Epipen auto injector errors

·     SNX -8%; mixed Q1 results as EPS topped views but revs of $5.26B missed estimates while also suspended dividend effective immediately/Stifel slashed estimates to account for a dramatic decline in its Concentrix services business due to coronavirus-related work stoppages

·     WWE -8%; priced a 2.26M share Block Trade at $38.00


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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