Mid-Morning Look: March 27, 2020

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Mid-Morning Look

Friday, March 27, 2020






DJ Industrials




S&P 500








Russell 2000






U.S. equities are broadly lower, giving back a decent chunk of its three-day surge (major averages up nearly 20% during that stretch), as investors lighten up heading into the weekend on fears global cases and death from the coronavirus, which has impacted global economies/workers thus far will like show big spikes again, especially in the U.S. as testing has ramped up this week. The further deterioration of oil prices is also taking a massive toll on the energy stock complex, as well as other companies (industrials and metals) that also benefit from energy spending. Safe haven Treasury prices are higher, with the yield on the benchmark 10-year dropping over 10 bps to 0.72%, though gold prices pullback about 1% and the dollar was mixed. Investors are waiting for government spending measures to help cushion the economic damage of the coronavirus as House leaders scrambled to bring back enough legislators to approve the $2 trillion economic rescue package that the Senate passed late Wednesday to help many citizens with checks, small businesses, out of work employees and corporations most impacted from the forced shutdowns (airlines, hospitals).


Treasuries, Currencies and Commodities

·     In currency markets, the U.S. dollar is flat overall (dollar index 99.40), but remains on track for its biggest weekly loss since 2009, with the greenback sliding against 16 major peers, just one week removed investors dumped everything they could into U.S. dollars; the buck is down against the Japanese yen (over 1% move) and British Pound, while gains vs. the euro. Treasury market’s rally as the 10-year Treasury yield down over 10bps to 0.73% (lows of the week on Monday at 0.685%) – as stocks tumble following 3-day surge

·     Commodity prices are lower with gold prices down roughly 1% to $1,645 an ounce, but oil price destruction continues with WTI crude down over 4% around $21.50 and Brent down 6% as Russia and Saudi Arabia headlines this morning not helping (no easing of tensions after Saudi flooded market with oil few weeks ago), along with plunging global demand due to travel restrictions


Economic Data

·     Personal Income for Feb rises 0.6% vs. est. 0.4% while spending rises an in-line 0.2% for the month; PCE deflator MoM 0.1% (in-line w ests) and YoY up 1.8% vs. est. 1.7%; for PCE Core Deflator MoM rises an in-line 0.2% while YoY rises 1.8% vs. est. 1.7%

·     University of Michigan Sentiment, Mar-F falls to 89.1 vs. est. 90.0 (prior reading was 95.9), while the expectations index fell to 79.7 vs. 92.1 last month and the current economic conditions index fell to 103.7 vs. 114.8 last month







WTI Crude















10-Year Note





Sector Movers Today

·     Retailers; many analysts weighing in with changes after impact of coronavirus has shut retailers physical locations; LULU shares fell despite posting strong 4Q with comps +20% driven by +9% store comps, 41% Ecom growth and EBIT margin +140bps, capping off a strong year; GME shares rise after Q4 EPS handily topped estimates ($1.27 vs. est. 77c) helped in part by higher demand due to the coronavirus; OXM shares dipped on its earnings miss while SPWH EPS beat; in research, GIL was upgraded to buy at Stifel saying big picture, disruption to supply chains increases the strategic value of Gildan’s cost-advantaged manufacturing infrastructure, while downgraded UAA to hold saying COVID-19 disruption annuls our turnaround thesis; SIG downgraded to underperform at Bank America saying a low online penetration (12.2% for F19) and a reliance on credit to drive half of sales are all risks

·     Casino & Leisure movers; cruise lines falling (CCL, RCL, NCLH) after the WSJ reported the major cruise-ship operators will not qualify for aid under the roughly $2T coronavirus stimulus package headed for a House vote Friday; SunTrust lowers 2020/2021 estimates for the three park operators under coverage (FUN, SEAS, SIX) as notes all three stocks are down 50-70% since mid-February due to coronavirus impact on park closures; gaming stocks which had rallied the early part of the week have been giving up profits the last few sessions (WYNN, MLCO, LVS, PENN); in autos, LEA announced cost cuts, drew on credit line and suspended buybacks; in lodging, HLT the latest to halt dividend & suspends share buybacks while eliminating capex for the year

·     Medical equipment and devices; ABT shares active after VP Pence announces point-of-care test submitted to the FDA last night (results would come back in 15 minutes); Morgan Stanley makes several rating changes in the space, as upgraded HOLX saying while elective mix and modest capital exposure risks are clear – thinks risks priced in at current valuation, while downgraded DGX to equal-weight saying with only 7% upside to our base case price target, we view risk-reward as balanced, while cut VRAY to underweight saying COVID-19 will impact capital purchasing significantly, creating further cash flow pressure

·     Energy stocks demolished again (APA, DVN, NBL, OXY) given the ongoing destruction of oil related prices, forcing many companies over the last few weeks to cut cap-ex plans for the year, lower production, slash dividends and halt buybacks in an effort to improve cash and liquidity for an industry that could see many defaults on loans and bankruptcies over the next few months given the plunge in global demand due to travel restrictions and constant over supply

·     Industrial & Machinery; DE was upgraded from Underweight to Neutral at JPMorgan on valuation, though remain cautious on the structural challenges facing US, magnified by a strong US dollar and current fundamentals in ethanol; CAT was downgraded to neutral noting it has a strong balance sheet and nearly 4% dividend yield, but so do a lot of other companies and notes suspended guidance which only underscores the degree of demand and supply side; GNRC was upgraded at William Blair to outperform as believe the roughly 20% decline in the share price from the recent high offers an attractive entry point for long-term investors


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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