Mid-Morning Look: May 04, 2020

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Mid-Morning Look

Monday, May 04, 2020






DJ Industrials




S&P 500








Russell 2000






U.S. equities start the week lower, with major averages falling for a third consecutive session as tensions heating up behind the U.S. and China following Secretary of State Mike Pompeo comments this weekend there was “a significant amount of evidence” that the coronavirus emerged from a Chinese laboratory, though he did not dispute U.S. intelligence agencies’ conclusion that it was not man-made. That followed remarks from President Donald Trump on Friday that raising tariffs on Chinese goods was a possibility in response to the COVID-19 pandemic caused by the novel coronavirus. The President also promised more stimulus measures and pressed for continued efforts to reopen the economy. In sector news, airlines plunged after Warren Buffet noted this weekend in Berkshire Hathaway earnings that he pulled his stake from the sector (AAL, DAL, LUV, UAL). Positive vaccine and testing headlines as official’s fast track development with aim of having one ready by around year’s end. GILD’s Remdesivir in hands of doctors and most urgent patients as soon as this week, whilst Roche received emergency-use authorization from FDA for its new coronavirus test. Commodity prices are rising, led by strong gains in gold, while oil prices bounce off earlier lows despite an early recovery in the U.S. dollar (WTI crude back above $20 per barrel). Treasury prices slip with yields inching higher. Another jam packed week ahead for quarterly earnings results, while global tensions between the U.S. and China and the rising total number of coronavirus related cases and deaths also closely watched ahead of the big nonfarm payroll jobs report at the end of the week. Several U.S. states on Monday planned to ease more restrictions on businesses with now as about half of all U.S. states have lifted shutdowns, at least partially, as the number of new cases of the COVID-19 illness has begun to decline or level off


Economic Data

·     Factory orders in the U.S. slumped (-10.3%) in March as the coronavirus pandemic began to shut down large parts of the economy. Durable goods orders fell (-14.7%), a bit higher than the prior estimate of (-14.4%), the Commerce Department said. Orders for nondurable goods slid a smaller 5.8%. Orders are expected to fall sharply and remain weak for months amid efforts to contain the coronavirus.







WTI Crude















10-Year Note





Sector Movers Today

·     Casino & Leisure movers; cruise lines fall, CCL said all North American cruises from June 27 to July 31 will be cancelled/pause in service extended, in combination with gradual schedule from select homeports; in lodging, UBS upgraded CHH to buy as expectation for recovery in the lodging sector is more bullish vs. cruise lines because hotels involve less mass gathering than cruise lines and not as much cross-border travel (maintain Buy on HLT and our Neutral on MAR)

·     Media & Telecom movers; DIS downgraded at MoffettNathanson to neutral as fear that the uncertainty of the present situation creates significant and unrivaled earnings risk for the foreseeable future; Guggenheim cut its tgt on MSGS to $216 from $350 as see concern associated with current conditions as creating an attractive buying opportunity for scarce assets with growing global appeal; SBGI was downgraded to Underweight at Wells Fargo citing the company’s exposure to an accelerating cord-cutting trend, particularly at the company’s nascent regional sports network operations

·     Insurance; life and P&C insurers fall a second day (MET, LNC, HIG, PRU) – follows comments by WLTW on Friday as the insurance broker estimated general insurance losses between $32B and $80B across key classes in the U.S. and UK, surpassing claims from the 9/11 attacks as the coronavirus pandemic hit businesses; Loew’s (L) turned in a Q1 net loss of $632M, or $2.20 per share vs. net income of $394M, or $1.27 per share, in the year-ago quarter due to the economic disruption cause by the COVID-19 pandemic, (Q1 results include $408M drilling rig impairment charges at DO, a $363M decline in net investment income at CNA and book value per share fell

·     REITs; QTS and CONE both upgraded to buy from hold and raise tgts at Jefferies given view that the work-from-home digital transformation has staying power and that enterprise applications that have been put in the cloud to enable more efficient work-from-home are likely never coming out; Morgan Stanley upgraded O to OW given it has the lowest exposure to tenants impacted by social distancing (24% of rent), while downgraded STOR and SRC to equal-weight relatively higher than average exposure to tenants impacted by social distancing

·     Energy sector; OXY shares slide on lower oil prices and after the WSJ reported that the Algerian govt. has withheld approval of OXY’s sale of assets it acquired in the country as part of Anadarko takeover (note in May last year, OXY agreed to divest Anadarko’s Algeria, Ghana, Mozambique and S. Africa assets to France’s Total for $8.8 bln – however, Algeria’s energy minister told reporters later in that month the country will block deal); Goldman Sachs removed CVX from its conviction buy list and added COP; in refiners VLO, PSX, HFC all upgraded to Buy from Neutral at Mizuho saying as a direct result of COVID-19, North America will become even more gasoline intense to the benefit of U.S independent refiners



·     ATVI +2%; Credit Suisse raised tgt prices on video game makers saying the current crisis caused by the COVID-19 should drive users to not only download more games but also increase comfort with buying in-game contents (ATVI target is now $79 vs prior $69, EA target is now $131 vs prior $123, and TTWO $131 vs prior $130)

·     HP +6%; as energy names rebound early following WTI crude recovery about $20 per barrel

·     PSX +6%; refiners VLO, PSX, HFC all upgraded to Buy from Neutral at Mizuho saying as a direct result of COVID-19, North America will become even more gasoline intense to their benefit

·     STML +152%; as agreed to be acquired by privately held Italian company Menarini Group in a deal worth up to $677 million, as holders receive $11.50 per share



·     DAL -7%; airline stocks decline after Warren Buffett says Berkshire Hathaway sold its entire stakes in the four largest U.S. airlines in April (had an 11% stake in DAL, 10% in AAL, 9% in LUV and 9% in UAL at the end of 2019)

·     DENN -13%; said Q1 comp store sales fell 6.3% YoY and noted about 74% of domestic, international Denny’s restaurants are operating solely or primarily with take-out and delivery

·     OXY -5%; slide on lower oil prices and after the WSJ reported that the Algerian govt. has withheld approval of OXY’s sale of assets it acquired in the country as part of Anadarko takeover

·     PBI -11%; reported Q1 sales of $796.3M, flat compared with a year earlier, and a wider loss which included a non-cash goodwill impairment charge tied to the company’s global ecommerce unit, which focuses on domestic retail and ecommerce shipping

·     PLAY -17%; announced a $100M share offering

·     TSN -8%; posted a sharp EPS miss for Q2 on lighter than expected sales as foodservice segment losses more than offsetting blockbuster retail takeaway


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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