Market Review: April 03, 2020

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Closing Recap

Friday, April 03, 2020





DJ Industrials




S&P 500








Russell 2000





Equity Market Recap

·     U.S. stocks fell for the sixth Friday in the last seven, with investors selling into the weekend, weighed down by an awful jobs report, rising COVID-19 cases hurting jobs/the economy, and uncertainty in the oil patch. Non-farm payrolls plunged by a far more than expected 701K in March (vs. estimate decline of -100K jobs) as the contraction abruptly ended a historic 113 straight months of employment growth while the unemployment rate rose to 4.4% from 3.5% the previous month. Private payroll and manufacturing jobs also showed notable declines. Also not helping, surging numbers of the coronavirus in the U.S. as NY Governor Cuomo said the state recorded 562 deaths over the past 24 hours, its highest daily total since the rise of the pandemic as 2,935 have died statewide from the disease thus far, while cases globally rise over 1 million. Weakness was broad based, led by declines in defensive utilities, financials (after the gov’t SBA small business applications started today), REITs and discretionary while Staples and energy sectors held up well. The Dow fell as much as 500 points below the 21,000 level while the NASDAQ took out its weekly lows below 7,300 before bouncing. The worldwide spread of the virus has forced billions of people to stay home and pushed entire sectors to the brink of collapse, leading to mass layoffs and dramatic steps by companies to raise cash. Oil also remains a top story, with OPEC+ scheduling a virtual meeting for Monday and Russia reportedly willing to cut production if the U.S. and Saudis join following President Trump’s mediation over the last week (oil rises further after jumping 24% Thursday). Sectors hit directly from the coronavirus related shutdown impact added to losses today with airlines, casinos, restaurants, retailers, cruise lines, hotels and leisure among the worst performers heading into the weekend.

Economic Data

·     Monthly jobs data comes in worse than expected (but still not totally surprising given the number of jobless claims the last 2-weeks topping 10M). Nonfarm payrolls for March dropped -701K, well above the -100K estimate (Nonfarm payrolls, net revisions, -57k from prior two months), while private payrolls fell -713K vs. est. -132K and manufacturing jobs fell -18K vs. est. -10K. The unemployment rate spiked to 4.4% from 3.5% last month, while wages rose 0.4% vs. est. 0.2%. The participation rate fell to 62.7% vs. prior 63.4%

·     U.S. Markit services index was revised up to 39.8 in the final March print versus the 39.1 preliminary reading, but down -9.6 points from the 49.4 in February (vs. 55.3 a year ago). This marked a new record low and is a second straight month in contraction. The new business index dropped to 40 from 50.2 previously

·     The ISM Non-Manufacturing index for March falls to 52.5 but above the est. 43.0 (down from 57.3 reading last month); Employment fell to 47.0 vs 55.6 MoM (the biggest drop since Nov. 2008) while prices paid only dipped to 50.0 vs 50.8 and backlog of orders rose to 55.0 vs 53.2

·     The IHS Markit euro-zone services PMI in March slumped to a reading of 26.4 from 52.6 in February, the worst-ever reading in the history of the series, and the final reading was worse than the flash reading of 28.4. Italy services PMI fell to 17.4 in March, plunging from 52.1 in February



·     Oil prices ended the day higher, with WTI crude rises $3.02 or 11.93% to settle at $28.34 per barrel posting a more than 31% advance for the week, its best in history…but still down over 50% YTD (follows a 54% drop in March and a 66% drop for Q1). Oil traded higher on hopes that OPEC, Russia and others will be able to agree to supply cuts Monday at a virtual meeting to help reduce some of the massive oversupply to the market as Covid-19 quarantine has crushed demand. Tweets from President Donald Trump yesterday suggested Russia and Saudi Arabia cuts could be as high as 15 million barrels per day, but figures appear to be lower based off OPEC comments. Gold prices bounce later in the day, with June gold rising $8.00 or 0.5% to settle at $1,645.70 an ounce, getting a boost late day as stocks tumbled into the weekend, but gold still ends the week lower by a modest -0.5% as the dollar rebounded.


Currencies & Treasuries

·     The U.S. dollar firmed, rising for a third straight session as investors once again took shelter in the greenback amid worsening economic fallout from the coronavirus pandemic. The dollar largely shrugged off the U.S. non-farm payrolls report that showed massive job losses of 701,000 last month, compared with expectations of 100,000 lost jobs. The euro dropped roughly 3% on the week (lows today 1.0773 before bouncing), the dollar up slightly vs. the Japanese yen and posted solid gains vs. the Canadian dollar and British Pound. The 10-year yield traded below the 0.6% level for the second straight day, off earlier week highs above 0.72%, but remains pressured given the uncertainty on global markets/economies. Indecision among euro zone governments about a rescue package for the region’s hobbled economies has hurt the euro.


Coronavirus updates

·     The number of cases of COVID-19 around the world stood at 1.03 million early Friday, after passing the 1 million mark late Thursday, while the U.S. case tally edged toward 250,000 according to aggregated data from Johns Hopkins. There are now 53,975 fatalities around the world, the data show. About 217,433 people have recovered from the novel coronavirus that has sickened people in 181 countries. The U.S still has the most number of cases worldwide, at 245,573 and 6,058 deaths. Another 9,928 people have recovered. In Europe, Spain has overtaken Italy in number of cases. Spain has 117,710 cases and 10,935 deaths. Italy has 115,242 but the highest mortality rate at least 13,915 deaths. Germany has the fourth highest tally, and is now ahead of China, where the virus was first detected in December. Germany has 84,794 cases and 1,107 fatalities. China has 82,645 cases and 3,326 deaths.






WTI Crude















10-Year Note





Sector News Breakdown


·     Autos; TSLA rises as reported Q1 deliveries 88,400, -21% QoQ vs. est. 78,052 as 1Q production dipped -2.1% QoQ to 102,672 vehicles and said Model Y production significantly ahead of schedule; GM and its joint ventures delivered more than 461,700 vehicles in China in 1Q; Pirelli cuts 2020 rev outlook to EU4.3B-EU4.4B from prior view EU5.4B due to virus – cancels dividend

·     Retailers; a group demolished by the forced closure of stores to ease the spread of the coronavirus outbreak, prompting more negative analyst rating changes as RBC Capital downgraded PVH noting with 30-40% of North American retail revenues generated from international tourists headwinds could last longer and cut RL rating amid longer-term concern on impairments to North American wholesale, inventory misalignment industry-wide; UAA pulled its guidance today and laid off workers

·     Consumer Staples; STZ shares reported Q1 EPS that topped views ($2.06 vs. est. $1.65) on better sales of $1.9B (up 5.7% YoY) but issues no guidance for the year due to COVID-19 impact; beverage names held up better than most (PEP, KO), while food names outperformed as investors rotate into virus related plays, increasing sales (CAG, CPB, GIS, K)

·     Restaurants; CAKE said it expects Q1 comparable restaurant sales to be down approximately (-13%) while QTD comparable sales through February were up 3% before a March drop of approximately (-46%) after the virus impact led to store shutdown; PLAY Q4 sales and Ebitda topped views while temporarily shut down all units on March 20, was downgraded at BMO Capital to market perform and Reuters reported the company is in talks with private equity firms about a potential stake sale; SHAK was downgraded at Credit Suisse saying it is facing an outsized near-term risk from the impact of COVID-19 with its exposure to high-traffic, tourist areas

·     Housing & Building Products; in building products, Jefferies upgraded MAS to buy while downgraded MHK and JELD to gold saying with latest data points indicating activity in construction is deteriorating sharper than anticipated, they cut estimates



·     Energy stocks started the day strong, with oil prices jumping a second straight day on hopes a resolution can come to pass between Russia and OPEC nations in an effort to help lift oil prices that touched 20-year lows earlier this week, but later slipped with broader markets. Dow Jones reported that Texas is considering oil production cuts of at least 500,000 b/d as US independent oil producers tell OPEC they will voluntary cut output. The IEA sees 15M barrel per day stockbuild in 2q despite potential OPEC+ cut as urges consumer countries to fill up strategic oil stocks while also says OPEC+ 10m b/d cut not enough to stabilize oil market. The weekly Baker Hughes rig count plunged to 664, as oil rigs were down -62 to 562 while the gas rig count fell -2 to 100.

·     E&P sector; CVE announced a further $150M reduction to its mid-point 2020 capital spending program to $800M, and the suspension of its common share dividend in order to protect its balance sheet; XOG lowered its planned 2020 upstream capex budget by 42% to $250M-$300M and cut its 2020 cash G&A budget by 18% to $40M-$50M; in research, Mizuho late to the part as downgraded COP, OXY, MRO, OVV, CLR, MUR to neutral and upgraded XEC; OVV announces plans to further reduce Q2 capital spending by an additional $200M, bringing total capital reductions in the quarter to $500M

·     Equipment, Services; MIC shares dropped after withdrew its guidance and suspending its quarterly cash dividend which will result in retaining ~$260M through 2020; also drew $599M on its credit facility (was downgraded at RBC following the company update)



·     Bank movers; today started the Small Business Administration loans going out to small business as banks have originated more than $7 million in small-business loan requests as of 11am, according to a Treasury official; 245 banks across the U.S., including Bank of America have originated 1,926 applications for Paycheck Protection Program loans, says official – but there were also reports of several issues along the way which is not totally unexpected

·     Exchanges/Services; Citigroup raised the rating on CBOE, ICE to buy and NDAQ to neutral saying model updates reinforce the high quality nature of the sector characterized by secure competitive/strategic positioning, high margins, cash generation, strong balance sheets and related durability; MKTX posted strong 1Q20 trading volumes as a meaningfully higher volatility environment benefited total industry volumes and the firm’s market share/in total, MarketAxess’ average daily volumes (ADV) expanded 26% y/y organically

·     Consumer/Mortgage finance and lending; COOP shares dropped after Bloomberg report that, though no final decision has been released, regulators are considering delaying the establishment of a program that would enable the Fed to provide liquidity to mortgage servicers. KBW said today that they continue to believe that if forbearance and delinquencies spike, the regulators will step in with support to prevent disruption in the servicing industry. So, while they believe that MSR owners (COOP, PFSI, PMT, OCN, NRZ, TWO) could be weak, they continue to be positive on the larger ones (PFSI , and TWO which is primarily an agency MBS REIT); LADR shares dropped over -30% after reports late yesterday on Bloomberg that it hired MC "to evaluate financing alternatives to enable it to both navigate potential further market dislocations – also notes more than $300M in cash in the bank (was downgraded by FBR today)

·     REITs; Mizuho noted in a note today that in a move that should surprise very few, NY State Assembly is debating the passage of a bill (#S8125A) that would essentially provide 90 days of forgiveness (not deferral) for certain residential and small business rents, and suspend mortgage payments. The introduction of the bill comes shortly after NYC Mayor Bill DeBlasio publicly called for the city to freeze rent hikes and evictions and the #CancelRent / movement gains momentum as unemployment figures skyrocket and more household incomes are disrupted by the COVID-19 pandemic. Among the more NY-exposed Apartment REITs are EQR (15% of NOI, though half of this is Northern NJ), AVB (14%), UDR (7%), and AIV (4%); mortgage REITs (NLY, TWO, MTG, NRZ) still tumbling to reflect weaker growth, de-leveraging, lower rates, and virtually no conduit sales activity



·     Pharma & Biotech movers; FATE shares rose after the company signed a global collaboration and option agreement with JNJ’s unit Janssen Biotech aimed at developing cell therapies for cancer; LVGO shares rallied on contract win and Canaccord noted telemedicine names such as TDOC, LVGO, CATS will face limited negative impact of an economic fallout from the COVID-19 outbreak

·     Healthcare services and providers; CI is working with Buoy Health to provide an early intervention screening tool to help customers and members understand their personal risks for COVID-19; IQV cuts Q1 EPS guidance to $1.46-$1.51 from $1.59-$1.65 (est. $1.59) and cuts Q1 revenue view to $2.71B-$2.74B from $2.79B-$2.84B (est. $2.81B); BDX and BioGX say the FDA has granted Emergency Use Authorization for a new diagnostic test that will enable hospitals to screen for coronavirus on site and get results in under three hours


Industrials & Materials

·     Industrial & Machinery; MMM warns of "humanitarian implications" and retaliation from the Trump Administration’s request for the company to cease exporting respirator masks that it manufactures in the U.S. to Canada and Latin America; ACT estimates March Class 8 orders were 7,800 units, which was beneath the preliminary orders view by Wells Fargo 11,500 midpoint of our channel check based 10,000-13,000 estimate range (shares of PCAR, CMI, NAV leveraged to data) – separately, Evercore/ISI upgraded PCAR shares

·     Aerospace & Defense; Macy’s was dropped from the S&P today to be replaced by Carrier Global (CARR) which is being spun out of United Technologies now that UTX merges with Raytheon and changes its name to Raytheon Technologies (RTX) – Otis Worldwide (OTIS) to replace Raytheon in the S&P 500 index; Airbus is studying a sharp cut in output of its top-selling A320 plane series amid an industry-wide slowdown triggered by the coronavirus crisis, Reuters reported


Technology, Media & Telecom

·     Internet; TWTR upgraded to buy from neutral at Goldman Sachs as believes increasing users’ numbers will create future opportunities that TWTR will be able to monetize better as it invests in ad technology through the crisis; AKAM upgraded to Outperform at Raymond James with the core CDN business likely a direct COVID beneficiary with increased web traffic in a WFH environment, and the expansive opportunity in cloud security; CHWY reported a strong fourth quarter, highlighted by ~35% normalized revenue growth driven by 10% normalized revenue/ customer growth and strong Autoship growth. EBITDA margins also expanded ~470 bps YoY


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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