Closing Recap

Wednesday, April 15, 2020

Equity Market Recap

·     U.S. stocks slide, but finish off their lows as a late day bounce in Boeing helped the Dow Jones Industrial Average pare its losses, while mega cap tech gains (NFLX, AMZN), help limit the Nasdaq Comp losses. Energy stocks and financials again pressured major averages as WTI crude dropped back below $20 per barrel (settles at 18-year lows), while banks were slammed on weak earnings from BAC, C, PNC and GS this morning, as all posted more than 45% declines in profit from a year ago while also significantly boosting reserves for losses for potential bad loans due the pandemic impact. Economic data today was also abysmal (as expected – but still headline shock) as manufacturing in NY State plunged to a record low reading of negative -78.2, worse than the -35.0 estimate while industrial production plunged as well, along with an 8% drop in retail sales and the biggest plunge in the NAHB Housing Market index in its history. The data comes ahead of tomorrow’s weekly jobless claims where another 5.4M are expected to file for first time unemployment benefits (after over 16M filed the last 3-weeks). Coronavirus cases continue to pile up with global cases around 2M now, but hopes that we have reached the apex, along with Fed and government stimulus intervention have helped boost stocks off March lows.

Economic Data

·     Empire Manufacturing plunges to -78.2, worse than the -35.0 estimate (last month was -21.5); segment breakdown showed: the new orders index -66.3 in April vs -9.3 in March, prices paid index 5.8 vs. 24.5 in March; the employment index fell to -55.3 from -1.5 MoM and the six-month business conditions index 7.0 in April vs. 1.2 in March

·     Industrial Production for March reported at down (-5.4%) vs. est. (-4.0%) while Capacity Utilization fell to 72.7% vs. est. 74.0%, and down from 77% prior month

·     U.S. Home Builders’ Confidence index in April plunges over 42 points to reading of 30, which compared to a reading of 72 last month, according to NAHB/Wells Fargo (index level lowest since June 2012); the present single family sales falls to 36 vs 79 last month, future single family sales falls to 36 vs 75 last month and prospective buyers traffic falls to 13 vs 56 last month

Commodities

·     Commodity prices were lower, as gold tumbled from 8-year highs, down -$28.70 or 1.6% to settle at $1,740.20 an ounce and falling for the first time in five sessions on profit taking and as the dollar recovered from the day prior losses. Oil prices fall, as WTI crude slipped 24c or 1.2% to settle at $19.87 per barrel, its lowest close for front-month since February 2002 on massive weekly inventory builds (EIA 19M barrel build – the biggest one-week in history) and after the IEA forecasts global demand for oil will drop by 9.3 million bpd in 2020, saying the OPEC+ production cut this weekend will not offset the lack of demand.

Currencies & Treasuries

·     The U.S. dollar was broadly higher, but did pare gains into the afternoon as weaker U.S. economic data this morning was a sharp reminder of what kind of impact the coronavirus is having on the U.S. economy, and comes ahead of another jobless claims report tomorrow morning where another +5M plus are expected to file for first time claims. Treasury prices surged as yields tumble to lowest level in weeks (10-year down 10 bps to 0.64%) following the steep declines in retail sales, Empire State numbers, and housing data.

Coronavirus Update:

·     U.S. CDC reports 26,385 new coronavirus cases as of yesterday with total now 605,390 cases vs 579,005 in previous report. The U.S. CDC reports 2,330 new deaths due to coronavirus as of yesterday as total now 24,582 deaths vs 22,252 in previous report on April 14. New York Gov. Andrew Cuomo said Wednesday he is issuing an executive order directing all New Yorkers to wear a face mask covering their nose and mouth when in public during the current coronavirus pandemic. Cuomo said he will give people a three-day notice period to comply with the new rule. The announcement comes after New York suffered another 752 deaths from the virus on Tuesday, down from 778 the day earlier.

Sector News Breakdown

Consumer

·     Retailers; sector falls amid resumption of weakness after a week of buying/short covering drove the group higher last week/but industry still suffering from store closures (shares of PVH, LB falls); BOOT was downgraded to neutral at Susquehanna citing elevated inventory levels, mgmt decision to keep stores open and lack of transparency around store closures/withdrawal of guidance; PTON was initiated buy and $38 tgt at Roth Capital as they believe there are many factors that will improve customer acquisition and subscriber monetization in the coming years; AEO was downgraded to sell at Loop Capital; TGT upgraded to outperform and $125 tgt at BMO Capital as believe that Target’s market share trends in discretionary categories are poised to accelerate in a post-COVID-19 retail landscape

·     Consumer Staples; in the food space, CPB and GIS were both upgraded to overweight at Piper saying consumers they surveyed indicate intentions to continue eating more food at home even after restaurants re-open; TAP said it has expanded its partnership with HEXO by forming a joint venture to explore opportunities for non-alcohol hemp-derived CBD beverages in Colorado; PG boosted its dividend and brings forward its Q3 earnings release to Friday

·     Casino & Leisure movers; SGMS stated that it has a strong liquidity position and has already cut more than $100 million in quarterly costs while has drawn approximately $480 million under its Revolving Credit Facilities; SIX said it is offering up to $665 million of senior secured notes; cruise lines slip lower in broad market pullback (CCL, RCL, NCLH)

·     Auto sector; TSLA another positive note had shares up early after Goldman Sachs initiated with a buy and $864 tgt as believe that the company has a significant product lead in EVs, which is a market where we expect long-term secular growth (follows a surge in shares Tuesday after Credit Suisse upgraded to an outperform)

Energy

·     Energy stocks tumbled with oil coming off hard initially before rebounding off 18-year lows early afternoon (Brent was below $30 and WTI below $20 per barrel). The OPEC+ agreement to cut production last week has failed to counter the magnitude of expected stock builds amid the lack of travel due to pandemic measures instituted to limit the COVID-19 contagion. Not helping today as was the International Energy Agency saying demand would slump by a record this year despite a historic production cut deal. American oil supplies rose almost 20 million barrels last week, according to the U.S. EIA, while saying oil demand will drop by over 9 million barrels a day this year, wiping out a decade of consumption growth and filling up storage by mid-year

·     Inventory data showed: The API showed a build of 13.4M barrels of oil for the week ended April 10, its third consecutive increase while gasoline inventories rose 2.23M barrels, distillate inventories a build of 5.64M barrels, and Cushing a build of 5.36M barrels. The EIA data showed U.S. crude stocks rose by 19M barrels in the most recent week, above ests for an 11.6M barrel build and the biggest one-week increase in history, as refiners throttled back activity due to slumping demand. Crude stocks at the Cushing, Oklahoma, and delivery rose by 5.7M barrels. Commercial crude oil imports last week fell to lowest since Feb 1996

·     Stock movers; CVA shares plunge after cutting its dividend from $1.00 to 32c and withdraws 2020 outlook in light of macroeconomic uncertainties, prompting a downgrade to sell at Stifel; DVN announced amended terms to the sale of the Barnett Shale asset to Banpu Kalnin Ventures as will now receive $570M in cash proceeds at closing with contingent payments which could boost total (but was down from $770M)

Financials

·     Bank movers; Citigroup (C) reported total cost of credit for the Q1 of $7.03B vs. $1.98B YoY while reported a 46% plunge in quarterly profit (set aside nearly $5B to prepare for an expected flood of defaults on loans due to coronavirus pandemic) – earnings offset due to a surge in fees as trading desks rallied in February and March as equities and fixed-income trading rose 39% YoY; GS said Q1 quarterly profit fell 46% to $1.21B from $2.25B a year ago while revs of $8.74B was flat on a YoY basis/ trading revenue rose 28% to $5.16 billion while fixed-income trading had their best quarter in five years/revenue from mergers fell 11%; BAC with a 45% plunge in Q1 profit and set aside an additional $3.6B for potential bad loans due the pandemic impact, while total provision for credit losses rose to $4.76B, from $941M the previous quarter/net interest income (NII) fell 2% from a year ago to $12.13B, while noninterest income was flat at $10.64B; SCHW Q1 EPS met views on better revs while net interest revenue of $1.6B declined 6% Y/Y, due to pressure across the yield curve accelerating late in the quarter/said clients opened a record 609K new brokerage accounts — over 280K in March alone/ 1 total net new assets rose 42% YoY

·     In research, Citigroup downgraded IVZ and SCHW while upgraded CG saying with seemingly less favorable Macro tailwinds, they believe investors will become increasingly focused on underlying platform utility/see rising utility for the Alts; decaying perspective for the Traditionals; while, recent bounce in the Retail B/Ds seems to have mostly recouped remaining residual utility

·     Consumer finance and lending; BAC credit card charge-off rate was 2.74% in March vs 2.52% in February; TREE guides Q1 revs $280M-$285M, down from prior $296M-$306M while suspends FY 2020 guidance (but shares were upgraded to a buy at SunTrust today); V and MA were both downgraded at Jefferies saying despite affinity for both co’s and their long-term outlook, they struggle to see upside over next 12 months amid several factors (headwinds from lower international travel, risk to current premium multiples and potential negative shock from April volume updates

Healthcare

·     Biotech movers; XENT was double downgraded at Bank America to underperform saying COVID-19 will not only impact sales for most of 2020, but will make it extremely challenging for XENT to develop their markets, which could pressure 2021 revenues significantly; ATHX said the FDA cleared it to start Phase 2 trial evaluating MultiStem cell therapy for early treatment of traumatic injuries; OGEN plunges after saying its experimental drug did not show statistical significance in lowering duration of oral mucositis – tissue swelling in the mouth – when compared to a placebo; GILD slides on suspension of its remdesivir trial in patients with mild/moderate COVID in China

·     Medical equipment and devices; NUVA announced preliminary Q1 revenue and withdrew its full year financial guidance (Q1 revs range was $259M-$261M, representing a 5.0% – 5.7% YoY decline and said began to see a global decline in elective surgical procedures in mid-March; ABT said it launches third covid-19 test, a laboratory-based antibody blood test that will ship in the U.S. starting tomorrow/to distribute 4M tests in April, ramping to 20M in U.S. per month in June; FLDM saw prelim Q1 revenue $27.6M vs. est. $29.32M and says cash and cash equivalents about $49.6M, vs. $60.7M at the end of 2019; ILMN guides Q1 revs higher to about $858M vs. est. $830.3M while withdraws 2020 guidance on COVID-19 uncertainty

·     Healthcare services and providers; Dow component UNH reported Q1 EPS of $3.72 beating by about 10c on in-line revs $64.4B while guidance for the year was above views ($16.25-$16.55 vs. est. $16.22); TDOC guides Q1 revs $180M-$181M, above est. $173.1M and said it now routinely providing in excess of 20,000 virtual medical visits /day in US, up over 100% as compared to first week of March

Industrials & Materials

·     Airlines active after Treasury Secretary, Steven Mnuchin announced that 10 airlines have signaled that they plan to accept grants to cover payroll and benefits while conversations continue with the other airlines. Airlines accepting these grants are subject to restrictions on involuntary furloughs, shareholder returns, executive compensation, and minimum service levels as discussed previously (ALK, ALGT, DAL, HA, JBLU, LUV, SKYW, UAL)

·     Transports; JBHT rises after reported 1Q20 EPS of 98c but UBS notes if we exclude all three of the one-time charges in the quarter (BNSF 2019 adjustment, driver bonus, and exec retirement), the 1Q would have been $1.15/share which is well above the 97c estimate

·     Metals & Materials; CLF issued downside revenue guidance for Q1, seeing sales of $345M-$375M vs. $402M analyst consensus estimate, and suspending its dividend; Credit Suisse downgraded NUE to neutral in steel producers saying the impact of Covid-19 and the collapse of US energy is a black swan event for domestic steel companies for which recovery will take time

·     Chemicals; Bernstein upgraded APD and LIN to market perform saying as a global recession appears increasingly likely, they believe there is more upside potential to Industrial Gas stock as the core of the defensive thesis is that they won’t be majorly impacted by COVID or a recession

Technology, Media & Telecom

·     Tech headlines; NFLX among top gainers in S&P 500, hitting all-time highs as Cowen, Pivotal, Stifel up their respective price targets; AMZN touches another record highs, surpassing the $2,300 per share level; semiconductors slip after outperformance Tuesday; JD upgraded at Morgan Stanley citing sustainable margin improvement and strong FMCG growth; news was generally quiet in tech, with stocks mixed after the outperformance in the NASDAQ Tuesday.