Closing Recap

Thursday, April 30, 2020

Equity Market Recap

·     U.S. stocks slumped on the final day of trading for April, but still posted its best monthly returns in decades as all three major indexes are well within 20% of record highs reached in February, having quickly rebounded since shutdown efforts to curb the spread of the coronavirus pandemic that brought the economy to a grinding halt. Despite today’s decline the S&P 500 index finished higher by 12% for the month its biggest monthly since the 1980’s. For Thursday, stocks fell on more grim economic data (jobless claims, manufacturing, personal income/spending) and mixed earnings that prompted investors to take some profits after the solid run. Strong earnings from Microsoft and Facebook helped the Nasdaq Composite erase losses for the year, before the broader market slipped. Economic data has been awful (and expectations are for that to continue) as the six-week tally of unemployment claims topped 30 million and consumer spending plummeted more than expected – which followed data showing the U.S. economy had logged its worst quarterly performance since 2009 on Wednesday (GDP -4.8% for Q1). The Federal Reserved announced that it would broaden its "Main Street Lending Program" by lowering the minimum loan size and expanding eligibility, a move that briefly helped stocks pare their losses, but stocks slipped amid profit taking into earnings tonight from AAPL and AMZN. Crude oil prices continue to rebound, with June WTI rising over 25% early, topping $18.50 per barrel while Treasury prices rise (yields fall with 10-year below 0.6%) and the dollar extends its recent declines. Europe’s Stoxx 600 fell -2.09% on last day of month but was still up 6.2% for April, its best monthly return since Oct 2015 while the FTSE 100 fell -3.5% on day but up 4% for month (best in 2-years), Germany’s DAX down -2.4% on day but surges 9.3% for April.

Economic Data

·     Weekly jobless claims reported at 3.839M vs. est. 3.5M but down from prior 4.427M; continuing claims rises to 17.992M above the prior week 15,976M but below the est 19,476M; U.S. insured unemployment rate rose to 12.4% from 10.9% prior week; the 4-week moving average fell to 5,033,250 in week from 5,790,250 prior week

·     Personal Spending for March fell a greater than expected (-7.5%) MoM vs. est. decline (5.0%) while personal income in March fell (-2.0%) worse than the (-1.5%) estimate; real personal spending fell (-7.3%) vs. est. (-6.2%); PCE prices fell 0.3% m/m; est. -0.3%; rose 1.3% y/y, while core prices fell 0.1% m/m; est. -0.1%; rose 1.7% y/y

·     Chicago PMI falls to 35.4 in April, the lowest since March 2009 as per CNBC and below the est. 36.9; prices paid fell and the direction reversed, signaling contraction while new orders fell at a faster pace, signaling contraction and employment fell at a faster pace

Commodities

·     Oil prices rise for a third straight day of gains, surging into settlement on no specific headlines and closing near the highs of the day with WTI crude up $3.78, or 25% to $18.84 per barrel. The spike came in the last 15 minutes of trading after posting solid gains earlier helped by reports Western Europe’s biggest oil producer, Norway, is voluntarily joining international efforts to cut supply for the first time in almost two decades. "We will cut production by 250K barrels per day in June and by 134K bps in the second half of 2020. There were no specific stories to explain the move in oil late day, as it closed out a rough month on a high note. June gold prices fell -$19.20 or 1.1% to settle at $1,694.20 an ounce – but still post a solid 6% gain for the month helped as investors look to safe havens during times of uncertainty related to the coronavirus

Sector News Breakdown

Consumer

·     Retailers; TPR shares fall following weaker Q3 results and no guidance (27 loss for Q3 vs. est for (11c) loss/suspends dividend, share repurchase program; OSTK reported retail sales climbed more than 120% YoY in April due to demand created by coronavirus lockdown measures; HBI falls after reporting a 9.4% drop in innerwear sales and 10.2% decrease in outerwear sales in Q1 and said gross margin fell 260 bps to 37.6% of sales; SWK said Q1 net earnings fall ~22%, hurt by the COVID-19 pandemic and that March "sell-in" volume fell into deep negative territory/says 2020 organic sales could fall between 15% and 30% depending on duration of the shutdowns

·     Consumer Staples; MO 1Q adj EPS $1.09 vs. est. $0.98, revs ex excise tax $5.05B vs. est. $4.60B, rescinded buyback program, maintaining div payout ratio tgt about 80% of adj EPS, intends to vigorously defend JUUL transaction; CHD reports organic sales increased 9.2% in Q1, consisting of a volume increase of 6.9% and positive product mix and pricing of 2.3%/organic sales were higher in every segment, led by a 10.2% gain in consumer domestic; KHC 1Q adj EPS $0.58 vs. est. $0.55 on net sales $6.16B vs. est. $6.14B, organic revs +6.2%, adj EBITDA $1.42B; TAP net sales were a tad light and adjusted EBITDA missed while adjusted EPS beat while volumes up a touch which was impacted by pantry loading; PPC said chicken demand from quick service restaurants returning near pre-covid-19 outbreak levels; BYND rises early after MCD said earlier expects pant based protein on menu over time

·     Restaurants; MCD Q1 revs $4.71B vs. est. $4.65B, EPS $1.47 vs. est. $1.57, global comps -3.4% (+7.2% Jan/Feb, -22.2% Mar), US comps +0.1% (+8.1% Jan/Feb, -13.4% Mar); DNKN said U.S. Q1 comparable-store sales fell (-2%) and withdrew its 2020 guidance (comps grew 3.5% for the first 10 weeks of the quarter ended March 28 but later plunged 19.4% in the final three weeks); broad pullback in restaurant space, a group that was hit hard end of March on pandemic forced store closures, but has rallied nicely over the last 2-weeks since on reopening plans

·     Auto movers; TSLA rises after reporting a surprise Q1 adjusted profit and was able to expand non-GAAP automotive gross margins by nearly 500 bps yoy; tire maker GT shares dropped after the company’s Q1 profit missed analysts’ estimates; auto supplier DAN advanced after mixed Q1 results and withdrew guidance; IHS Markit cuts outlook of global light vehicle sales in 2020, to drop to 69.6M units, 22% lower than in 2019, with risks for further deterioration.

·     Casino & Leisure movers; WYNN CEO Matthew Maddox stated during a White House meeting that casinos could reopen by Memorial Day if all goes well. Earlier this week, the casino operator started to take reservations for Memorial Day weekend; theme parks active after SIX posts smaller-than-expected loss, driven by cost savings measures it implemented after park operations were suspended due to the coronavirus pandemic

Energy

·     Energy stocks; COP rises as posted better-than-expected first-quarter earnings and announced deeper production cuts ahead; RDSA cut its dividend following a steep drop in oil demand; QEP shares jump as qtr earning ex-items, net income rose to $48.4M from $34.1M YoY and oil equivalent production in Permian basin rose 21% to 4.9M Boe while cuts capex by 32% to $385M; overall energy sector getting a boost as oil prices resume recent bounce after historic crash over a week ago, with prices up over 20% this morning lifting many stocks

Financials

·     Bank movers; several regional banks slip after earnings including ISBC, BRKL, COLB, CLBK; in private equity, CG shares stumble after $1.2B investment loss posts Q1 loss and withdraws guidance; Visa (V) to report earnings tonight; in insurance; HIG Q1 profit missed amid weakness in commercial lines segment and fall in net investment income as flags $50M hit to underwriting operations from COVID-19 pandemic, pauses share buybacks; AFL slipped after saying Q1 sales in the U.S. and Japan started "to fall off" last month and the drop worsened in April, impacted by a reduction in face-to-face activity (Q1 sales were $5.16B vs. est. $5.5B)

Healthcare

·     Pharma movers; VRTX reported a strong 1Q20 beat driven by recent CF drug Trikafta launch as total revs reported at $1.52B vs. est. $1.29B); BAX beats Q1 profit estimates, driven by increased demand for its continuous renal replacement therapy, IV Solutions, certain generic injectables and parenteral nutrition therapies due to COVID-19; ACRX said its opioid drug Dsuvia had gained “milestone C” approval, which enables its use in U.S. military sets, kits and outfits; AZN shares trade to a record high today after teams up with the University of Oxford to help develop, produce and distribute a potential COVID-19 vaccine; PRGO prescription pharmaceuticals unit posts quarterly sales of $258M missing views due to pricing pressure and discontinued products

·     Medical equipment and devices; HOLX rises on plans to launch a second test for the novel coronavirus that will run on its base Panther instrument/was upgraded at SVB Leerink to outperform and target to $62 from $41 citing the increased testing capability; ABMD shares among top gainers in the S&P early after better quarterly results, helped after revs rose 9% YoY to $840.9M and op income rose nearly 11% YoY to $249.2M

·     Healthcare services and providers; TDOC reported 1Q20 results that were essentially in line with its pre-release on April 14 while visit volume was very strong (+92%) and revenue increased 41% y/y and raised its year profit and sales outlook; EHC posted in line results on impressive volume momentum through January and February, before admission strength gave way to a COVID-related drop off and cost headwinds beginning in mid-March

Industrials & Materials

·     Industrials, Aerospace & Defense; TXT said Q1 profit and sales fell as jet and helicopter deliveries fell during the coronavirus pandemic/sales were $2.78B below the $3.09B estimate; ETN shares dropped after Q1 earnings and sales slide

·     Chemicals; OLN posted a Q1 EPS loss of (51c), more than the (26c) loss estimate, sending shares lower while sales were down to $1.43B from $1.55B YoY saying that due to weaker customer demand and a high level of maintenance turnaround activity, it expects second quarter 2020 Chlor Alkali Products and Vinyls volumes to be meaningfully lower; DOW also lower after sales decline YoY but in-line EPS results – chemical names weaker today CE, EMN in reaction; KRA among upside standouts after Q1 EPS beat as shares rise as much as 35%

·     Transports; airlines giving back some recent gains after AAL warns of ~$70M per day cash burn in Q2 as the pandemic brings global travel to a standstill and posts a Q1 $2.2B loss; transports have seen a mixed sector with several truckers disappointing, but group has held up well, while airlines (as expected) reporting massive losses and selling stock to raise cash over the last 2-weeks; UPS has hit the package delivery sector after its recent miss

Technology, Media & Telecom

·     Internet; FB strong 1Q:20 results with revenue, users, and engagement growth coming in well above Street expectations, while profitability was in-line despite a number of incremental costs (Q1 monthly active users 2.60b vs. est. 2.34b/ sees 2020 capex down to $14B-$16B from prior range of $17B-$19B); TWTR posted a Q1 revenue beat, and smaller-than-expected loss while its daily users (DAU) who can view ads soar 24% to 166M topping the 164M est. and reports a slight rebound in ads sales in Asia after a plunge due to the outbreak/shares slip after saying the last 20-days of March saw ad spending fall -27% YoY and said April ad spend similar to March; EBAY Q1 results were better than expected for eBay, with GMV, Revenue and EPS above street estimates while Q2 revs and EPS range came in above Street’s expectations, while management reiterated FY20 guide; AMZN next up with earnings tonight

·     Software movers; MSFT tgt raised by several analysts after reported all revenue segments, gross and operating profit, and EPS above consensus estimates and within or above its guidance range with usage growing to record levels across its diverse portfolio; ZM slips after admits its app does not have 300M daily active users (DAU) – has now updated the original blog post to say it had over 300 mln daily meeting participants, not active users; NOW exceeded Q1 expectations, guided 2Q below and lowered FY20 guidance due to near-term uncertainty related to net new ACV (analysts raise tgt, downgraded at Piper on valuation); TYL reported 1Q20 results that were in-line to slightly above expectations and withdrew previous full-year guidance; PS, PTC among other software names out with earnings; MANT shares fell after lowered year EPS and sales

·     Media & Telecom movers; CMCSA Q1 EPS beat estimates while revs miss and said gains 477,000 broadband subscribers in Q1, its best net additions in 12 years as broadband segment grew 9.3% to $5Bn as more people stayed in due to the coronavirus outbreak/could see similar video subscriber losses in Q2 after -409K lost in Q1; NLSN Q1 misses and updating its FY20 outlook to reflect the potential coronavirus impact (FY20 sees constant currency revenue decline of 1-4% (was: 1.5-3% growth), EPS of $1.43-1.58 (was: $1.67-1.80); FOXA, DISCA, VIAC all pressured early as media sector very weak after CMCSA comments/results

·     Hardware & Component news; AAPL with earnings after the close tonight; CLS reported better-than-expected Q1 results and provided an outlook for Q2 that suggests better visibility and less headwinds than previously expected; BHE reported revs and EPS better than ests which had been lowered after the Mar announcement it wouldn’t achieve Q1 guidance

·     Semiconductors; LRCX shares fell –note earlier this week, the U.S. Commerce Department issued a final rule requiring export licenses for any transaction involving the Chinese military or private companies that support military end use. Today in a filing, LRCX updates its risk factors to include the new ruling, noting that China represented 22% and 29% of its overall revenue for FY19 and the nine months ended March 29, respectively; QCOM shares active after earnings