Market Review: August 28, 2020

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Closing Recap

Friday, August 28, 2020





DJ Industrials




S&P 500








Russell 2000





Equity Market Recap

·     U.S. stocks posted another rip-roaring rally on Friday, as the Dow pushed into positive territory on the year (rising for the 6th time in the last 7 sessions) ahead of index changes on Monday (CRM, AMGN, HON in – PFE, RTX, XOM out), while the S&P 500 advanced a 7th straight session (a record high for a 6th straight) and the Nasdaq Composite was back to its winning ways after a brief decline on Thursday. Stocks rallied late after the Fed’s Bullard, in just one of many bullish comments from Fed officials the last two days driving stocks higher, said “we’re not even thinking about thinking about raising rates…says policy is right for this moment…and thinks it’s steady as she goes for the Fed”. Those comments followed a change in stance from the Fed yesterday when Fed Chairman Powell revised their mandate about inflation, which boosted gold and sunk the dollar back near 52-week lows today. Gains were led by energy, materials tech and a late week rally in financials, while defensive names remain laggards such as REITs, Utilities, and Healthcare. Pandemic/reopening hope names extended their recent gains as well with casinos, cruise lines, restaurants and leisure names outperforming. Economic data was mostly better as personal income and spending for July both topped estimates along with slightly better sentiment data, but Chicago PMI data fell short of estimates.

Economic Data

·     Advance Goods Trade data for July showed a wider than expected deficit of (-$79.3B) vs. the (-$72.0B) estimate as imports rose 11.8% in July to $194.327b from $173.841b in June and exports rose 11.8% in July to $115.008b from $102.855b in June

·     Personal Spending for July rose a slightly better than expected 1.9%, topping the 1.6% estimate while personal income in July rose 0.4%, vs. an expected decline of (-0.2%); real personal spending rose 1.6% vs. est. 1.3%; PCE prices rose 0.3% MoM vs. est. 0.4% and up 1.0% YoY while core prices rose 0.3% MoM vs. est. 0.5% and rose 1.3% YoY

·     Chicago PMI data for August with reading of 51.2 vs. est. 52.6 after 51.9 reading prior

·     University of Michigan sentiment Aug-F reported at 74.1 vs. est. 72.8 (which was also the preliminary reading); the expectations index rose to 68.5 vs. 65.9 last month and the current economic conditions index rose to 82.9 vs. 82.8 last month



·     Oil prices little changed as WTI crude fell 7c to settle at $42.97 per barrel as prices finished just below its recent 5-month highs as damage from Hurricane Laura in the Gulf region remains undetermined, causing massive flooding in areas, but damage not as severe as initial forecasts as the storm moved through quickly (but powerfully) and was quickly downgraded to a tropical storm after earlier highs of a category 4 hurricane. For the week, WTI crude rose 1.5%

·     Gold prices spiked on Friday as December gold rose $42.30 or 2.2% to settle at $1,974.90 an ounce, following a steep sell-off Thursday to settle the week higher by 1.4%. Prices got a boost as the U.S. dollar weakened (to near 52-week lows) after the Fed announced yesterday it would allow inflation to run above its 2% target for some time, leading to the belief they will keep their monetary policy extremely loose for longer.


Currencies & Treasuries

·     U.S. Treasury yields were mixed on Friday as the longer -term 30-yr yield extended gains, rising as high as 1.57%, its best levels since mid-June before fading (but holding 1.50%) as investors processed the impact of the Federal Reserve’s announcement on policy yesterday. The 10-year Treasury note yield rose about 2 bps to 0.73% just a day after marking its highest yield since June 16. On Thursday, the yield for both the 10-and 30-year bond saw their biggest daily increase in two. Meanwhile the shorter-term 2-year yield fell -2bps to 0.135%.

·     The U.S. dollar index (DXY) touched a low of 92.20 (just above its 52-week low of 92.12 a week ago), down about -0.9% for the week as the Fed made adjustments to its monetary policy by saying they would allow the inflation rate to rise above its 2% prior mandate, raising expectations that easing measures (lower rates) could last longer than previously expected. Sterling rises 1.1% to $1.3356, highest since mid-December against the dollar, while the buck dropped over 1% against the Japanese yen after the country’s PM Abe resigned because a chronic illness.



·     Individual investor bulls charge to an 11-week high as optimism over the short-term direction of the stock market hit an 11-week high in the latest American Association of Individual Investors (AAII) Sentiment Survey. AAII reported that bullish sentiment, or expectations that stock prices will rise over the next six months, increased 1.7 percentage points to 32.1%. Optimism was last higher on June 10, 2020 (34.3%). But bullish sentiment remains below its historical average of 38.0% for the 25th consecutive week and the 30th week this year.

·     It took just over six months to reach an all-time high again, but the S&P 500 has now set new records for five straight trading sessions and up 6-straight overall (CNBC noted its only recorded 11 other six day winning streak in the last five years), and the S&P 500 is approaching a 10% total return on the year (+9.2%), an amazing result given the historic decline in February-March that saw a more than 40% pullback from February record highs.






WTI Crude















10-Year Note





Sector News Breakdown


·     Retailers: ULTA shares rise after the cosmetics company reported quarterly earnings that beat analysts’ expectations (73c vs. est. 6c) and said e-commerce sales had more than tripled (e-commerce operations surged over 200% in Q2), though revs fell short of views; HIBB the latest sporting goods retailer to post strong earnings as comp store sales increased 79.2% in Q2, brick and mortar comparable sales increased 65.2% and e-commerce sales shot up 212.2% while inventory declined 32.7% to $182M; GPS reported a smaller-quarterly loss on weaker revs as comp sales for Athleta were better but Banana Republic weak and issued no guidance (was upgraded to neutral at Bank America citing improving Old Navy progress); OLLI slips as beat for the quarter but said it expects sales to slow through 2H; WMT new record highs, follow through strength after noting yesterday it was looking to team with MSFT on bid for TikTok

·     Consumer Staples; KO said it plans to reduce its global workforce as part of a company-wide restructuring as will offer voluntary separation packages to 4,000 employees in the United States, Canada and Puerto Rico and will incur ~$350M-$550M in severance expenses; HLF shares fell U.S. prosecutors charged the company related to a China bribery conspiracy and the U.S. says it has a deferred prosecution agreement with the company (shares of another supplement company NUS fell in sympathy); food makers CPB, GIS, CAG underperformed; the WSJ reported that California lawmakers approve menthol cigarette ban (PM, MO)

·     Restaurants; Morgan Stanley upgrading EAT to Equal-weight from Underweight and raise tgt to $39 from $23 as sales and margin performance continue to improve and sit at the top of the peer group and its Just Wings adds an incremental growth layer at minimal cost; YUMC has filed an application with stock exchange of Hong Kong limited; YUM tgt raised to $98 at Bank America saying U.S. quick service sales have rebounded nicely and are generally running above 2019 levels for most brands; strength in restaurants and casual dining early with CMG touching new 52-week highs again, but broad gains for BJRI, CAKE, RRGB, CBRL

·     Leisure and Gaming; DKNG and PENN cut at Morgan Stanley to equal-weight from overweight citing concern investors’ expectations are too high and see 6 potential negative catalysts through YE – but other casino related names outperformed (WYNN, LVS, MGM); in the cruise space, CCL rises after Germany-based AIDA Cruises, a unit of Carnival, said it will set course on Nov. 1 for seven-day voyages to the Canary Islands, while Western Mediterranean and Orient cruises would begin in mid-December; in boating sector, MBUU Q4 results easily exceeded Street expectations as retail trends improved throughout the quarter and remained robust through August, while channel inventories are at historically low levels; MGM to cut about 18,000 jobs which will impact over one-quarter of U.S. workforce; PTON extends gains to new record highs a day after Goldman upped its tgt to $96 ahead of Q4 earnings on Sept 10th as expect the company to report 1,094mn subscribers, 208K net adds vs. FactSet consensus of 199k and guidance for 154K-164K,



·     Energy stock movers; The Baker Hughes (BKR) weekly rig count showed the total rig count was unchanged at 254, with oil rigs down -3 to 180 and gas rigs rising 3 to 72 (misc rigs remained at 2); PED gives up some of yesterday’s gains from delivering open letter of interest to PER as PER stakeholder Avalon Energy has rejected the offer; A recent evaluation of GEVO IP portfolio said it was worth $412M; QEP received its expected alternative minimum tax credit refund of $170.7M

·     Solar and Utilities; Solar stocks JKS outperformed on the day after GLJ Research initiated CSIQ with a Buy rating and $49.40 pt; HSBC downgraded AWK to Hold from Buy and placed a $142 pt on stock; utility stocks among the worst performers in the S&P as defensive names lagged and treasury yields rose, making dividend paying sectors less attractive.

·     Oil stayed in its recent tight range after Hurricane Laura swept the U.S. energy heartland without appearing to inflict major damage on key infrastructure. WTI was steady near $43 a barrel on Friday, with average trading volumes in August plunging to multiyear lows.



·     Cards movers shares of Visa (V) and MA outperform as consumer finance and Fintech related stocks continue to outperform; COF announced they are cutting credit card limits amid lack of federal unemployment support; MA announced their frictionless Shop Anywhere and AI Powered Drive Through technologies, which provides shoppers with low-touch options and the ability to shop without any face-to-face interaction will launch in October at various merchants, including DNKN, White Castle, and Circle K

·     REITs; JPM remains OW on REITs, but downgrades PSA to UW from Neutral; JPM does not see same optimism for Strip Center REITs, as analysts have cautious outlook, while upgrading ROIC to Neutral from UW and downgrading FRT to UW from Neutral; in banks; UBS predicts that Current Expected Credit Losses for this quarter may be larger-than-expected, which would benefit C, JPM, WFC, PNC, RF – overall financials ended the week in strong fashion, getting a boost as treasury yields rallied, boosting optimism about lending margins which have been depressed.



·     Pharma movers: the sector in general underperforms; VKTX reports positive results from mid-stage study of its drug, VK2809, in patients with non-alcoholic fatty liver disease, or NAFLD saying patients given the treatment showed significant reductions in liver fat at 12 weeks; ENTA with positive data from early stage study on a hepatitis B virus treatment saying showed mid-stage study of treatment for non-alcoholic steatohepatitis (NASH) shows reduced liver fat content

·     Biotech movers; MRNA said it’s in talks with the Ministry of Health, Labor and Welfare of Japan to potentially purchase 40 million or more doses of mRNA-127, its COVID-19 vaccine; FBIO announces positive topline clinical efficacy results for cutx-101, copper histidinate, for the treatment of Menkes disease/rolling submission of new drug application to FDA for cutx-101 on track to begin in Q4 of 2020; IBIO enters exclusive worldwide license agreement with privately held Planet Biotechnology Inc to develop Planet’s experimental COVID-19 therapy candidate


Industrials & Materials

·     Transports; Dow Transports remain about 100-points from its January record highs of 11,359.49, up over 2.5% this week alone as airlines recover and strength remains in freight and rails; UBS raising 2H20 EPS 16% for KNX and WERN; 6%-7% for SNDR and HTLD in the trucking sector as inventory restocking and strength in goods spending should continue to support freight demand; The Baltic dry index, which tracks rates for ships ferrying dry bulk commodities and reflects rates for Capesize, Panamax and Supramax vessels, shed 16 points, or 1.1%, at 1,488 as the index registered a small 0.5% weekly gain.

·     Aerospace & Defense; BA has discovered two "distinct manufacturing issues" for the 787 Dreamliner and has told carriers operating eight of the affected planes, including Singapore Airlines, UAL and Air Canada, to remove them so they can be serviced; Canada will not lift BA 737 max 8 flight restrictions until it is fully satisfied safety concerns have been addressed


Technology, Media & Telecom

·     Semiconductors; MRVL reports an in-line quarter & outlook largely as expected, with continued momentum in 5G + data center, partially offset by expected Enterprise weakness – storage benefited from SSD/near-line HDD ramps, but weaker Fiber Channel expected in Oct Q; LRCX raises quarterly dividend from $1.15 to $1.30/share

·     Software movers; WDAY reported Q2 results that beat expectations and raised its full-year outlook for subscription revenue, sending shares higher much like its peer CRM just two days ago (WDAY guides 3Q subscription revs $948-950Mm vs. est. $925Mm); VMW Q2 revenue beat the highest estimate as subscription and cloud better but on-premise spending expected to continue to slow; VEEV with beat and raise quarter, highlighted by a 9% billings beat while margins topped 40% and came in well above and new business highlights included record Quality bookings, increased momentum in Clinical and another large add in OLS; in Internet security; OKTA reported Q2 results that topped expectations and it raised its full-year forecast prompting analyst upgrades though some cautioned about valuation after a YTD gain of nearly 90%, while one analyst warned a deceleration in billings pointed to slower momentum.

·     Hardware & Component news; NTNX shares jump after announcing a $750 million private equity investment from Bain Capital, the retirement of CEO Dheeraj Pandey and results that were better than feared; DELL was upgraded at RBC Capital after earnings as believe its steadily improving balance sheet is positioned to withstand additional COVID-19 macro shocks while many analysts focus on the potential for a VMW spin-out as an opportunity; HPQ posted Q3 revenue and profit that beat analysts’ estimates, as the PC maker has benefited from a swell of demand from remote workers and students during the pandemic (year EPS $2.16-$2.20 vs. est. $2.11)


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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