Market Review: June 25, 2020

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Closing Recap

Thursday, June 25, 2020





DJ Industrials




S&P 500








Russell 2000





Equity Market Recap

·     U.S. stocks surged in the final hour of trading after meandering the earlier part of the afternoon, as all major averages closed at their best levels of the day while investors continue to wrestle with news of rising COVID-19 cases in the U.S. (follows the biggest one day total of new cases ever just yesterday), and its impact on the reopening of the U.S. economy. There was no clear-cut explanation for the surge in the final hour of the day. Market gains were led initially by energy stocks (rising oil) and financials (amid improved regulation ahead of stress tests), two of the biggest weekly sector decliners. Technology shares caught a bid late day pushing back near the 10,000 level for the Nasdaq Composite. The sectors most impacted by the coronavirus lockdowns such as travel, casinos, leisure, theme parks (DIS delayed opening), hotels, restaurants, retailers and REITs (more business likely to go towards stay at home in the future), remains pressured. Financials paced the gains in the Dow (JPM, GS, AXP) after U.S. regulators eased the Volcker rule ahead of stress test results (after the close tonight) as the Office of the Comptroller of the Currency (OCC) approved changes that let banks increase their dealings with certain funds and also scrapped a requirement that lenders hold margin when trading derivatives with affiliates.

·     Economic data was mixed as weekly jobless claims were higher than expected, but still down from the week before and continuing claims manage to dip below 20M. The fears of rising COVID-19 cases in several “hot-spots” around the country (TX, FL, CA, NC, SC, AZ) has spooked markets recently, with many of those states instituting mandatory mask wearing in public while some stores have voluntarily shut down (AAPL has now reclosed 32 overall stores around the country) amid the surge in cases. Treasury prices rise as yields slip while the dollar was up modestly and gold prices edge lower after touching 8-year highs this week.

·     KC Fed President Esther George hinted that we need to wait & see if more monetary policy accommodation is needed. “Overall, it might be awhile before the dust settles and we gain insight on whether further accommodation is necessary or not.“ The headlines didn’t hurt stocks which have been buoyed on stimulus measures from the Fed, but was a notable difference than what other Fed members have been suggesting and saying.

·     Coronavirus case news: Florida covid-19 cases rise 4.6% vs. previous 7-day avg. 4% while Florida covid-19 cases reach 114,018 vs. 109,014 day earlier. Texas Governor Greg Abbott halted the phased reopening of the state’s economy, citing a surge in Covid-19 cases and hospitalizations. Under the executive order announced on Thursday, businesses that were already permitted to open can continue to operate under their existing occupancy limits. Arizona virus cases jump 5.1% to 3,056 from 1,812, above prior 7-day average 2.3%. CNBC noted the U.S. saw a record number of new coronavirus cases in a single day, with 45,557 diagnoses reported Wednesday. This tops the previous record daily count by more than 9,000 cases. California covid-19 cases rise 2.8%, in line with 7-day average — number of new Covid cases in California climbs by 5,349 — California reports 101 additional Covid-19 deaths.

Economic Data

·     U.S. Final GDP for Q1 was down (-5%), in-line with estimates; US Q1 consumer spending fell (-6.8%) also in line with estimates while Q1 business investment fell (-6.4% vs. est. -7.9%); core PCE QoQ was 1.7% topping the 1.6% estimate and GDP Price index was an in-line 1.4%; Q1 exports fell (-9%) and imports fell -15.7%

·     Weekly Jobless claims fell to 1.48M from an upwardly revised 1.54M last week (from 1.508M), but was above the 1.3M estimate while the 4-week moving average fell to 1.620M from 1.781M prior; continued claims fell to 19.522M from 20.289M prior and vs. est. around 20M; insured unemployment rate fell to 13.4% from 13.9%

·     U.S. Durables Goods Orders for May rose 15.8% vs. the est. up 10.9% and well above the prior month of down (-18.1%); Orders ex-defense rose 15.5% vs. April down (-17.1%); May durables ex-transportation orders rose 4% vs. est. 2.5% and prior month down (-8.2%); US May durables shipments rose +4.4% vs. April down (-18.6%)

·     U.S. advance goods trade deficit widened to -$74.3B in May from -$70.7B (was -$69.7B); exports fell -5.8% to $90.1B after plunging -25.1% to $95.6B in April; imports dropped -1.2% to $164.4B following the -13.6% decline to $166.3B previously



·     Oil prices advanced on Thursday, but closed off the best levels as WTI crude gained 71c or 1.87% to settle at $38.72 per barrel (earlier highs $39.15) helped by signs of a marginal improvement in the U.S. economy and a tepid rise in fuel demand, but price gains were limited by rising cases of COVID-19 in some U.S. states. Natural gas prices fell over 7% to $1.482 mln btus, 25-year lows. Traffic totals have improved for mass transit and air travel, but still down sharply YoY in many cases as people remain apprehensive about the risks of flying due to virus outbreaks. Gold prices edge lower, as August gold fall -$4.50 or 0.3% to settle at $1,770.60 an ounce, as a bounce in stocks and the dollar weighed on prices, pulling back from 8-year highs earlier this week.


Currencies & Treasuries

·     U.S. Treasury prices were mixed as the benchmark 10-year yield was down slightly around 0.67% and the 30-year yield dipped 1 bps to 1.42%. The U.S. Treasury sold $41B in 7-yr notes at a yield of 0.511% vs. 0.516% when issued prior, with the bid-to-cover (demand) at 2.49 vs. 2.55 prior auction and indirect bidders awarded 62.6% and directs 15.7%. Markets still closely watching the rising coronavirus case count and its impact on further reopening plans. The U.S. dollar managed modest gains, rising against the Japanese yen, but rallied vs. the euro following mixed economic data on the day that saw sliding jobless claims and GDP data that was weak, but as expected.






WTI Crude















10-Year Note





Sector News Breakdown


·     Retailers; Macy’s (M) said it will cut about 3,900 corporate and management jobs to slash costs in an effort to weather the long-term effects of the Covid-19 pandemic and is expected to save the company about $630 million a year amid the restructuring changes; FTCH continues to target adj ebitda profitability in 2021, and sees Q2 adj ebitda loss improving YoY with Q2 GMV $605M to $630M; the rising coronavirus case count in the U.S. is pressuring retailers amid fears of slower reopenings or possible closures in areas that have shown “hot-spots” of cases (AAPL has no re-closed 32 of its retail outlets over the last week)

·     Consumer Staples; for STZ, Guggenheim said continue to think there are significant risks to the business, most significantly the investment in Canopy Growth, but we see a generally balanced risk-reward at the current valuation; BYND shares rolled early after a report out of Canada said MCD ended its Beyond Meat burger trial in Canada with no set plans for a vegetarian option; MKC advanced after quarterly earnings topped estimates on the top and bottom line; Alberton’s IPO price range lowered to $16 down from prior range above $18, CNBC reported

·     Restaurants; DRI posted a smaller-than-expected Q4 loss and beats sales estimates and noted weekly same-store sales, including at Olive Garden and LongHorn Steakhouse restaurants, have improved steadily in June as more restaurants open dining rooms (Q1 comps thru 6/21 fell 33.2% after Q4 total comp sales fell -47.7%); MCD said no change in relationship with BYND – still evaluating what it learned from Canada test

·     Housing & Building Products; KBH led homebuilders lower after reporting weaker-than-expected Q2 orders and sales (Q2 EPS 55c/$914M vs. est. 56c/$1.07B and net orders fell -57% YoY (net orders down -36% YoY) of 1,758 vs. consensus of 2,754 and 4,064 in year-ago quarter)

·     Casino & Leisure movers; CHDN announced that after consultation with Gov. Andy Beshear and state public health officials the 146th running of the Kentucky Derby Presented by Woodford Reserve and Longines Kentucky Oaks will occur with spectators under strict guidelines; casino stocks (WYNN, PENN, LVS, MGM) remained weak throughout the day on rising cases of COVID-19; cruise stocks remain pressured (CCL, NCLH, RCL)



·     Energy stocks were among the top advancers in the S&P 500 today amid a rebound in oil prices as investors add to the recently weakened sectors amid fears of slowing demand as coronavirus cases ramp up; Wells Fargo said they with U.S. inventories at historic highs, refining utilization still well below seasonal levels and U.S. curtailed volumes set to return to market, they are cautious on near term oil prices and downgrade MRO; CLR executive chairman Harold Hamm added $57.1M of shares in the company in recent days, at an average price of $16.62, according to an SEC filing. The 3.44M shares he purchased brings his total of direct and indirect shares to 288M, or ~79% of the company.

·     E&P sector; SunTrust upgraded FANG to buy as forecast to have a notably better FCF profile next year vs current Street estimates with our forecast pointing to a ~10% 2021 FCF yield; ESTE upgraded to buy at SunTrust as well saying it continues to be one of the most financially stable & operationally efficient small cap E&Ps with minimal debt, consistent Midland wells, and low overhead/opex leading to sustainable spending within CF; PXD upgraded to buy at SunTrust believe there is much more room for this industry long stock to run as we forecast Pioneer’s 2021 FCF to handily top Street estimates generating $800mm+;

·     Utilities & Solar; in solar, SEDG was downgraded to sell and VSLR to neutral at Goldman Sachs as remains constructive on the broader outlook for U.S. residential solar in the long term, but after a 42% rally in the solar stocks over the past 3 months, now sees limited upside in the near-term



·     Bank movers; Banks (WFC, CMA, JPM, C, GS) got a boost after US regulators ease the Volcker rule ahead of stress test results as the Office of the Comptroller of the Currency approved changes to the Volcker Rule Thursday that let banks increase their dealings with certain funds by providing more clarity on what’s allowed, according to an agency spokesman. The OCC also scrapped a requirement that lenders hold margin when trading derivatives with their affiliates. Note tonight, the CCAR (Comprehensive Capital Analysis and Review) – Fed’s annual tests of banks’ ability to weather financial crisis – is expected tonight – the Fed has looked at over 34 institutions with more than $100B assets each

·     Advisors & Insurance; ALL was upgraded to neutral from underperform at Credit Suisse and raised tgt to $101 from $94; AMP was upgraded to buy at Goldman Sachs with $185 tgt saying believe the stock’s current 8.5X 2021 P/E fails to reflect improving organic growth trends at both Advice & Wealth Management and Asset Mgmt (collectively ~75% of AMP’s earnings) as well as AMP’s increasingly differentiated capital return outlook relative to others comps

·     Consumer finance and lending; ALLY as the company and CardWorks mutually agreed to terminate their $2.65B merger agreement, which had been announced on February 18 after carefully considering the impacts of COVID-19 on global markets and the economy (analysts were pleased with the terminated agreement, with some upping tgts on ALLY on news); MA said switched volume continues to improve since the week ending May 28, with U.S. switched volume increasing 5% in the week ended June 21, up from +3% in the week ended June 14, and -1% for the week ended June 7



·     MedTech; shares of ZBH, SYK shares fade as well as hospitals (HCA, CYH) after the Texas Governor suspends elective surgeries in Bexar, Dallas, Harris, and Travis counties as COVID-19 cases and hospitalizations surge in Texas; EXAS with a positive catalyst watch at Citigroup given conviction around the company’s near-term opportunity to gain CRC screening market share following the launch of its online ordering platform and as colonoscopies fall out of favor due to the COVID-19 pandemic impact

·     Biotech movers; QURE shares fell (and downgraded by a handful of analysts) following today’s global licensing deal with CSL Behring for hemophilia B gene therapy etranacogene dezaparvovec, as it deflates takeout speculation; XLRN presented positive detailed data from its Phase 2 PULSAR trial of sotatercept in pulmonary arterial hypertension, which Goldman Sachs said thinks was largely expected by investors and is reflected in recent stock strength; VXRT announces agreement with Attwill Medical Solutions Sterilflow (AMS) for large scale manufacturing of its potential oral COVID-19 vaccine; MRNA shares fell after the National Institutes of Health (NIH) may own intellectual property that supports MRNA’s COVID-19 vaccine candidate, Axios reported; GNFT, PBYI shares drop after Bank America initiated underperform

·     Healthcare services and providers; CTLT said it will provide vial filling and packaging for MRNA’s Covid-19 vaccine candidate at Catalent’s biologics facility; RAD shares surged early as reported Q1 results that showed revs rise 12% YoY to $6.03B, above est. $5.6B while comp sales rose 6.6% and said sees positive free cash flow in fiscal 2021; PDCO was upgraded to neutral at Goldman Sachs as see greater stability in the earnings outlook for FY21, as PDCO’s GM initiatives and cost discipline are driving stronger operating margins, as well as improved cash flow


Industrials & Materials

·     Aerospace & Defense; BA shares were downgraded at Berenberg saying an early resumption in air traffic has driven a strong rebound in aerospace shares with $BA up 30% in a month…the reality is that the demand outlook has not improved; in fact, we think it has deteriorated…w suggest investors lock in any gains; SPCE shares active again after saying its preparing for SpaceShipTwo’s second test flight – set for launch from Spaceport America in New Mexico

·     Transports; Dow Transports fought back from earlier lows as airlines recovered and trukcers advanced; DAL CEO said in internal memo as reported by Reuters that expect overall demand this summer to be only 25% of last summer’s revenue; says continue to see slow but steady increases in passenger volumes; says likely remain at least 2 years away from a return to normal

·     Chemicals; DD was upgraded to Outperform from Sector Perform at RBC Capital based on improving fundamentals from cost reduction measures and greater exposure to early recovery markets, portfolio transformation with the sale of N&H business and diminished PFAS uncertainty; DOW estimates were lowered at SunTrust citing incrementally bearish comments from its CFO during a conference presentation yesterday; FUL reported a sales and EPS beat for FQ2, primarily driven by 7% YoY organic growth in its Hygiene, Health, and Consumable Adhesives (HHC) segment, as well as benefits from restructuring and lower raw material costs


Technology, Media & Telecom

·     Internet; FB tgt raised to $300 from $240 at Baird and keeps Outperform as latest checks with agencies and advertisers suggest the gradual recovery in digital advertising spending continues, benefiting from high user engagement and improving pricing; Baird also boosted tgt on GOOGL, raising to $1,650 from $1,500; SPOT continues to the upside, rising a 7th straight day to new record highs – extending gains after CMCSA said Monday SPOT will be available to stream on its Xfinity Flex and X1 platforms.

·     Semiconductors; Longbow reduced 2HCY20 estimates to reflect more conservative view of a back-half weighted recovery saying latest checks provide a more cautious view vs current CY3Q consensus given the recovery slowdown in China, bookings uncertainty in Europe, and NA and pockets of excess inventory. Broadly they see downside risk to CY3Q semi and component consensus from a slower auto production ramp-up – said see the most risk for ON given valuation and above seasonal 3Q sales consensus, while MCHP and TXN ests look conservative. From component names, we prefer APH given end-market diversification, while from distribution we see upside for ARW tied to the TXN transition gaining traction – $MCHP, $TXN, $ON Semiconductors – reducing our 2HCY20 estimates to reflect our more conservative view of a back-half weighted recovery @ Longbow

·     Software movers; ACN shares touch record highs after Q3 revenue falls nearly 1% to $10.99B but topped the $10.87B est on better Q3 adj EPS while forecasts its FY20 revenue growth view to 3.5%-4.5% vs. prior view of 3%-6% in higher operating cash flow outlook ($6.45B-$6.95B vs. prior $6.15B-$6.65B); WORK shares volatile after The Register reported CRM plans to write Slack integration out of the equation by rolling its own messaging and collaboration app; BB shares slumped as missed Q1 revenue estimates as demand for its QNX software, used in cars, was hit by the COVID-19 pandemic

·     Media & Telecom movers; DIS shares slipped after saying its Disneyland Park in California will remain closed and reopen at a later date while the company is also mulling postponing the July 24 release of its "Mulan" film; AMZN DIS GOOGL NFLX – the five most popular streaming services accounted for over 80% of all streaming activity on connected TVs in April, according to research firm comScore


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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