Market Review: March 11, 2020

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Closing Recap

Wednesday, March 11, 2020





DJ Industrials




S&P 500








Russell 2000





Equity Market Recap

·     U.S. stock selling accelerated on Wednesday, led by another broad based sell-off as major averages are now down over 20% declines from recent highs (defined as bear market correction) and all eleven S&P sectors are now down over 10% from recent highs on virus related fears. The Nasdaq Composite traded below yesterday’s lows, down over 5.5%, with no sector immune to the mass selling pressure. Volatility in stock markets has also been astounding as the S&P 500 index has experienced a daily move in excess of /-3% in 7 of the last 11 sessions (and barely missed one day at -2.8%). This has not occurred since the financial crisis and before that, the 1987 crash. The impact of the virus on business operations has boosted expectations for a U.S. recession given the impact on day-to-day activities, as business have stopped corporate travel, closed stores and facilities, affected production and the supply chain which will likely take a big toll on quarterly earnings and guidance for the year for many (note over the last few days cruise, airline and hotel names have pulled guidance due to uncertainty of impact). Restaurants, concerts, airlines, retailers, transports, hotels are just some of the industries that have been pulverized over the last few weeks on fears of slowing traffic, reduced revenues and larger scale quarantines that are slowly popping up around the country. The Russell 200 Index dropped as much as 7.3% late day before paring losses, lowest levels since November 2016.

·     Corona virus update: The World Health Organization (WHO) officially declared the new coronavirus a pandemic noting the crisis will touch every sector, not just public health – (not coming as a surprise at this point – but markets took a turn lower following the headline). Coronavirus impact grows with many states taking extreme measures: So far, confirmed cases worldwide have topped 119,000 with U.S. cases having surpassed 1,000, and 30 deaths reported. San Francisco Mayor London Breed bans all large gatherings, including Warriors games, to curb coronavirus spread. Italy their death toll from the outbreak rose to 827 from 631 on Tuesday a day after the country essentially in full lockdown for its 60M population. As of March 10, 2020, 1,073 schools have been closed in the U.S. or are scheduled to close, affecting 776,200 students.

·     Markets are still waiting for additional stimulus measures that have been talked about the last two days which potentially include: Tax extensions for certain taxpayers, small business, loan guarantees for airlines, hotels & cruise ships (but not bailouts). Germany’s chancellor pledged to do “whatever is necessary” to face the crisis, while the Bank of England overnight cut rates back to historic levels as they deal with virus impact on their economy (follows the FOMC rate cut last week of 50 bps with more cuts expected next week as well)…though none of these actions will get people out shopping, eating or travelling! The Fed did try and flood the system with liquidity as they boosted the size of overnight REPO operations through April 13th to $175B 9from $150B)

·     In politics, former Vice President Joe Biden defeated Sen. Bernie Sanders in Michigan’s Democratic primary on Tuesday, while also notched victories in Mississippi and Missouri (has 766 delegates to Sanders 618). Midday, Bernie Sanders said at a press conference Wednesday that he will not suspend his presidential campaign after a second consecutive week of bruising primary losses to Joe Biden, telling reporters that he looks forward to Sunday’s one- on-one debate.

Economic Data

·     The Bank of England cut interest rates in its first emergency move since the financial crisis and announced measures to help keep credit flowing through the economy, warning that the coronavirus outbreak will damage growth. Governor Mark Carney and fellow policy makers voted unanimously to cut their main interest rate by 50 basis points to 0.25%, returning it to a record low. The BOE also introduced a new program to provide easy and cheap credit. They also reduced the amount of capital banks must hold in a further attempt to support lending

·     Consumer price index (CPI) for February rose 0.1%, above the unchanged estimate and after rising 0.1% in January; CPI ex: food, energy MoM rose an in-line 0.2% while YoY, core prices rose 2.4% vs. est. 2.3% and total CPI rose 2.3% vs. est. 2.2%; U.S. Feb real average weekly earnings all private workers +0.5% vs. Jan +0.1%



·     Oil prices dropped with WTI crude losing $1.38, or another 4% to settle at $32.98 per barrel on slowing demand fears, a price war between Saudi Arabia and Russia and today’s bearish weekly inventory data also not helping. OPEC also cut its forecast for global growth in oil demand this year due to the coronavirus outbreak, seeing a gain of just 60K bbl/day in 2020 vs. 920K bbl/day in its previous report. The group’s overall production fell by 546K bbl/day to 27.77M bbl/day in February, largely because of losses in Libya where a renegade military commander has blockaded ports and also as Saudi Arabia trimmed output by 56K bbl/day during the month to 9.68M bbl/day. Gold prices dropped -$18.00 or 1.1% to settle at $1,642.30 an ounce, noteworthy given the mass selling in stocks and other commodity prices.


Currencies & Treasuries

·     Treasury yields actually pushed higher by mid-afternoon as prices fell, despite a further decline in U.S. stocks which bottomed after the WHO officially called the coronavirus a pandemic. The yield on the benchmark 10-year rose as high as 0.88% in the afternoon, turning positive after lows of 0.63% overnight (down as much as 17bps), while the 30-year yield rose above 1.3% after lows of 1.10% overnight (and off recent record lows of 0.69% on Monday (9th), and the 30-yr yield at 0.46%, still down 7 bps. The U.S. Treasury sold $24B in 10-year notes at a yield of 0.849% compared to 0.854% when issued prior, with the bid-to-cover (demand) at 2.36 vs. 2.58 at previous auction and indirect bidders awarded 61% on auction and directs 9.2%. The U.S. dollar was modestly higher as currencies were one of the few places without extreme volatility on the day (though has been over the last few days).






WTI Crude















10-Year Note





Sector News Breakdown


·     Retailers; NKE pressured after rivals Adidas (ADDYY) and Puma (PUMSY) both flagged a sales hit on their China businesses due to the coronavirus outbreak as Adidas said it sees decline in Q1 sales for Greater China/says store traffic reducing in Japan and South Korea while Puma said it no longer expected its business would return to normal soon and withdraws 2020 forecast; URBN says due to the uncertainty around the spread of covid-19 in N.A and Europe, at this time, we cannot forecast the extent to which covid-19 will impact our business in the 1q; in research, Wedbush upgraded five retailers with AEO, ANF, BURL and DOOR all boosted to outperform while raised ZUMZ to neutral; HEAR reported results in line, guided Q1’20 above the Street for revs, lower for adj. EBITDA; broader retail extends slide on reduced traffic/sales fears

·     Auto movers; RACE was upgraded to buy with $160 tgt at HSBC saying the success of Ferrari’s 2019 model launches gives them confidence in raising our estimates beyond 2020; Ford (F) is recalling some 2019 Ford Ranger vehicles that had the heating, ventilation and air conditioning, or HVAC, blower motor replaced from Oct. 9 to Nov. 22, 2019, per recall 19S34; TSLA CEO Elon Musk tweeted that the company is looking at locations in the central U.S. to build the Cybertruck Gigafactory/the Cybertruck is expected to go into production late in 2021; JPMorgan upgraded AN in auto retail space after relative underperformance (~1,200bps underperformance) over the last 15 months, and downgraded ABG to underweight given its high leverage and relatively slower near-term earnings backdrop

·     Consumer Staples; UNFI reported a Q2 EPS beat on in-line sales of $6.14B but cut its FY20 adj. EPS view to 85c-$1.45 from $1.22-$1.76 and lowered its FY20 adjusted EBITDA guidance to $520M-$560M from $560M-$600M while backing year revs; PEP agreed to acquire Rockstar Energy Beverages ("Rockstar"), the popular energy drink maker, for $3.85 billion; THS upgraded to overweight from neutral at JPMorgan on its view that COVID-19 will benefit the company in the near term or longer; in restaurants, shares of RRGB, CAKE, TXRH, EAT, DRI, CMG among those that have been slammed on expectations of reduced foot traffic and sales due to virus

·     Casino & Leisure movers; theme park names SIX, SEAS, FUN under pressure again, not helped after the National Institute of Allergy and Infectious Diseases Director Anthony Fauci told Congress earlier that he recommends no large crowds as the coronavirus spreads – shares of MSGN, LYV, WWE and casino related names WYNN, LVS, MGM, PENN also still pressured



·     Energy stocks were again one of the worst performing sectors in the S&P, with equipment, services, drillers and majors all getting crushed again on lower oil and slowing demand and production fears given virus and price war overseas. Bearish inventory data certainly not helping after the EIA reported a bigger weekly build for crude oil inventories of 7.66M barrels vs. est. 1.7M barrel build; in stock news, MTDR the latest shale producer to update its operations, saying it was cutting the rigs it operates in half to three rigs by June 30, and its executives are taking pay cuts, in response to the recent sharp selloff in commodity prices; said it expects to release one rig by the end of March and two others by the end of Q2

·     MLP sector; group has been crushed on plunging oil prices with the Alerian MLP Index down 46% YTD as approaches its lowest levels since 2000 (around the 100 level – currently 117 and off YTD highs of 260 nearly a year ago); Bank America downgraded MPLX and PAA to neutral from buy, cut WES to Underperform while upgraded KMI to buy as the firm resets EV/EBITDA target multiples to a blended multiple by weighting (i) scenario 1 (Bull case) with target multiples pre OPEC+ fallout discounted by 0.5x considering that industry growth is likely structurally stretched, (ii) scenario 2 (Bear case) with a historical downturn adjustment of a ~3x discount

·     Solar and Utilities; VSLR shares decline as posted larger quarterly loss of ($1.02) on weaker revenue of $77M (VSLR set a target of 15% to 20% growth in installation volumes, below the rate at which one analyst (JMP) believes some of the company’s markets are growing); NS was upgraded to buy at Citigroup saying the stock’s meltdown offers investors a buying chance.



·     Bank movers; overall small bounce off lows for badly beaten up large cap and regional banks on the day; Citigroup (C) said at an investor conference today they expect net interest revenue to decline in Q1 as falling interest rates and the coronavirus take a toll, but said trading revenue will probably rise due to market volatility

·     Financial Services MCO said it sees 2020 adjusted EPS at lower end of its previously announced range of $9.10-$9.30 (est. $9.25) and trims revenue guidance to low single-digit percentage growth from mid-single-digit earlier due to uncertainty related to the coronavirus; INTU was upgraded to overweight at Wells Fargo given the relative certainty of tax season and US-centric profile of the business

·     Asset managers with monthly assets under management (AUM) data: 1) AB prelim AUM decreased 2.4% to $614B during February 2020 from $629B at the end of January due to market depreciation, partially offset by total firm wide net inflows into all three distribution channels; 2) TROW reported assets under management of $1.15 trillion, +7.5% YoY; Feb client transfers from mutual funds to other portfolios $900M vs. $400M YoY; 3) IVZ prelim AUM of $1,159.4B was a decrease of 4.9% versus previous month-end; 4) APAM prelim Feb AUM totaled $111.7B with separate accounts accounted for $58.8B of total firm AUM, while Artisan Funds and Artisan Global Funds accounted for $52.9B; 5) LM said prelim Feb AUM was $789.4B; 6) WDR prelim assets under management of $65B at Feb. 29, 2020 falls from $69.2B at Jan. 31, 2019

·     REITs; mall REITS continue their downward momentum (SKT, TCO, MAC, WPG, PEI) falling given impact of virus on retailers and subsequent fears of lower traffic, possible defaults if virus quarantines, concerns remain extended over period of time



·     Pharma movers; BMY said the FDA approves Opdivo plus Yervoy to treat hepatocellular carcinoma in patients who have been previously treated with sorafenib; MNK said NY State Attorney General joins 47 other states and U.S. Territory Attorneys General in supporting MNK’s proposed global opioid settlement; KALA 16M share Spot Secondary priced at $7.89; RDHL said it is pursuing an exploratory program of opaganib and RHB-107 individually and in combination with hydroxychloroquine and other compounds for the treatment of COVID-19; LLY added to conviction buy list at Goldman Sachs on the strength of its potential growth including in expanding categories like diabetes and migraine medicines

·     Biotech movers; CDMO shares fall on Q3 earnings and revenue miss saying operations during the period were negatively impacted by "production challenges" related to a problem with a specific piece of equipment that resulted in the termination of in-process manufacturing runs and the postponement of other runs scheduled for the quarter/cuts guidance; SNSS shares dropped after being downgraded at Wells Fargo and cut tgt to $1 following review of 4Q19 results and outlook for the company’s lead BTK inhibitor Vecabrutinib

·     Healthcare services and providers; SDC announces its launch of SmileShop in three Walmart Canada locations in Ontario and Alberta; THC was upgraded to outperform from sector perform at RBC Capital saying that the recent sell-off is ignoring the strong progress the company has made in improving operational performance; XRAY removed from conviction buy at Goldman Sachs list citing near-term overhang as dental and vet visits are likely to slow down and may lead to further earnings revisions from coronavirus


Industrials & Materials

·     Aerospace & Defense; BA shares fell below the $200 level for the first time since June 2017 and was top decliner in the Dow after saying to plan full drawdown of $13.8b loan as precaution according to Bloomberg as company plan will bolster cash on hand as virus curbs jet demand; SunTrust upgraded shares of KTOS and BWXT to buy from hold on continued belief that the defense sector offers investors better relative protection from broader industrial/commercial exposed names; BA reported 46 canceled jet orders for February, including 11 737 MAX planes for Air Canada and moves by other carriers to switch from the grounded aircraft to other planes; also booked new orders for 18 planes, resulting in a net loss of 28 orders

·     Transports; Dow Transports fell as much as 5% or about 500 points to lows around 8,100 before paring losses (hasn’t been this low since the 2016 election when it traded below 8,000); weakness was across all components with airlines again the biggest decliners early (JBLU, AAL, DAL, UAL) while truckers were down the least

·     Chemicals; APD was upgraded to overweight at Wells Fargo and raising PT to $265 from $260 as believe APD has enough levers to drive EPS growth in FY20 and FY21 despite likelihood of slower economic growth; DD lowered its FY20 net sales view to $21.3B-$21.8B from prior guidance of $21.5B-$22.0B while maintained its FY20 adjusted EPS guidance of $3.70-$3.90 to reflect headwind from covid-19 virus; ASH and PPG estimates lowered at Seaport Global

·     Paper sector; KeyBanc noted the Pulp and Paper Products Council (PPPC) released preliminary N.A. uncoated freesheet statistics for February. Shipments fell 7.0% following an 8.0% decline in January, such that shipments are down 7.5% YTD. Shipments were down a substantial 11% last year and are off to a poor start in 2020 (WRK, IP, PKG leveraged to data)


Technology, Media & Telecom

·     Internet; nowhere to hide as large cap Internet names (FB, GOOGL, AMZN, NFLX, GRUB, TWTR, SNAP, PINS) where not immune to the broader market sell-off; PDD says Q4 total rev nearly doubled to 10.79 bln yuan ($1.55 bln), but was below estimates of 10.93 bln yuan; Q4 net loss of 0.72 yuan per share, beat estimates of a loss of 1.56 yuan

·     Semiconductors; The Philly semi index (SOX) drops below the 1,600 level, down as much as 3.5% and falling below that level for the first time below since October and staying below its 200-day MA resistance of 1,638; AMD outperformed in a generally weak sector

·     Media & Telecom movers; CHTR was upgraded to buy from hold at Benchmark with $573 tgt citing Charter’s compelling broadband and mobile roadmap and calls cable stocks a safe haven due in part to their recurring revenue structure; DIS shares dropped over 5% midday as fears the impact will affect its theme park attendance takes a toll on shares

·     Hardware & Component news; DXC is selling its U.S. State and Local Health and Human Services business for $5B to Veritas Capital, the leading investor in government and healthcare technology businesses


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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