Market Review: May 06, 2020

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Closing Recap

Wednesday, May 06, 2020





DJ Industrials




S&P 500








Russell 2000





Equity Market Recap

·     U.S. stocks end mixed as the technology heavy Nasdaq Composite pushed higher 1%, rising above the 8,900 level before paring gains (and now down less than 1% YTD), while weakness in financials, transports, energy and utilities kept a lid on the Dow and S&P 500. WTI crude oil prices end the session 2.3% lower at $23.99 per barrel, snapping a five-session winning streak. Top stories of the day remain ongoing optimism after several US states and countries around the globe begin to re-open their businesses with President Trump overnight stressing the importance of the economy getting back on track. Earnings of course remains a key market mover, with several mixed reports and lowered or withdrawn outlooks due to the COVID-19 impact. Economic data disappointing again as employment at U.S. companies plummeted in April by the most on record dating to 2002 as private payrolls dropped by -20.2 million from a month earlier, according to ADP Research (in-line with the expected -20.5M jobs lost figure – ahead of the nonfarm payroll report Friday). Treasury prices are pulling back as the 10-year yield hits its highest levels in about three-weeks as the U.S. Treasury increased the amount of debt to auction to a record $96B.

Economic Data

·     The U.S. ADP private payroll data for April, a gauge of private-sector employment, registered a slightly smaller drop in payrolls than expected but was still startling showing over -20M people lost jobs. The government’s April employment disclosure comes on Friday, and economists forecast the jobs report will show that employers shed 22 million nonfarm payroll jobs



·     Oil prices slip as WTI crude drops 57c or 2.3% to settle at $23.99 per barrel, snapping its 5-day winning streak after mixed inventory data overnight/this morning which showed large builds in supply, offsetting for the moment rising demand hopes as global economies begin to reopen. Gold prices end lower, as June gold dropped -$22.10 or 1.3% to settle at $1,688.50 an ounce, while silver prices drop about 0.6% to $15.01 per an ounce after rising 2% on Tuesday. Gold prices dropped despite the weak ADP employment report as the stronger dollar pushed commodity prices lower and on positive sentiment about economies reopening around the globe, reducing the need for safe haven investments.


Bond Market

·     Treasury prices fell as yields jumped to their best levels in over three weeks following news the U.S. Treasury Department will launch a long-planned 20-year bond and increase securities auction sizes across a range of maturities to raise cash to meet record government borrowing needs caused by the novel coronavirus outbreak. Treasury said it intends to increase auction sizes across all nominal coupon tenors over the May-to-July period, with the increases larger in the 7-year, 10-year, 20-year and 30-year categories. On Monday, the department said it expects to borrow $2.999 trillion during the April-June quarter, five times larger than the previous single-quarter record set during the 2008 financial crisis. Treasury will offer a 20-year bond, in an initial offering size of $20 billion, with the first auction taking place on May 20, 2020. The department also said it is offering $96 billion of Treasury securities to refund approximately $57 billion of privately-held Treasury notes and bonds maturing on May 15, 2020. Treasury market’s fall as the 10-year yield breaks out of its 2-week trading range (0.55%-0.67%) with the 10-yr up 6 bps to 0.725% while the 30-yr yield jumps 7 bps to top 1.4% (first time above that level since April 15th.






WTI Crude















10-Year Note





Sector News Breakdown


·     Retailers; toy retailer MAT slides after posting a worse-than-expected sales decline, which was in contrast to the 51% sales growth reported by rival HAS prior saying customers have gravitated toward outdoor games; SBH reports comparable sales fell 7.1% in Q2. Prior to March 12, same store sales had been up 4.7% and generated $91.2M of adjusted EBITDA vs. the guidance range for $87.8M to $92.8M; ODP reports total sales fell 2% in Q1 while comp store sales were 2% higher as strong e-commerce growth was recorded; AEO was upgraded to outperform at Raymond James given increasingly attractive valuation level, particularly as AEO has the liquidity to operate with all stores closed for the next 12 months; NLS drops despite reporting in-line quarterly results (shares had risen into report as seen as “stay-at-home” beneficiary)

·     Consumer Staples; BYND shares surge after earnings and sales beat ($97M vs. est. $88M) on better gross margins as UBS noted Q1 gross margin of 38.8% (vs.~31% est.) flexed greater leverage than expected; KR said customers will have access to meat during the coronavirus pandemic, but they may have to be flexible when it comes to what kind; BGS pared gains but finished higher after Q1 results; BG drops reported a surprise Q1 loss, revenue that fell below expectations and warned while it didn’t experience a significant disruption to its business from the COVID-19 pandemic, it did start to see the negative impact of a change in consumer behavior in its edible oils business; MED jumped on Q1 EPS beat and better sales

·     Restaurants; WEN reports improving comp sales, strong performance in U.S. breakfast, rising digital business offset Q1 miss/cut dividend to 5c from 12c and suspends share buybacks/Q1 same-store sales in the week ended April 12 declined ~25% and down 2.1% first week of May; PZZA posted a Q1 EPS and sales miss; WING domestic same store sales increased 9.9% in Q1 and digital sales were 47% higher/company-owned same store sales were up 6.2%

·     Casino & Leisure movers; NCLH 36.364M share Secondary priced at $11.00 saying now expects to have approximately $3.5 billion of liquidity after the completion of transactions; in gaming at SunTrust, AGS downgraded to hold from buy and cut tgt to $4 from $14 as concerned over higher relative exposure to a challenged North America gaming market while the company is still recovering from strategic missteps; downgraded IGT to hold and tgt cut to $8 from $16 as see a shrinking FCF generation window/increasing government budgets heighten Italy tax risks and cuts SGMS tgt to $15 from $32; gym PLNT Adj. EPS of $0.16 was down 54% y/y and well short of consensus of $0.34 and total revenue fell 15% y/y to $127M, also below consensus of $154M following forced gym closures in March; FUN hits theme parks after Q1 miss

·     Autos; GM shares rise after 1Q adj EPS $0.62 vs. est. $0.30 on net sales $32.71B vs. est. $31.74B, adj EBIT $1.2B, ended qtr with $33.4B automotive liquidity, says extended $3.6B under 3-yr revolver/reports adjusted EBIT of $1.25B vs. $1.41B consensus for Q1; NIO delivered 3,155 vehicles in April 2020, +105.8% sequentially and +180.7% Y/Y; UBER said that it plans to lay off 3,700 full-time employees in customer-support and recruiting roles as the company deals with a steep drop off in rides volume due to COVID-19; DLPH rises after amended terms of M&A deal with BWA to acquire them and the transaction is on track to close in the second half of 2020; HTZ and CAR cancel orders to auto makers and in some cases even redirecting vehicles in transit to their now largely neglected parking lot; LYFT earnings tonight, UBER tomorrow



·     Inventory data: the API reported that U.S. crude supplies rose by 8.4M barrels for the week ended May 1, showed gasoline stockpiles down by 2.2M barrels, while distillate inventories climbed by 6.1M barrels – but oil prices on track for a 6th straight day of gains despite the build in inventories. $XLE crude oil inventories rise 4.59M barrels vs. est. 8.8M build; gasoline stockpiles fall -3.1M barrels vs. est. +1.0M barrels build and distillates surge 9.51M barrels

·     Energy movers; OXY posted a modest beat on 1Q results ($1.74 vs. $1.54), driven by stronger than expected results in Chemicals and Midstream, and a beat on oil production (781 kbd vs. SE 760) and announced 2020 Capex/ Opex reductions; DK announced that it plans to reduce its FY20 capital budget by ~$75M (or 23%) from a prior guide of $325M; DVN posted a big quarterly loss of $1.8B while core EPS came in above consensus; among utilities ALE shares drop on missed results, NI another names dropping on missed earnings while AEP falls as saw low end of year profit view



·     Bank movers; financials a standout to the downside today, falling despite the pop in treasury yields to highest levels in three weeks as the XLF and KRE both fall early for a 5th consecutive session; CINF shares dropped after Credit Suisse cut its rating to underperform just a few days after cutting to neutral as now view CINF’s worst-case downside scenario yielding losses greater than the $2.4bn in gross business interruption related losses; in consumer finance and lending; PYPL to report earnings tonight after the close; REITs remain pressured as VNO declines following Stifel downgraded to sell; insurers PRU, ALL active on earnings



·     Pharma & Biotech movers; JAZZ reported a miss on top and bottom line and cut its year profit and sales outlook; BMY said the FDA extended the action date by three months for the biologics license application (BLA) for lisocabtagene maraleucel (liso-cel), a CD19-directed chimeric antigen receptor (CAR) T cell therapy for the treatment of adults with relapsed or refractory large B-cell lymphoma after at least two prior therapies; CLVS reported a 3rd straight quarter of solid Rubraca growth, driven by growing US revenues(reported 1Q20 Rubraca sales of $42.6M (+8.3% Q/Q) vs consensus of $41.3M); ICPT and NGM shares outperform after NASH drug rival maker NVO reported that its drug semaglutide had met the main goal of a trial testing it in NASH patients, but missed a secondary goal/drug did not meet the important goal of improvement in fibrosis or liver scarring without worsening of NASH

·     Medical equipment and devices; MYGN shares fall after reported 3Q20 revenue of $164.0M (Street: $167.4M), and adj. EPS of ($0.08) (Street: $0.01) as the COVID-19 pandemic has negatively impacted all aspects of Myriad’s business, resulting in reductions in test volumes of between 20-75% across their portfolio during April; DVA posted a top and bottom line beat but cautioned the longer-term effects from COVID could weigh on the earnings growth trajectory

·     Healthcare services and providers; CVS rises after Q1 results topped estimates with management keeping 2020 EPS expectations but spiking most other guidance metrics due to the coronavirus (said Q1 comps +9% (front-end +8%) vs est +3.7%)


Industrials & Materials

·     Transports; Dow Transports dropped below the 8,000 level led by declines in MATX after earnings results were in-line and more weakness in airlines (UAL, LUV, ALK, AAL), while UPS was a standout gainer on hopes that as states begin to reopen their economies, there will be more buying and shipping to improve business

·     Metals & Materials; STLD downgraded to underperform at Bank America amid concern that the U.S. steel sector will face a sluggish recovery from a demand decline during the Covid-19; NEM shares sink in gold mining sector, follows earnings and a sharp decline in gold prices dropping below $1,700 an ounce today; CLW reports surprise Q1 profit of 57 cents vs. est. loss of 1 cent while revenue beats estimates for at least the eighth straight quarter

·     Chemicals; DOW was downgraded to neutral from buy at UBS and revise estimates lower for DOW, EMN, HUN, KRA, LYB, and WLK and alter our price targets as many companies noted both volume and margin impacts; PPG was upgraded to overweight at JPMorgan as think PPG’s combination of cyclical recovery and good free cash flow generation is likely to lead to outperformance at lower risk; VNTR jumps after posting surprise Q1 EPS profit vs. est. loss on slight rev beat while estimates Q2 TiO2 segment volume to decline 15% to 20% QoQ; ASH, CC and AXTA also among chemical companies with earnings; SMG boosted its FY sales outlook to 6%-8% from prior 4%-6% view; FMC lowered its year outlook


Technology, Media & Telecom

·     Internet; PINS shares tumble after the company beat revenue and user-growth expectations, but said that costs tend to follow user growth rather than revenue, which contributes to margin pressure in the current environment; SNAP downgraded to sell from neutral at Citigroup with $14 tgt as believe investor expectations for 2020-21 revenues are too high; SHOP posted Q1 EPS and rev beat lifting shares sharply while MELI rises on its results; CARS shares jump after Q1 results topped expectations due to a substantial reduction of expenses

·     Semiconductors; Reuters reported that the U.S. Department of Commerce is close to signing off on a new rule that allows U.S. companies to work with China’s Huawei Technologies on setting standards for next generation 5G networks; DLGNF posts better-than-expected Q1 results and upbeat Q2 guidance as Q1 sales of $248.5M was well above the broker’s and consensus’ estimates and at the upper end of company’s guidance; KLAC leading semi names higher after reported better-than-expected results/guide

·     Video gamers active after ATVI reports Q1 above views and raises FY20 revenue and profit forecast as games such as "Call of Duty" get boost from people stuck indoors (shares move higher) while EA reported March qtr. results ahead of consensus driven by Apex Legends and Sims 4 with EPS of $1.08 on rev of $1.21B vs Street at $0.97 on $1.18B but initial FY21 EPS outlook of $4.90 is below consensus at $4.96; other software movers LPSN reported a strong Q1, exceeding consensus expectations, and guided Q2 and 2020 revenues modestly above consensus while improved its EBITDA outlook and maintained its growth expectations

·     Media & Telecom movers; DIS took a $1.4B hit to profit, mostly due to its shuttered theme parks amid coronavirus-led lockdowns while said it would reopen Shanghai Disneyland to a reduced number of visitors next week but it is unclear when its other parks would reopen (EPS was 60c vs. est. 86c on slightly better Q1 revenue while Disney+ subs rose to 54.5M from 50M a month ago; the NYT adds 587,000 digital subscribers in quarter, most ever while noting advertising to fall as much as 55% in second quarter; MTCH Q1 results beat expectations and said that daily active users on its Tinder dating app reached all-time highs

·     Hardware & Component news; LITE reported mixed Q3 results with revenue results missing expectations but EPS beating consensus estimates as revenue was pressured this quarter by supply chain constraints; AAPL trades above the $300 level for the first time since early March; NTNX shares jump as expects Q3 revenue between $312M-$317M, up 8% to 10% Y/Y, compared to consensus of $308.4M as growth rate reflects the top line compression resulting from ongoing transition to a subscription business model and away from selling hardware; ICFI falls after cutting its 2020 revenue and Ebitda forecasts, citing the virus’s effect on events work for European government clients and commercial marketing services business.


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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