Mid-Morning Look

Friday, June 05, 2020

Think at this point it’s fair to say that the stock market has just about recovered from the coronavirus impacted March lows in a “V” shaped formation, boggling the minds of some of the most well respected top hedge fund managers and investors over the last few months. Today’s staggeringly better jobs report, which showed a surprise 2.5 million jobs added in May stunning markets which had been expecting a decline of -7.5 million jobs while private payrolls added over 3 million jobs vs. the estimate for a -6.75M job decline. While the 13.3% unemployment figure is nothing to jump up and down about, it certainly is reason for optimism given the estimate was closer to 19%. Recall some of the top Wall Street minds over the last few decades just 2-months ago screamed concern as the Oracle of Omaha Warren Buffett sold airlines essentially at the lows, David Tepper said this was the 2^nd most overvalued stock he saw in his lifetime, Jeff Gundlach cautious as usual and Bill Ackman on CNBC 2-months ago sounded as cautious about the situation as one could imagine. Yet stocks have rallied more than 40-45% in a straight line up since the mid-March lows helped by stimulus measures from the Fed and out Washington for both individuals and businesses which were forced to stay home dealing with COVID-19 pandemic. Those measures, along with a slowing of coronavirus cases/deaths across the globe/U.S. has boosted confidence while prompting the slow reopening of various industries that were most impacted from the shut downs including theme parks, casinos, restaurants and retailers over the last few weeks – with no apparent spike in COVID cases. Airlines really took off the last two days as American and United announced they were adding flights for the summer. While stocks extend gains, safe-haven and defensive assets plunge with gold dropping and Treasury yields spiking to their best levels in about 10-weeks for the benchmark 10-year. The Nasdaq Composite nearing February record highs of 9,838.

Treasuries, Currencies and Commodities

·     The dollar rallied following the positive non-farm payrolls report, trying to snap its 5-day losing streak vs. major rival currencies; safe haven assets plunging with gold and Treasury prices sharply lower given the risk on mentality for markets today (10-year yield jumps to highs of 0.95%, best since late March); oil prices another beneficiary of the improving economy with WTI crude jumping over 3% and Brent up over 4% topping $41 per barrel

Economic Data

·     Jobs data massive surprise to upside: Nonfarm payrolls data showed that payrolls unexpectedly rose 2.5M jobs in May vs. estimates for a decline of -7.5M jobs while private payroll jobs rose 3.09M vs. est. -6.75M jobs and manufacturing jobs added 275K vs. est. for a decline of -440K. The unemployment rate was 13.3%, better than the prior month of 14.7% and much better than the 19% estimate. Average hourly earnings fell -1.0% vs. an expected rise of up 1%.

Stock MOVERS

·     AAL +27%; the rebound the last 2-days in the airline sector is nothing short of astounding, getting a boost yesterday after AAL and UAL added more flights than anticipated back to their summer schedule, boosting optimism that the economy is recovering from the coronavirus pandemic

·     AVGO +5%; reported an in-line AprQ and guided to an in-line JulQ at $5.75B (consensus $5.8B) and noted JulQ strength from Cloud Data Center/Infrastructure and Industrial seeing a rebound

·     COO -2%; reported 2Q results with a 10% and 30% shortfall on sales and EPS, respectively as CVI revenues came in 13% ($58M) lower than our Raymond James forecast

·     GME -3%; after saying total global sales are expected to decrease in the range of 33% to 35% and comparable store sales to decrease in the range of ~30% to 31% in FQ1.

·     GPS -4%; Q2 EPS was materially impacted by slow sales and store closures due to COVID-19 as results missed expectations

·     NEM -3%; as gold miners slide given the drop in gold prices, with investors rotating out of defensive names into riskier ones

·     OXY +25%; as oil prices surge on economic recovery, jobs report, and global economics reopening raising hope for rebound in energy stocks (APA, NBL, MRO, HAL higher over 10% as well)

·     WORK -16%; as better quarterly earnings, revenue and raised revenue guidance couldn’t offset concern of pulling its billings forecast for the year

·     ZM -5%; as “stay-at-home” stocks falter with the economy showing improvement (PTON, CLX, ATVI, NFLX, WORK among names lower initially)

Syndicate:

·     Applied Molecular Transport (AMTI) 11M share IPO priced at $14.00

·     Audiocodes (AUDC) 2.6M share Secondary priced at $35.00

·     Calliditas Therapeutics (CALT) 9.2M share IPO priced at $19.50

·     Globant (GLOB) 2M share secondary priced at $135.00 per share

·     Legend Biotech (LEGN) 18.4m share IPO priced at $23.00 per ADS

·     Shift4 Payments (FOUR) 15M share IPO priced at $23.00, above prior range of $19-$20 range