{"id":12843,"date":"2020-06-16T15:13:46","date_gmt":"2020-06-16T20:13:46","guid":{"rendered":"https:\/\/www.eoption.com\/2020\/06\/16\/market-review-june-16-2020\/"},"modified":"2020-06-16T15:13:46","modified_gmt":"2020-06-16T20:13:46","slug":"market-review-june-16-2020","status":"publish","type":"post","link":"https:\/\/www.eoption.com\/market-review-june-16-2020\/","title":{"rendered":"Market Review: June 16, 2020"},"content":{"rendered":"
\n
\n

Closing Recap<\/o:p><\/span><\/b><\/p>\n

Tuesday, June 16, 2020<\/span><\/b><\/o:p><\/span><\/b><\/p>\n\n\n\n\n\n\n\n
\n

Index<\/o:p><\/span><\/p>\n<\/td>\n

\n

Up\/Down<\/o:p><\/span><\/p>\n<\/td>\n

\n

%<\/o:p><\/span><\/p>\n<\/td>\n

\n

Last<\/o:p><\/span><\/p>\n<\/td>\n<\/tr>\n

\n

DJ Industrials<\/span><\/b><\/o:p><\/span><\/p>\n<\/td>\n

\n

526.82<\/span><\/o:p><\/span><\/b><\/p>\n<\/td>\n

\n

2.04%<\/span><\/o:p><\/span><\/b><\/p>\n<\/td>\n

\n

26,289<\/span><\/o:p><\/span><\/b><\/p>\n<\/td>\n<\/tr>\n

\n

S&P 500<\/span><\/b><\/o:p><\/span><\/p>\n<\/td>\n

\n

58.15<\/span><\/o:p><\/span><\/b><\/p>\n<\/td>\n

\n

1.90%<\/span><\/o:p><\/span><\/b><\/p>\n<\/td>\n

\n

3,124<\/span><\/o:p><\/span><\/b><\/p>\n<\/td>\n<\/tr>\n

\n

Nasdaq<\/span><\/b><\/o:p><\/span><\/p>\n<\/td>\n

\n

169.84<\/span><\/o:p><\/span><\/b><\/p>\n<\/td>\n

\n

1.75%<\/span><\/o:p><\/span><\/b><\/p>\n<\/td>\n

\n

9,895<\/span><\/o:p><\/span><\/b><\/p>\n<\/td>\n<\/tr>\n

\n

Russell 2000<\/o:p><\/span><\/b><\/p>\n<\/td>\n

\n

32.65<\/span><\/o:p><\/span><\/b><\/p>\n<\/td>\n

\n

2.30%<\/span><\/o:p><\/span><\/b><\/p>\n<\/td>\n

\n

1,452<\/span><\/o:p><\/span><\/b><\/p>\n<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n


<\/span><\/o:p><\/span><\/p>\n

 <\/o:p><\/p>\n

Equity Market Recap<\/o:p><\/p>\n

·     <\/span><\/span><\/span>U.S. stocks enjoyed strong gains on Tuesday, adding to the late day push Monday that saw major averages post their biggest one-day reversal higher in over two-months, as a combination of factors help boost sentiment and send global stocks surging. Among today’s top stories pushing major averages included: 1) follow-through strength from the Federal Reserve comments yesterday saying that it will begin buying individual corporate bonds under its Secondary Market Corporate Credit Facility, an emergency lending program that to date has purchased only ETFs; 2) reports overnight the White House is considering a $1 trillion infrastructure spending proposal (bridges and roads – lifting industrial and material names); 3) the BBC overnight reporting that a cheap and widely available drug called dexamethasone can help save the lives of patients who are seriously ill with coronavirus, and 4) the monthly (May) retail sales report MoM jumped 17.7%, easily topping the 8.4% estimate (lifting consumer discretionary stocks). Regarding the BBC report, a study led by a team from Oxford University, which included 2,000 hospital patients who were given the steroid and were compared with more than 4,000 who didn’t get the drug. The report indicated that for "patients on ventilators it cut death risk from 40% to 28%," and for "patients needing oxygen it cut death risk from 25% to 20%." In his semiannual monetary policy report to congress. The rally was broad based though defensive sectors lagged, while Treasuries slipped and oil jumped. Stocks pulled back from intraday highs as Fed Chairman Powell testified about the global economy in front of Congress and suggested more fiscal stimulus may be needed before the American economy can make a full recovery from the COVID-19 pandemic.<\/o:p><\/a><\/p>\n

·     <\/span><\/span><\/span>Fed Chairman Powell said in his semiannual monetary policy report to congress, "recently, some indicators have pointed to a stabilization, and in some areas a modest rebound, in economic activity. With an easing of restrictions on mobility and commerce and the extension of federal loans and grants, some businesses are opening up, while stimulus checks and unemployment benefits are supporting household incomes and spending. As a result, employment moved higher in May. That said, the levels of output and employment remain far below their pre-pandemic levels, and significant uncertainty remains about the timing and strength of the recovery. Much of that economic uncertainty comes from uncertainty about the path of the disease and the effects of measures to contain it. Until the public is confident that the disease is contained, a full recovery is unlikely.”<\/o:p><\/p>\n

Economic Data<\/o:p><\/p>\n

·     <\/span><\/span><\/span>Retail sales MoM for May surged<\/b> 17.7%, easily topping the 8.4% estimate while the prior month was upwardly revised to (-14.7%) from (-16.4%) – data follows three straight months of negative readings. Retail sales ex-autos for May MoM jumped 12.4% vs. est. 5.5% and prior month revised to down (-15.2%) from prior (-17.2%) decline<\/o:p><\/p>\n

·     <\/span><\/span><\/span>Industrial Production for May rose<\/b> +1.4%, below the 2.9% estimate vs. April -12.5% as manufacturing output rose +3.8% vs. est. 4.6% and vs. April (-15.5%); Capacity utilization for May was at 64.8% vs. 64% last month but below the 66.9% estimate by economists<\/o:p><\/p>\n

·     <\/span><\/span><\/span>Business inventories for April fell<\/b> (-1.3%) vs. est. decline (-0.8%) while April inventory\/sales ratio 1.67 months’ worth vs. March 1.45 months; April business sales declined (-14.4) vs. March (-5.2%)<\/o:p><\/p>\n

·     <\/span><\/span><\/span>The NAHB U.S. Home Builders’ Confidence index in June rises<\/b> to 58 vs 37 last month; the present single family sales rises to 63 vs 42 last month, future single family sales gauge rises to 68 vs 46 last month and prospective buyers traffic measure rises to 43 vs 21 last month<\/o:p><\/p>\n

 <\/o:p><\/p>\n

Commodities<\/o:p><\/p>\n

·     <\/span><\/span><\/span>Oil prices rose<\/b> as WTI crude gained $1.26, or 3.4% to settle at $38.38 per barrel helped by increased demand for risk assets with stocks surging, and after the IEA reported it expects to see a record drop in global oil demand this year to be followed by a record jump in demand next year. Prices also pushed higher ahead of weekly inventory data which may show increased usage given the reopening of businesses around the U.S. recently. <\/o:p><\/p>\n

·     <\/span><\/span><\/span>Gold futures climbed<\/b> $9.30 or 0.5% to settle at $1,736.50 an ounce, its first gain in three sessions, finding support as Federal Reserve Chairman Jerome Powell warned that "significant uncertainty remains" on the timing and strength of the economic recovery. Fresh geopolitical tensions also contributed support to haven gold. Gains for the metal came despite strength in the U.S. stock market and the dollar on the back of better-than-expected retail sales data<\/o:p><\/p>\n

 <\/o:p><\/p>\n

 <\/o:p><\/span><\/p>\n\n\n\n\n\n\n\n\n\n
\n

Macro<\/o:p><\/span><\/p>\n<\/td>\n

\n

Up\/Down<\/o:p><\/span><\/p>\n<\/td>\n

\n

Last<\/o:p><\/span><\/p>\n<\/td>\n<\/tr>\n

\n

WTI Crude<\/span><\/b><\/o:p><\/span><\/p>\n<\/td>\n

\n

1.26<\/span><\/o:p><\/span><\/b><\/p>\n<\/td>\n

\n

38.38<\/span><\/o:p><\/span><\/b><\/p>\n<\/td>\n<\/tr>\n

\n

Brent<\/span><\/b><\/o:p><\/span><\/p>\n<\/td>\n

\n

1.24<\/span><\/o:p><\/span><\/b><\/p>\n<\/td>\n

\n

40.96<\/span><\/o:p><\/span><\/b><\/p>\n<\/td>\n<\/tr>\n

\n

Gold<\/span><\/b><\/o:p><\/span><\/p>\n<\/td>\n

\n

9.30<\/span><\/o:p><\/span><\/b><\/p>\n<\/td>\n

\n

1,736.50<\/span><\/o:p><\/span><\/b><\/p>\n<\/td>\n<\/tr>\n

\n

EUR\/USD<\/o:p><\/span><\/b><\/p>\n<\/td>\n

\n

-0.0056<\/o:p><\/span><\/p>\n<\/td>\n

\n

1.1265<\/span><\/o:p><\/span><\/b><\/p>\n<\/td>\n<\/tr>\n

\n

JPY\/USD<\/o:p><\/span><\/b><\/p>\n<\/td>\n

\n

-0.05<\/o:p><\/span><\/p>\n<\/td>\n

\n

107.29<\/o:p><\/span><\/p>\n<\/td>\n<\/tr>\n

\n

10-Year Note<\/o:p><\/span><\/b><\/p>\n<\/td>\n

\n

0.024<\/span><\/o:p><\/span><\/p>\n<\/td>\n

\n

0.746%<\/span><\/o:p><\/span><\/p>\n<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n

 <\/o:p><\/span><\/p>\n

 <\/o:p><\/p>\n

Sector News Breakdown<\/o:p><\/span><\/p>\n

Consumer<\/o:p><\/p>\n

·     <\/span><\/span><\/span>Retailers; shares of retailers surged following the stronger than expected May retail sales report (Retail sales MoM for May surged 17.7%, easily topping the 8.4% estimate while the prior month was upwardly revised to (-14.7%) from (-16.4%)) – lifting shares across the board (M<\/span>, KSS<\/span>, JWN<\/span>, URBN<\/span>, TGT<\/span>, ANF<\/span>, LULU<\/span>, NK<\/span><\/b>E); HEAR<\/span><\/b> guides Q2 sales up 75% to $74M-$77M vs. est. $43.8M; expects higher rev to drive higher adjusted ebitda for qtr and year; JILL<\/span><\/b> rises after entered into two Forbearance Agreements with the lenders under its ABL and term loan credit facilities for not exercising any rights and remedies until July 16, 2020; W<\/span><\/b> said subscriptions rose 7% to 4.9 million in Q2, consisting of 3.8 million digital subscribers, and 1.1 million studio and digital subscribers<\/o:p><\/p>\n

·     <\/span><\/span><\/span>Restaurants; MCD<\/span><\/b> said demand improved significantly from April to May as many of its restaurants began serving diners, especially in the United States\/posts overall comparable sales fall of (-20.9%) in May vs. (-39%) fall in April; RRGB <\/span><\/b>to offer up to $40M common stock; DENN<\/span><\/b> said domestic system-wide same-store sales have sequentially improved on a weekly basis during Q2 of 2020 and said average unit volumes of off-premise sales more than doubled between February 2020 & April 2020<\/o:p><\/p>\n

·     <\/span><\/span><\/span>Housing & Building Products; building products and construction material stocks (USCR<\/span>, MAS<\/span>, GVA<\/span>, MLM<\/span>, MTZ<\/span>, DY<\/span><\/b>) were among the biggest winners after reports the White House is considering a $1 trillion infrastructure spending proposal (bridges and roads); in housing, LEN<\/span><\/b> Q2 revenue and profit exceed analysts’ expectations and also forecasts full-year home deliveries above Street estimates as home-buying trends rebound; MAS<\/span><\/b> boosted its Q2 sales outlook, citing a better-than-anticipated rebound as now expects sales to fall about 8% from a year ago, vs. previous expectations of a decline of 15% to 20%; Bank America raised tgts in the housing and build products sector given positive consumer trends and the stock market’s continued march higher, as believe it is prudent to recognize the possibility that federal stimulus and low interest rates could at least temporarily cushion the economic blow<\/o:p><\/p>\n

 <\/o:p><\/p>\n

Energy<\/o:p><\/p>\n

·     <\/span><\/span><\/span>E&P sector; CHK <\/span><\/b>is preparing to file for bankruptcy protection as soon as this week according to various reports (CNBC, Reuters), becoming the largest oil and gas producer pushed to the financial brink by this year’s energy market rout caused by the coronavirus outbreak; Credit Suisse said DCP<\/span>, ENLC<\/span>, ET<\/span><\/b> and PAA<\/span><\/b> are among midstream companies potentially exposed to declining rig counts in the Permian basin while MPLX<\/span>, WES<\/span><\/b> remain least impacted; Saudi oil exports to U.S. plunge toward lowest level in 35 years<\/o:p><\/p>\n

·     <\/span><\/span><\/span>In utilities, a federal judge gave PCG<\/span><\/b> a green light to exit bankruptcy, but the California utility is leaving chapter 11 more leveraged than ever after settling billions of dollars in liability claims from wildfires sparked by its equipment; SparkSpread reported that AEE <\/span><\/b>retained Guggenheim as its considering a bid for EVRG<\/span><\/b>, as reported by Bloomberg<\/o:p><\/p>\n

 <\/o:p><\/p>\n

Financials<\/o:p><\/p>\n

·     <\/span><\/span><\/span>Payment stocks; SQ<\/span><\/b> hits new record highs after yesterday’s acquisition of Spanish peer-to-peer payment company Verve in Square’s expansion into European markets; Citi also raises its target to $95 from $66 and keeps its Neutral rating on stock; PYPL<\/span><\/b> also touches record highs as Baird reiterates Outperform with a price target hike to $175 from $153 as other payment names (FIS<\/span>, FISV<\/span>, GPN<\/span><\/b>) follow higher; V<\/span><\/b> announces exclusive agreement with CPI Card Group to provide environmentally-conscious cards <\/o:p><\/p>\n

·     <\/span><\/span><\/span>Banks; JPM<\/span><\/b> hired by Freddie Mac, Fannie Mae taps MS<\/span><\/b> to advise the GSEs on ending conservatorship; JPMorgan also announces traders working remotely will begin being recalled to offices next week with up to 50% of the workforce returning by mid-July; The WSJ published an article stating GS<\/span><\/b> will soon begin marketing corporate bank accounts, and the stock was reiterated Overweight with a higher price target at JPM; FHN<\/span><\/b> and IBKC <\/span><\/b>both gain after the Federal Reserve’s Board of Governors approved the two companies’ all-stock merger, now expected to be completed on July 1<\/o:p><\/p>\n

 <\/o:p><\/p>\n

Healthcare<\/o:p><\/p>\n

·     <\/span><\/span><\/span>Pharma movers; IDYA<\/span><\/b> shares jumped to a record high after entering into a broad partnership with GSK<\/span><\/b> for synthetic lethality, an emerging field in precision medicine oncology where the co is set to get $100M in upfront cash and $20M equity in IDYA via a direct private placement; LLY <\/span><\/b>says Verzenio significantly reduced the risk of cancer returning in people with high risk HR+, HER2- early breast cancer\/says monarchE demonstrates positive results in Phase 3 study of 5,637 people whose early breast cancer is at a high risk of recurrence; AGRX<\/span><\/b> to join the Russell 3000 and 2000 indexes; MNTA <\/span><\/b>tgt raised to $40 at Cowen after positive Phase II topline results for M281\/nipocalimab that confirmed efficacy in generalized myasthenia gravis (gMG)<\/o:p><\/p>\n

·     <\/span><\/span><\/span>Biotech movers; NBIX<\/span><\/b> and Takeda Pharma agreed a strategic collaboration to develop and commercialize compounds in Takeda’s early-to-mid-stage psychiatry pipeline\/Takeda will receive a total of $120M in upfront cash and entitled to milestones of up to $495M, commercial milestones of up to $1.4B and up to double-digit royalties on net sales; RPRX shares opened at $44 after its 77.7M IPO priced at $28<\/o:p><\/p>\n

·     <\/span><\/span><\/span>Medical equipment and devices; GNMK<\/span><\/b> chosen to be the primary provider of rapid diagnostic testing for Vidant Health for results on SARS-CoV-2, respiratory and blood stream infections; ALC was upgraded to buy at Guggenheim saying Street earnings estimates for the eye care products manufacturer have overshot to the downside<\/o:p><\/p>\n

·     <\/span><\/span><\/span>Healthcare services and providers; SEM<\/span><\/b> was downgraded to underperform at Bank America and cutting ests and tgt as we see little upside into 2021 given that a little over half of SEM’s EBITDA is from businesses (outpatient rehab and Concentra) with above average exposure to COVID-19 and a recession; in managed car, HUM<\/span><\/b> was downgraded to market perform at Cowen solely on valuation while upgraded MOH<\/span><\/b> to outperform saying its competitive positioning is significantly enhanced by the Kentucky Medicaid win and Magellan deal, and we believe there is likely upside to current consensus 2020 and 2021 estimates<\/o:p><\/p>\n

 <\/o:p><\/p>\n

Industrials & Materials<\/o:p><\/p>\n

·     <\/span><\/span><\/span>Industrial & Machinery; another sector benefitting from expectations of a infrastructure stimulus package; AYI<\/span><\/b> was downgraded from Neutral to Sell at Goldman Sachs as believe the combination of near-term cyclical growth headwinds and a moderation in long-term growth owing to "peak LED" are not well captured in expectations; CR<\/span><\/b> was upgraded to Buy at Canaccord as believe the revised FY20 outlook represents a conservative base line, with limited downside risk. <\/o:p><\/p>\n

·     <\/span><\/span><\/span>Metals stocks rebound (X<\/span>, NUE<\/span>, FCX<\/span>, STLD<\/span><\/b>) rebound on reports of infrastructure\/stimulus in the amount of $1 trillion out of Washington; hopes GLNCY <\/span><\/b>will sell cobalt to TSLA<\/span><\/b> for use in vehicles being produced at new car plants in China and Germany, Financial Times reports\/the deal could involve Glencore supplying as much as 6K tons\/year of the metal a year for use in lithium-ion batteries; AA<\/span><\/b> downgraded to hold from buy at Deutsche Bank amid limited FCF and Aluminum market remaining oversupplied, 2Q20E EBITDA below consensus; SCCO<\/span><\/b> was downgraded from Buy to Neutral at Goldman Sachs as expect volumes to remain broadly flat in the next 3-4 years and potential Greenfield projects could be delayed given community opposition<\/o:p><\/p>\n

·     <\/span><\/span><\/span>Chemicals; APD<\/span><\/b> and LIN <\/span><\/b>were both downgraded at HSBC saying Linde with margin upside from merger integration and cash return; APD<\/span><\/b> with a strong project pipeline and visible earnings growth – but are also priced accordingly; AXTA<\/span><\/b> said total net sales for April and May fell by 48% excluding foreign exchange and divestiture impacts, in line with company expectations when it released its first quarter earnings last month\/including those impacts, the drop is about 53% from a year earlier<\/o:p><\/p>\n

 <\/o:p><\/p>\n

Technology, Media & Telecom<\/o:p><\/p>\n

·     <\/span><\/span><\/span>Internet; IQ<\/span><\/b> +38%; after Tencent (TCEHY<\/span><\/b>) aims to become the biggest shareholder in the video streaming rival to lower costs and counter competition said Reuters. Tencent has approached iQIYI’s 56.2% owner BIDU<\/span><\/b> to buy a stake of as-yet undetermined size https:\/\/reut.rs\/37zIWcx<\/a> ; AMZN<\/span><\/b> launches "Distance Assistant" to provide live feedback on social distancing – technology already live at some of AMZN’s buildings; SNAP<\/span><\/b> tgt raised to $25 from $17 at UBS as recent industry checks continue to point to a range of operating trends by platform with a few key themes emerging <\/o:p><\/p>\n

·     <\/span><\/span><\/span>Semiconductors; sector rallied with broader market while Morgan Stanley downgraded INTC<\/span>, NVDA<\/span><\/b> to equal-weight and upgraded QCOM<\/span>, QRVO<\/span><\/b>, and LRCX<\/span><\/b> to Overweight as the firm increase exposure to the more cyclical elements, including smartphones (likely the beneficiary of a buoyant consumer-driven economic recovery in 2h), add pure cyclical exposure in semicap (with a focus on memory over foundry) and buy cyclical analog stocks that still have a tailwind of multiple expansion in front of them. Become less negative on companies with auto exposure, where numbers have been very weak but should be bottoming<\/o:p><\/p>\n

·     <\/span><\/span><\/span>Software movers; SAP<\/span><\/b> management noted an uptick in China and even Europe coupled with resilience in comprise retail and consumer; MSFT<\/span><\/b> Teams confirmed in a blog that its ultimate Zoom-beating feature—the ability to view up to 49 participants on a call—will launch in preview by the end of this month and to everyone this Fall<\/o:p><\/p>\n

·     <\/span><\/span><\/span>Media & Telecom movers; WWE<\/span><\/b> said last night a developmental wrestler at its training facility tested positive for Covid, said TV production schedule will proceed after testing of all other employees on site is done; CCOI <\/span><\/b>was upgraded to buy at Citigroup and also add Cogent to our catalyst Watch list for the next 90 days as expect revenue growth to improve and exceed consensus and expect CCOI to accelerate dividend growth<\/o:p><\/p>\n

·     <\/span><\/span><\/span>Hardware & Component news; CSCO<\/span><\/b> upgraded from Neutral to Buy at Bank America and raise tgt from $48 to $55 now based on ~14.5x CY21E EV\/FCF versus prior ~12.5x due to upcoming cycles and says 4Q20 will be the trough for numbers, and expect both easier comps and cyclical recovery to result in improved growth rates that will support the stock<\/p>\n<\/div>\n

<\/p>\n