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End of Day Briefing - Friday August 7, 2020

Stocks end near unchanged as lawmakers fail to reach stimulus compromise

Dow +46.50 at 27433.48, Nasdaq -97.09 at 11011.05, S&P +2.12 at 3351.28

[BRIEFING.COM] The S&P 500 eked out a 0.1% gain on Friday to close out a strong week for equities. The Russell 2000 outperformed with a 1.6% gain, as a better-than-feared July employment report contributed to the outperformance of small-caps and value-oriented stocks.

The Dow Jones Industrial Average increased 0.2%, while the Nasdaq Composite fell 0.9% amid relative weakness in the mega-cap stocks.

According to the Bureau of Labor Statistics, nonfarm payrolls increased by 1.763 million ( consensus 2.000 million), private-sector payrolls increased by 1.462 million, and the unemployment rate improved to 10.2% ( consensus 10.5%) from 11.1% in June.

Optimism surrounding the data fueled the gains in the S&P 500 financials (+2.2%), industrials (+1.7%), utilities (+1.8%), and real estate (+1.4%) sectors, which are four of the five sectors down this year. The top-weighted information technology sector pulled back 1.6% today.

Notably, the market didn't show too much concern over the lack of a coronavirus relief bill or President Trump signing executive orders banning U.S. citizens from using TikTok and WeChat 45 days from yesterday, unless they are sold to other companies beforehand.

Democrats and the White House remain far apart on key relief provisions and ended today's negotiations without a deal; consequently, Treasury Secretary Mnuchin said he will recommend to President Trump signing executive orders that extend the eviction moratorium and enhanced unemployment benefits.

Individual standouts included T-Mobile US ($TMUS 115.09, +6.99, +6.5%) after claiming it's now the second-largest wireless provider in the U.S., UPS ($UPS 156.88, +11.41, +7.8%) after saying it plans to add holiday shipping fees to high-volume customers, and Biogen ($BIIB 305.71, +28.05, +10.1%) after it had its Alzheimer's drug application fast-tracked by the FDA.

U.S. Treasuries finished with modest losses. The 2-yr yield increased two basis points to 0.13%, and the 10-yr yield increased three basis points to 0.56%. The U.S. Dollar Index advanced 0.7% to 93.41. WTI crude futures fell 1.9%, or $0.78, to $41.17/BBL.

Reviewing Friday's economic data:

  • The Employment Situation Report for July can fairly be labeled better than feared given the surprisingly weak ADP Employment Change Report seen earlier in the week. The government's official report indicated that private-sector payrolls increased by 1.462 million in July. The nonfarm payrolls number was even larger at 1.763 million.
    • The key takeaway from the report is that the labor market is recovering from the shock of the COVID-induced seizure, but still has a long way to go, evidenced by the 10.2% unemployment rate and a 55.1% employment-population ratio that is far below the 60.7% level seen a year ago.
  • Wholesale inventories decreased 1.4% in June ( consensus -2.0%) following an unrevised 1.2% decline in May.

Looking ahead, investors will receive the JOLTS - Job Opening report for June on Monday.

  • Nasdaq Composite +22.7% YTD
  • S&P 500 +3.7% YTD
  • Dow Jones Industrial Average -3.9% YTD
  • Russell 2000 -6.0% YTD
Market Snapshot
SP 5003351.28+2.12(0.06%)
10-yr Note -2/320.562
NYSEAdv 1867 Dec 1034 Vol 807.9 mln
NasdaqAdv 1901 Dec 1358 Vol 4.2 bln

Industry Watch
Strong: Utilities, Real Estate, Financials, Industrials
Weak: Information Technology, Consumer Discretionary, Communication Services

Moving the Market

-- July employment report was better than feared, showed jobs growth and improvement in unemployment rate

-- Small-caps and value-oriented stocks outperformed

-- No deal for coronavirus relief, lingering China tensions

Stocks were a bit lower at midday amid continued uncertainty on the prospects for another aid bill from Washington. Speaker of the House Nancy Pelosi said this morning on Twitter that she and fellow Democrats "remain committed to continue negotiating and reaching a fair agreement," but "will not go along with the meager legislative proposals that fail to address" the situation the country faces. Stocks gained some downside momentum in the afternoon as it became clear that lawmakers had reached an impasse, though the Dow and S&P were able to shake off the worries about additional aid to end in the green.

ECONOMIC EVENTS: In the U.S., nonfarm payrolls increased 1.76M in July and the unemployment rate dipped to 10.2% from 11.1% in the prior month. Wholesale inventories dropped 1.4% in June, with sales jumping 8.8%. In energy news, Baker Hughes reported that the U.S. rig count is down 4 from last week at 247.

In COVID-19 news, Florida reported 518,075 cases of the virus, up from 510,389 yesterday. Arizona reported a day-to-day increase of 1,406 cases, while California reported an increase of 8,436. Meanwhile, New York Governor Andrew Cuomo said that every school district in every region in the state has been reauthorized to reopen in the fall.

Fox Business' Charles Gasparino reported that President Donald Trump could issue his executive order as early as tonight as talks between Democrats and Republican lawmakers "have broke down." Later reports confirmed that COVID-19 stimulus talks between Democratic leaders in Congress and the White House halted after both parties failed to bridge a gap in the funds they wish to give out in pandemic aid.

TOP NEWS: Last night, President Donald Trump issued an executive order banning ByteDance's TikTok and Tencent's ($TCEHY) WeChat in the U.S., saying "the spread in the United States of mobile applications developed and owned by companies in the People's Republic of China continues to threaten the national security, foreign policy, and economy of the United States." In response, TikTok, which is in deal talks with Microsoft ($MSFT), said that it is "shocked" by the recent executive order, which the company claims "was issued without any due process." Meanwhile, the New York Times reported that TikTok is in discussions with at least three American companies, including Microsoft, regarding a potential acquisition of its business.

On the earnings front, Uber ($UBER) shares fell 5.2% after the ride-hailing giant reported downbeat quarterly results. The company said it had 55M monthly active platform consumers during the quarter, down from 99M in the same period last year. On its quarterly call, Uber added that it expects its third quarter adjusted EBITDA loss to be in line with that of Q2, and that reopening in the U.S. has been uneven.

Shares of Groupon ($GRPN) surged 56.7% higher after the company reported better than expected second quarter results. Of note, the company said on its quarterly call that it expects to realize roughly $140M in savings from cost restructuring and furloughs.

In addition, Booking ($BKNG) shares were fractionally higher after the company reported better than expected quarterly results, with CEO Glenn Fogel saying that booking trends have been improving since April.

In other news, Biogen ($BIIB) shares jumped 10.1% after the company and Eisai ($ESALY) announced that the FDA accepted the Biologics License Application for aducanumab, an investigational treatment for Alzheimer's disease, for a priority review. The treatment was assigned a PDUFA target action date of March 7, 2021, the companies said.

Meanwhile, IntercontinentalExchange ($ICE) announced last night that it has entered into a definitive agreement to acquire Ellie Mae. The transaction with Ellie Mae, a portfolio company of private equity investment firm Thoma Bravo, values Ellie Mae at approximately $11B.

MAJOR MOVERS: Among the noteworthy gainers was Sirius International Insurance Group ($SG), which rose 45.4% after it agreed to combine with Third Point Re ($TPRE) in a $788M cash and stock deal. Zillow (ZG) rose 11.6%, TrueCar ($TRUE) gained 27.7%, and T-Mobile ($TMUS) advanced 6.5% after reporting quarterly results.

Evoqua Water ($AQUA) slid 3% after its 8M share spot secondary offering priced at $20.75 per share. Also lower were Alteryx ($AYX), Illumina ($ILMN), and Funko ($FNKO), which fell 28.1%, 10.9% and 12.4%, respectively, after reporting quarterly results.

Source: (

Disclosure: I may trade in the ticker symbols mentioned, both long or short. My articles represent my personal opinion and analysis and should not be taken as investment advice. Readers should do their own research before making decisions to buy or sell securities. Trading and investing include risks, including loss of principal.

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