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End of Day Briefing - Thursday April 9, 2020

Shortened Week Ends on Higher Note

Dow +285.80 at 23719.37, Nasdaq +62.67 at 8153.57, S&P +39.84 at 2789.82

[BRIEFING.COM] The stock market climbed to end the holiday-shortened week, but the Thursday affair saw some intraday volatility. The S&P 500 gained 1.5%, extending this week's advance to 12.1% while the Nasdaq (+0.8%) underperformed but still gained 10.6% for the week.

The market climbed out of the gate after the release of another horrific weekly initial claims report was masked by news of more unprecedented action from the Fed to help none of the 16 million people who got fired over the past three weeks. Of course, the Fed would protest that direct support is not in its mandate, but neither is the ability to purchase junk bond ETFs or collateralized debt obligations, which can now be acquired by the Fed. The central bank also added another $2.30 trln in emergency lending capacity for businesses and municipalities. Fed Chairman, Jay Powell, said that the central bank will continue using its powers forcefully, proactively, and aggressively.

In Europe, the Bank of England announced that it will begin directly financing the U.K.'s fiscal needs while German Chancellor, Angela Merkel, rejected Italy's demand for the issuance of joint euro debt.

Also of note, the Japanese government will reportedly spend up to $2.20 bln to help Japanese manufacturers move their production facilities out of China.

Equities backpedaled from their highs in the afternoon, but ten out of eleven sectors were able to finish in the green. The gains were paced by groups like financials (+5.2%), real estate (+5.2%), and utilities (+4.8%).

The top-weighted technology sector (UNCH) lagged, which was also the case earlier in the week. The sector climbed 10.6% for the week while chipmakers also underperformed today. The PHLX Semiconductor Index lost 2.3%, narrowing this week's gain to 11.0%.

Costco ($COST 300.01, -5.96, -2.0%) reported a 12.1% jump in domestic comparable sales in March, but its stock finished lower since the market had already priced in strong March sales.

The energy sector (-1.1%) turned negative in the afternoon amid volatility in crude oil. That volatility followed conflicting headlines from the OPEC+ meeting, where producers struggled to agree to a large output cut. The Wall Street Journal reported in the late afternoon that daily output in May and June will be reduced by ten million barrels. Crude oil ended the day lower by $2.30, or 9.1%, at $22.87/BBL.

Treasuries finished near their highs, sending the 10-yr yield lower by four basis points to 0.73%.

The U.S. Dollar Index fell 0.6% to 99.50, widening this week's loss to 1.0%.

Reviewing today's economic data:

  • It was another dismal initial claims report, with 6.606 million jobless claims filed for the week ending April 4 ( consensus 5.000 million), bringing the three-week total to 13,476,307 after revisions. Continuing claims for the week ending March 28 hit a record high 7.455 million
    • The key takeaway from the jobless claims data is that the number of filings is simply astounding and a true sign of the vast impact of the sudden economic stop. Unfortunately, it likely still doesn't capture the fullness of the impact as it's reasonable to assume that the system for filing claims is overwhelmed and not facilitating every effort to file for jobless benefits
  • The preliminary reading for the University of Michigan's Consumer Sentiment Index for April plummeted to 71.0 ( consensus 79.3) from 89.1 in March. This is the largest monthly decline on record
    • The key takeaway from the report is that the more modest decline in the Expectations Index captures a feeling that the impact of the COVID-19 cases and death rates could soon peak, allowing for a restart of the economy
  • The Producer Price Index for final demand declined 0.2% m/m in March ( consensus -0.4%). Core PPI was up 0.2% ( consensus -0.1%)
    • The key takeaway from the report is that it doesn't fully reflect the impact of the COVID-19 shutdown measures as the pricing date for the survey was March 10
  • Wholesale inventories decreased by 0.7% in February ( consensus -0.4%) after decreasing a revised 0.6% (from -0.4%) in January

There is no data scheduled for Monday.

  • Nasdaq Composite -9.1% YTD
  • S&P 500 -13.7% YTD
  • Dow Jones Industrial Average -16.9% YTD
  • Russell 2000 -25.3% YTD

Market Snapshot

SP 5002789.82+39.84(1.45%)
10-yr Note +9/320.729
NYSEAdv 2495 Dec 418 Vol 1.51 bln
NasdaqAdv 2502 Dec 735 Vol 4.10 bln

Industry Watch

Strong: Financials, Real Estate, Utilities, Industrials
Weak: Health Care, Consumer Staples, Technology, Communication Services

Moving the Market

Continued volatility in crude oil

Federal Reserve to provide additional $2.30 trln in emergency lending

ECONOMIC EVENTS: In U.S. data, initial jobless claims fell 261,000 to 6.61M in the week ended April 3. The Producer Prices Index report largely tracked estimates in with a 0.2% decline for the March headline figure and a 0.2% rise for the core reading. wholesale inventories declined 0.7% in February and sales dropped 0.8%. Consumer sentiment plunged 18.1 points to 71.0 in the preliminary April report from the University of Michigan.

The Federal Reserve announced additional actions to provide up to $2.3 trillion in loans to support the economy. Among them, the Fed will boost the effectiveness of the Small Business Administration's Paycheck Protection Program, or PPP, by supplying liquidity to participating financial institutions; purchase up to $600 billion in loans through the Main Street Lending Program; and help state and local governments manage cash flow stresses by establishing a Municipal Liquidity Facility that will offer up to $500 billion in lending to states and municipalities. Also, to support further credit flow to households and businesses, the Federal Reserve will broaden the range of assets that are eligible collateral for the Term Asset-Backed Securities Loan Facility, or TALF.

Meanwhile, the latest data from the Johns Hopkins Whiting School of Engineering shows there are now 1,506,936 confirmed cases of COVID-19 and 90,057 deaths due to the disease.

In New York, which has become the "epicenter" of the outbreak in the U.S., the State Department of Health COVID-19 Tracker reported 10,621 new positive tests for COVID-19 on April 8, for a total of 159,937 total positive tests in New York State. 

TOP NEWS: Shares of Disney ($DIS) are up 5% near 1 pm ET after the media giant announced that Disney+ has reached over 50M paid subscribers just under five months following the launch of the streaming service. The announcement suggests Disney+ could reach nearly 70M subscribers by the end of June, according to Rosenblatt analyst Bernie McTernan.

General Electric ($GE) withdrew its FY20 guidance due to COVID-19, adding that it preliminarily expects adjusted EPS to be "materially below" its prior guidance of about 10c for the first quarter ended March 31.

Similarly, Starbucks ($SBUX) withdrew its guidance for FY20, stating that it is "currently unable to estimate the full financial impacts beyond Q2 with reasonable accuracy." Starbucks said in a letter to stakeholders that it preliminary estimates Q2 non-GAAP EPS will be approximately 32c and reported same-store-sales in the U.S. to be down 3%.

MAJOR MOVERS: Among the noteworthy gainers was Big Lots ($BIG), which surged 23% after entering a sale and leaseback agreement with $550M in expected net proceeds. Also higher was Nautilus ($NLS), which jumped 61% after it reported preliminary Q1 revenue above estimates.

Among the notable losers was ViewRay ($VRAY), which slid 3% after the company said its senior executives will take pay cuts for the remainder of 2020. Also lower was Extreme Networks ($EXTR), which fell 8% after the company announced cost cutting measures and lowered its adjusted earnings per share guidance for Q3.


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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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