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End of Day Brief - Thursday May 6 - Stocks rise with the Dow leading

SP 5004201.62+34.03(0.82%)
10-yr Note +1/321.569
NYSEAdv 1799 Dec 1444 Vol 1.0 bln
NasdaqAdv 1687 Dec 2335 Vol 4.9 bln

Industry Watch

Strong: Financials, Consumer Staples, Information Technology
Weak: Health Care

Moving the Market

-- Blue-chips set the tone, investors bought the dip in technology

-- German Chancellor Merkel is reportedly against patent waivers for COVID-19 vaccines

-- Weakness in the high-growth story stocks

-- Weekly initial claims fell to new post-pandemic low at 498,000 ( consensus 530,000)

Stocks higher after U.S. initial jobless claims report

Equity index futures were on both sides of unchanged with modest moves in the early morning with the S&P 500 just shy of a record peak close seen last week. While elevated valuations have been an underlying worry for some time, stocks have moved higher nevertheless amid recovery optimism and massive fiscal and monetary stimulus. News that the U.S. would support a temporary waiver of intellectual property rules to allow developing nations to manufacture vaccines weighed on shares of Pfizer (PFE), Moderna (MRNA), and other vaccine makers, but new headlines point to opposition to such a plan coming from Germany.

ECONOMIC EVENTS: In the U.S., initial jobless claims declined by 92,000 to 498,000 in the first week of May to hit a new pandemic cycle low. The Q1 productivity growth rate was reported at a stronger than assumed 5.4%. Challenger, Gray & Christmas reported job cuts announced by U.S.-based employers fell 25% in April to 22,913 from the 30,603 announced in March. Last month’s total is down 96.6% from last April, when employers announced the highest monthly total on record of 671,129 cuts, the firm noted.

Meanwhile, Bloomberg reported that President Joe Biden's administration will likely maintain pressure on China by preserving limits on U.S. investments in certain Chinese companies imposed under former President Donald Trump. Biden officials are still in preliminary discussions about Trump's investment bans on companies linked to China's military, which included three of the country's biggest telecommunications companies, according to Bloomberg.

TOP NEWS: Shares of Uber (UBER) were 8.9% lower after the ride-hailing giant reported lower than expected revenue for the first quarter, with gross mobility bookings slipping 36% year-over-year. Of note, the company said that its revenue was reduced by a $600M accrual made for the resolution of historical claims in the U.K. relating to the classification of drivers. Uber added on its quarterly call that it still believes it can achieve EBITDA profitability by the end of 2021.

PayPal (PYPL) shares rose 1.9% after the payment processing company's better than expected Q1 adjusted earnings and revenue, including 50% growth in total payment volume for the quarter. Looking ahead, the company provided upbeat earnings guidance for the second quarter and fiscal 2021.

In other earnings news, Etsy (ETSY) shares fell 14.6% despite reporting better than expected quarterly results and providing upbeat Q2 revenue guidance. Several analysts lowered their price targets on Etsy after the report, with BTIG analyst Marvin Fong reducing his target to reflect valuations in the sector.

Meanwhile, Moderna (MRNA) shares fell 1.4% after the company reported lower than expected Q1 revenue and announced a new supply agreement with Switzerland for 7M booster vaccine doses in 2022. The earnings announcement came a day after Bloomberg reported that the U.S. will support a proposal to waive intellectual-property protections for COVID-19 vaccines, joining an effort to increase global supply and access to the life-saving shots as the gap between rich and poor nations widens.

On the M&A front, shares of At Home Group (HOME) jumped 20.3% after the company agreed to be acquired by Hellman & Friedman for $2.8B, or $36 per share in cash. Upon completion of the transaction, At Home will become a privately-held company and At Home's shares will no longer trade on The New York Stock Exchange.

MAJOR MOVERS: Among the noteworthy gainers was Luokung Technology (LKCO), which rose 13.5% after its motion for a preliminary injunction was granted by the U.S. District Court for the District of Columbia and the stock was allowed to resume trading on Nasdaq. Also higher was Sally Beauty (SBH), which gained 20% after reporting quarterly results.

Among the notable losers was PurceCycle (PCT), which dropped almost 40% after short selling research firm Hindenburg Research called the company a “zero-revenue ESG SPAC charade.” Also lower was James River Group (JRVR), which fell 26.4% after reporting quarterly results and pricing a 5.65M share spot secondary offering at $31 per share.

Reviewing Thursday's economic data:

  • Initial jobless claims for the week ending May 1 declined by 92,000 to 498,000 ( consensus 530,000), which is the lowest level since March 14, 2020. Continuing claims for the week ending April 24 increased by 37,000 to 3.690 million.
    • The key takeaway from the report is the downtrend in initial claims, which is consistent with an economy that is reopening and necessitating more hiring activity.
  • Nonfarm business sector labor productivity increased at a 5.4% annual rate in the first quarter ( consensus 5.0%) while unit labor costs decreased at an annual rate of 0.3% ( consensus -1.6%).
    • The key takeaway from the report is the pickup in productivity and the corresponding effect of helping to hold down labor costs, which is something that will continue to feed the Fed's patience for holding its easy policy line despite clear signs of commodity cost inflation.

Looking ahead, investors will receive the Employment Situation Report for April, Consumer Credit for March, and Wholesale Inventories for March on Friday.

  • Russell 2000 +13.5% YTD
  • Dow Jones Industrial Average +12.9% YTD
  • S&P 500 +11.9% YTD
  • Nasdaq Composite +5.8% YTD

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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