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End of Day Brief - Thursday May 13 - Stocks up on some dip buying

SP 5004112.50+49.46(1.22%)
10-yr Note -2/321.661
NYSEAdv 2172 Dec 1069 Vol 1.0 bln
NasdaqAdv 2043 Dec 2003 Vol 4.6 bln

Industry Watch

Strong: Financials, Industrials, Utilities
Weak: Energy

Moving the Market

-- CDC says fully vaccinated people can partake in most activities without masks

-- Treasury yields edge lower despite hotter-than-expected Producer Price Index report for April and weekly initial claims declining to new post-pandemic low

-- Buy-the-dip efforts

-- Apple ($AAPL) reclaimed 200-day moving average

Stock higher as CDC provides new mask guidance

Wall Street's major averages had a bounce back after falling for the past three sessions. A report on rising producer prices came in hotter than expected on the heels of a blowout consumer price index report yesterday, but the market took it in stride this time around. The market appears to have adopted the Fed's view, at least for now, that the inflation surge in transitory. Moreover, the declines in the first three days of this week likely drew bargain hunters off the sidelines.

ECONOMIC EVENTS: In the U.S., the Producer Price Index beat estimates with April gains of 0.6% for the headline and 0.7% for the core reading. On a 12-month basis, the headline index surged to an all-time high 6.2% year-over-year growth rate, up from 4.2% previously, while the core reading pointed to 4.1% year-over-year growth, up from 3.1% in March. Initial jobless claims fell 34,000 to 473,000 in the week ended May 8.

Meanwhile, the U.S. Centers for Disease Control and Prevention confirmed that it is advising that Americans who are fully vaccinated against COVID-19 may stop wearing masks or maintaining social distance in most indoor and outdoor locations, regardless of size. The CDC noted that even vaccinated individuals should cover their faces and physically distance when going to doctors, hospitals, or long-term care facilities, and should also continue wearing masks when traveling by bus, plane, or train.

TOP NEWS: Shares of Alibaba (BABA) fell 6.3% in New York trading after the company reported fiscal Q4 results prior to this morning's opening bell. "Our overall business delivered strong growth on a healthy foundation, with the Alibaba Ecosystem generating a record US$1.2 trillion in GMV during this fiscal year. Such achievements were built on top of clear value propositions that we offer to consumers and merchants. We remain very excited about the growth of China's consumption economy, which is benefiting from the acceleration of digitalization in all aspects of life and work," said Alibaba Chairman and CEO Daniel Zhang in commenting on the results of the quarter and the year.

Tesla (TSLA) CEO Elon Musk stated on Twitter last night that the company has suspended vehicle purchases using Bitcoin, citing concerns about "rapidly increasing use of fossil fuels for Bitcoin mining and transactions." Musk added that Tesla will not be selling any Bitcoin, as it intends to use it for transactions "as soon as mining transitions to more sustainably energy," while also noting that the company will be "looking at other cryptocurrencies that use less than 1% of Bitcoin's energy/transaction." In response, Wedbush analyst Daniel Ives called Musk's "major U-turn on crypto" a "very surprising and confusing move" to both Tesla and crypto investors.

McDonald's (MCD) will be raising hourly wages for more than 36,500 employees at company-owned restaurants by an average of 10%, shifting the entry level range for crew to at least $11-$17 an hour, and the starting range for shift managers to at least $15-$20 an hour based on restaurant location, the company announced.

Meanwhile, The Wall Street Journal reported that Canadian National (CNI) is expected to sweeten its takeover bid for rival Kansas City Southern (KSU) as it fights Canadian Pacific (CP) to buy the railway operator. A new proposal could include an agreement to cover the $700M breakup fee KCS would owe CP should it walk away from their existing merger agreement in favor of a deal with Canadian National, according to the Journal. Following the news, Kansas City Southern finished 2.5% higher.

MAJOR MOVERS: Among the noteworthy gainers was Silvergate Capital (SI), which rose 13.7% after it partnered with Diem Networks to become the exclusive issuer of the Diem USD stablecoin. Also higher were Sonos (SONO) and MultiPlan (MPLN), which gained a respective 7.4% and 16.3% after reporting quarterly results.

Among the notable losers was Fluor (FLR) which declined 20.4% after announcing a convertible preferred stock offering. Also lower were ContextLogic (WISH), Haemonetics (HAE), and American Well (AMWL), which fell a respective 29.3%, 13.4%, and 21.6% after reporting quarterly results.

Reviewing Thursday's economic data:

  • The PPI for final demand increased 0.6% month-over-month ( consensus +0.3%) while the index for final demand, less foods and energy ("core PPI"), increased 0.7% month-over-month ( consensus +0.4%). That left the year-over-year increases at 6.2% and 4.1%, respectively, with base effects very much in the picture there. Still, the month-over-month increases are not a function of low base effects.
    • The key takeaway from the report is that there is evident, and more current, price pressures for producers that threaten profit margin expansion if they are not passed along to customers. Over the last six months, when low base effects were not the same convenient excuse, the PPI for final demand has increased at an annualized rate of 7.4%.
  • For the week ending May 8, initial jobless claims decreased by 34,000 to 473,000 ( consensus 510,000), marking their lowest level since March 14, 2020. Continuing claims for the week ending May 1 decreased by 45,000 to 3.655 million.
    • The key takeaway from the report is that jobless claims remain high in absolute terms, yet continue to trend in the right direction that is consistent with recovery-minded views.

Looking ahead, key reports will include Retail Sales for April, Industrial Production and Capacity Utilization for April, and the preliminary University of Michigan Index of Consumer Sentiment for May on Friday.

  • Dow Jones Industrial Average +11.2% YTD
  • Russell 2000 +9.9% YTD
  • S&P 500 +9.5% YTD
  • Nasdaq Composite +1.8% 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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