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End of Day Briefing - Monday June 1, 2020

Stock market posts modest gains to start the week

Dow +91.91 at 25475.02, Nasdaq +62.18 at 9552.07, S&P +11.42 at 3055.60

[BRIEFING.COM] The major indices posted modest gains on Monday, as the market remained resilient to selling pressure and enthused by reopening prospects. The S&P 500 (+0.4%) and Nasdaq Composite (+0.4%) both increased 0.4%, while the Russell 2000 (+0.8%) and Dow Jones Industrial Average (+0.7%) pulled ahead.

Early in the day, investors showed little conviction following the nationwide protests over the death of George Floyd and a Bloomberg report that suggested Chinese officials instructed major state-run agricultural companies to pause their purchases of some U.S. agricultural products. Despite the negative backdrop, reopening optimism slowly pushed stocks higher.

Shares of beaten-down small-caps, banks, airlines, cruise lines, and energy companies were among the biggest gainers. At the same time, investors assumed some defensive positioning within the mega-caps and the S&P 500 real estate (+2.1%) and utilities (+1.0%) sectors, which outperformed alongside the financials (+1.2%) and energy (+1.7%) sectors.

Today's sector laggards were the health care (-1.0%) and information technology (unch) sectors. Pfizer ($PFE 35.46, -2.73, -7.2%) was a noticeable drag on the health care space after the company provided a disappointing update for its Phase 3 breast cancer trial.

On a related note, Eli Lilly ($LLY 152.45, -0.50, -0.3%) initiated the first study of a potential COVID-19 antibody treatment in humans. LLY shares, however, closed lower amid the intraday weakness in the sector.

Separately, reports indicated that OPEC moved up its production meeting to June 4 and that it's close to reaching an agreement with Russia to extend production cuts by another two months. WTI crude futures declined 0.6%, or $0.21, to $35.28/BBL despite the news.

U.S. Treasuries ended the session little changed. The 2-yr yield and the 10-yr yield were flat at 0.15% and 0.65%, respectively. The U.S. Dollar Index declined another 0.5% to 97.82, as reopening optimism increased demand for foreign currencies.

Reviewing Monday's economic data, which included the ISM Manufacturing Index for May:

  • The ISM Manufacturing Index for May ticked up to 43.1% ( consensus 44.0%) from 41.5% in April. This the third straight reading below 50.0%, which is the dividing line between expansion and contraction.
    • The key takeaway from the report is that upticks were seen in the key measures of new orders, production, employment, prices, backlog of orders, and new export orders. All were still below 50.0%, yet they corroborate the view that the downturn in manufacturing activity wasn't as bad as the downturn seen in April.
  • Construction spending declined 2.9% m/m in April ( consensus -6.0%) on the heels of a downwardly revised flat reading (from +0.9%) for March. Total residential spending was down 4.5% while total nonresidential spending decreased 1.8%.
    • The key takeaway from the report is that total construction spending is still up 3.0% yr/yr, underpinned by a 3.8% yr/yr increase in total private construction spending and a 0.8% yr/yr increase in total public construction spending.

Looking ahead, investors will receive auto and truck sales throughout the day on Tuesday.

  • Nasdaq Composite +6.5% YTD
  • S&P 500 -5.4% YTD
  • Dow Jones Industrial Average -10.7% YTD
  • Russell 2000 -15.8% YTD

Market Snapshot

SP 5003055.60+11.42(0.38%)
10-yr Note -1/320.666
NYSEAdv 2222 Dec 719 Vol 903.9 mln
NasdaqAdv 1944 Dec 1311 Vol 3.8 bln

Industry Watch

Strong: Financials, Energy, Real Estate, Utilities
Weak: Health Care, Information Technology

Moving the Market

-- Reopening enthusiasm carried stock market higher despite weekend protests, simmering U.S.-China tensions

-- Small-caps, financials, airlines, cruise lines, and energy stocks among biggest gainers; mega-caps outperformed, too

-- Relative weakness in the health care space

Stocks end higher despite unrest at home, trade worries abroad

Stocks managed to extended their recent rally despite an increasing number of U.S. cities seeing civil unrest. The collection of violent and non-violent demonstrations that were sparked across the country by the death of George Floyd at the hands of police have prompted fresh concerns over a run-up in infections that could curtail the ability of states to more fully reopen. Also, worries over U.S.-China trade relations remain in focus after Bloomberg reported that China has ordered firms to stop importing some U.S. farm goods.

ECONOMIC EVENTS: In U.S. data, Markit's manufacturing index was unchanged at 39.8 versus the flash May reading. Though it's a little better than the all-time low of 36.1 in April, it's the second lowest on record. In contract, ISM's manufacturing index bounced 1.6 points to 43.1 in May from an 11-year low of 41.5 in April, which was better than expected. The construction spending report revealed an April headline drop of just 2.8%, following big upward revisions for February and March that left a much stronger than expected report.

Meanwhile, the latest data from the Johns Hopkins Whiting School of Engineering shows there are now 6.2M confirmed cases of COVID-19 worldwide, including about 1.8M in the U.S., and 372,657 deaths due to the disease. In New York, Governor Andrew Cuomo reported 54 virus deaths in the state yesterday versus 56 deaths the previous day.

TOP NEWS: Amazon ($AMZN) scaled back deliveries and adjusted routes in cities including Chicago and Los Angeles, Apple ($AAPL) kept some outlets shut, while Target ($TGT) extended store closures nationwide after the death of George Floyd sparked demonstrations across the country, Bloomberg reported.

Target said in a statement this weekend that its decision to adjust hours or close stores temporarily was due to the safety of its team and guests being top priority, although the company also expressed that it was "heartbroken by the death of George Floyd and the pain it is causing communities across the country." Target added that it will reopen stores on their normally scheduled hours "as soon as it is safe to do so."

Meanwhile, the New York Times reported that dozens of Facebook ($FB) employees staged a virtual "walkout" to protest executives' decision not to do anything about inflammatory posts that President Trump had placed on the platform over the last week. The workers took the day off by logging into the company's systems and requesting time off to support protesters across the nation, the Times noted. The news comes after Zuckerberg said in a post late yesterday that the company is committing "an additional $10 million to groups working on racial justice."

Shares of Eli Lilly ($LLY) closed fractionally lower after the company announced patients have been dosed in what it called "the first study of a potential antibody treatment designed to fight COVID-19." The investigational medicine, referred to as LY-CoV555, is the first to emerge from the collaboration between Lilly and AbCellera to create antibody therapies for the prevention and treatment of COVID-19, the company added. In other COVID-19 research news, Moderna ($MRNA) announced that the first participants in each age cohort have been dosed in the company's Phase 2 study of its mRNA vaccine candidate against the novel coronavirus while Gilead Sciences ($GILD) reported top-line results from the SIMPLE Phase 3 trial testing remdesivir in moderate COVID-19 patients.

In M&A news, Coty ($COTY) announced a strategic transaction for its Professional and Retail Hair business, including the Wella, Clairol, OPI and ghd brands, valuing the businesses at $4.3B on a cash- and debt-free basis. Following the deal, KKR ($KKR) will own 60% of this separately managed entity and Coty will own the remaining 40%. Zynga ($ZNGA) announced an agreement to acquire Peak, the maker of the Toon Blast and Toy Blast game franchises, for $1.8B.

MAJOR MOVERS: Among the noteworthy gainers was Myovant Sciences ($MYOV), which rose 38.4% after it submitted a new drug application to the FDA for its relugolix combination tablet. Also higher was Gap ($GPS), which gained 11.1% after JPMorgan analyst Matthew Boss upgraded the stock to Neutral from Underweight.

Among the notable losers was Evolent Health ($EVH), which fell 23.2% after it said that partner Passport Health Plan was not awarded a Kentucky Managed Care Organization contract for the next contract period. Also lower was Pfizer (PFE), which declined 7.1% after announcing its PALLAS breast cancer trial is unlikely to show a statistically significant improvement in the primary endpoint of invasive disease-free survival.

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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