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End of Day Brief - Monday Mar. 22 - Stocks up on more spending chatter

Stocks go higher as Biden reportedly planning more spending

The major averages started the week with a winning session, with the Nasdaq the leader amid a decline in Treasury yields. Rates climbed last week to better than one-year highs, which unnerved Wall Street, with the jitters especially pronounced in technology stocks. While today's reprieve is clearly a welcome development for stocks, strengthening recovery prospects, massive fiscal stimulus, ultra-accommodative Fed policy and increasing discomfort with the inflation outlook remain a tailwind to bond yields and a source of uncertainty for stocks.

ECONOMIC EVENTS: In the U.S., the Chicago Fed National Activity index fell 1.84 points to -1.09 in February, which was a much larger slide than anticipated. Existing home sales fell 6.6% to a 6.22M rate in February, which was weaker than expected.

Meanwhile, the New York Times reported that President Joe Biden's economic advisers intend to recommend spending up to $3T on a new set of measures meant to bolster the economy, reduce carbon emissions, and narrow economic inequality. After months of internal debate, the president's advisers are expected to present a proposal to Biden this week that recommends separating his economic agenda into a number of legislative portions, rather than trying to push a giant package through Congress, according to the Times.

TOP NEWS: Shares of Kansas City Southern ($KSU) jumped over 11% after the company agreed to be acquired by Canadian Pacific ($CP) in a cash and stock transaction representing an enterprise value of roughly $29B, including the assumption of $3.8B of outstanding Kansas City Southern debt. The deal, which has the unanimous support of both boards of directors, values KCS at $275 per share, representing a 23% premium, based on the CP and KCS closing prices on March 19, the companies said. Canadian Pacific shares were almost 6% lower in New York after the news.

In COVID-19 news, AstraZeneca ($AZN) shares rose 4% after the company said its U.S. Phase 3 trial of AZD1222 demonstrated statistically significant vaccine efficacy of 79% at preventing symptomatic COVID-19 and 100% efficacy at preventing severe disease and hospitalization. The news comes just a few days after the European Medicines Agency's safety committee confirmed that the benefits of the vaccine outweigh the risks.

In tech news, Reuters reported that Democratic Representative David Cicilline, chairman of the House Judiciary Committee's antirust panel, is preparing to release 10 or more small pieces of legislation targeting Big Tech companies. Releasing many smaller bills is intended to lower the opposition from tech companies and their lobbyists towards any one legislation, a source told Reuters. Last October, the subcommittee, under Cicilline's leadership, released a 449-page report detailing the abuses of market power by companies such as Apple ($AAPL), Amazon ($AMZN), Google ($GOOG), and Facebook ($FB).

In auto news, Reuters reported that the impact of the global semiconductor shortage on the auto industry spread on Saturday, as Stellantis ($STLA) warned its highly profitable pickup trucks were hit, while Ford Motor ($F) said it would cut more U.S. production.

Meanwhile, Apollo Global ($APO) shares rose 4.6% after CEO and founder Leon Black stepped down from the company, saying he views now as an "ideal time" to step back and focus on his family and he and his wife's health issues. Co-founder Marc Rowan has formally assumed the role of CEO while Jay Clayton has been named Non-Executive Chairman of the Board.

IronSource announced that it entered into a definitive agreement to merge with special purpose acquisition company Thoma Bravo Advantage ($TBA). The transaction values IronSource at a pro forma equity value of $11.1B, and is supported by a $1.3B oversubscribed Class A ordinary share PIPE led by an affiliate of Thoma Bravo, as well as investments from Tiger Global Management, Counterpoint Global, Nuveen, Hedosophia, Wellington Management, The Baupost Group, and certain funds managed by Fidelity Investments Canada ULC and other institutional investors.

MAJOR MOVERS: Among the noteworthy gainers was Catalyst Pharmaceuticals ($CPRX), which rose 7.3% after announcing a $40M share repurchase program. Also higher was Box ($BOX), which jumped 4.8% after Reuters said the company is exploring a sale amid pressure from activist hedge fund Starboard Value.

Among the notable losers was Odonate Therapeutics ($ODT), which dropped more than 79% after concluding that the clinical data package for tesetaxel is unlikely to support FDA approval and announcing it will wind down the operations of the company. Also lower was RLX Technology ($RLX), which fell 47.8% following an announcement from a Chinese regulator regarding stricter standards in the country for electronic cigarettes.

Reviewing Monday's economic data:

  • Existing home sales decreased 6.6% m/m in February to a seasonally adjusted annual rate of 6.22 million ( consensus 6.50 million) from a downwardly revised 6.66 million (from 6.69 million) in January. Total sales in February were up 9.1% from a year ago.
    • The key takeaway from the report is that the supply of existing homes for sale remains near all-time low levels. That is driving up the pace of price increases well beyond the pace of income gains, which is going to create affordability pressures for prospective buyers along with rising mortgage rates.

  • Russell 2000 +14.8% YTD
  • Dow Jones Industrial Average +6.9% YTD
  • S&P 500 +4.9% YTD
  • Nasdaq Composite +3.8% YTD

Market Snapshot
SP 5003940.59+27.49(0.70%)
10-yr Note +3/321.695
NYSEAdv 1453 Dec 1783 Vol 785.2 mln
NasdaqAdv 1676 Dec 2260 Vol 5.2 bln

Industry Watch
Strong: Information Technology, Real Estate, Health Care, Communication Services
Weak: Financials, Energy, Industrials, Utilities

Moving the Market

-- Rebalancing efforts drove mega-caps/growth stocks higher and suppressed Treasury yields

-- Cyclical/small-cap stocks underperformed

-- Price action lost some steam in the afternoon

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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