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End of Day Briefing - Wednesday April 1, 2020

Stock market loses 4% to start second quarter

Dow -973.65 at 20943.57, Nasdaq -339.52 at 7359.93, S&P -114.09 at 2470.50

[BRIEFING.COM] The stock market retreated more than 4% to start the second quarter on Wednesday, as President Trump warned that the next two weeks will be "very painful" in terms of coronavirus fatalities. The S&P 500 (-4.4%), Dow Jones Industrial Average (-4.4%), and Nasdaq Composite (-4.4%) each fell 4.4%. The Russell 2000 underperformed with a 7.1% decline.

The coronavirus task force on Tuesday estimated that deaths attributed to COVID-19 could total 100,000-240,000 in the U.S. with daily deaths projected to peak in two weeks. To help contain the outbreak, and hopefully bring these figures down, Florida, Nevada, and Pennsylvania joined the growing list of states to issue 'stay at home' orders for 30 days.

Original assumptions made by the medical community were based on the data coming out of China, which the U.S. intelligence community said underrepresented the real number of cases and deaths in the country, according to Bloomberg. The White House's projections, based on new data being released every day, had the market worried about the social and psychological effects on the economy.

In turn, no S&P 500 sector was spared in today's sell-off with ten sectors losing at least 3.0%, including 6.1% declines in the real estate and utilities sectors. The consumer staples sector performed relatively better with a 1.8% decline.

Economic data for March showed the manufacturing sector contract and private-sector hiring decline, as expected, due to the coronavirus. Many market participants, however, expect the data to worsen with Boston Fed President Rosengren expecting unemployment to increase "dramatically."

In the oil market, The Wall Street Journal reported that President Trump will meet with the CEOs of some of the largest U.S. oil companies on Friday to discuss how the government can help the industry. WTI crude spiked on the news before settling down 1.0%, or $0.20, to $20.32/BBL.

Separately, tucked behind the macro headlines was Xerox ($XRX 17.60, -1.34, -7.1%) withdrawing its offer to acquire HP Inc ($HPQ 14.84, -2.52, -14.5%), Marriott ($MAR 69.15, -5.66, -7.6%) disclosing a data breach that affected 5.2 million customers, and Macy's ($M 4.43, -0.48, -9.8%) being removed from the S&P 500.

U.S. Treasuries finished mixed with longer-dated Treasuries advancing in a safe-haven bid. The 2-yr yield increased two basis points to 0.22%, while the 10-yr yield declined six basis points to 0.64%. The U.S. Dollar Index rose 0.5% to 99.50.

Reviewing Wednesday's economic data:

  • The ISM Manufacturing Index for March registered a reading of 49.1% (Briefing.com consensus 43.3%), down from 50.1% in February. The dividing line between expansion and contraction is 50.0%.
    • The key takeaway for some will be that the number wasn't as bad as feared, but lost in that takeaway is the fact that the overall index was supported by a sizable uptick in the supplier deliveries index (to 65.0% from 57.3%), which reflects slower delivery times that are a byproduct of the COVID-19 response that has disrupted supply networks. Translation: the March number is not as encouraging as it seems at first blush.
  • Total construction spending declined 1.3% m/m in February (Briefing.com consensus +0.5%) on the heels of an upwardly revised 2.8% increase (from +1.8%) in January. Residential spending was down 0.6% m/m while nonresidential spending declined 1.6% m/m.
    • The key takeaway from the report is that it is relatively meaningless for a market that is pre-occupied with the economic view ahead due to the shutdown measures that started to hit home in March to deal with containing the spread of COVID-19.
  • The ADP Employment Change report pointed to a net loss of 27,000 nonfarm payrolls in March (Briefing.com consensus -175,000) while the February reading was revised down to 179,000 from 183,000.
  • The weekly MBA Mortgage Applications Index increased 15.3% following a 29.4% drop in the prior week.

Looking ahead, investors will receive the weekly Initial Claims and Continuing Claims report, the Trade Balance report for February, and the Factory Orders report for February on Thursday.

  • Nasdaq Composite: -18.0%
  • S&P 500: -23.5%
  • Dow Jones Industrial Average: -26.6%
  • Russell 2000: -35.8%

Market Snapshot

Dow20943.57-973.65(-4.44%)
Nasdaq7359.93-339.52(-4.41%)
SP 5002470.50-114.09(-4.41%)
10-yr Note +26/320.631
NYSEAdv 214 Dec 2728 Vol 1.3 bln
NasdaqAdv 468 Dec 2826 Vol 3.6 bln


Industry Watch

Strong: Consumer Staples
Weak: Financials, Real Estate, Utilities


Moving the Market

-- Stock market loses more than 4% to start the second quarter

-- White House estimates 1000,000-240,000 deaths in U.S. due to the coronavirus; projects daily deaths to peak in two weeks

-- President Trump warns of "very painful two weeks"

-- Manufacturing sector contracts, private-sector hiring declines in March


ECONOMIC EVENTS: In U.S. data, ADP reported private payrolls fell "only" 27,000 in March, which was not as bad as many had forecast. However, ADP acknowledged the data don't really reflect the realities on the ground as a lot of the firings have taken place after the week that ended its survey. The ISM manufacturing index dropped 1.0 point to 49.1 in March, which was also not as bad as feared. Markit's manufacturing PMI was revised down to 48.5 in the final print for March. That was a little lower than the 49.2 flash reading for the month and down 2.2 points from February's 50.7 reading. Construction spending dropped 1.3% in February.

Meanwhile, the latest data from the Johns Hopkins Whiting School of Engineering shows there are now 887,067 confirmed cases of COVID-19 and 44,264 deaths due to the disease.

In China, the Caixin manufacturing PMI climbed 9.8 points to 50.1 in March, almost fully recovering from the 10.8 point drop to the record low of 40.3 in February. The better than expected bounce is in line with the surprising 16.3 point jump in the official index to 52.0. 

TOP NEWS: Shares of General Motors ($GM) are down 8.5% after the automaker announced that it delivered 618,335 vehicles in the U.S. in the first quarter of 2020, a decrease of about 7% compared to a year ago. "The industry experienced significant declines in March due to the outbreak of COVID-19," noted GM in its sales announcement. Meanwhile, FCA US reported a 10% decline in its first quarter sales to 446,768 vehicles, also noting that "the strong momentum in January and February was more than offset by the negative economic impact of the coronavirus in March."

In M&A news, T-Mobile ($TMUS) announced that it has officially completed its merger with Sprint ($S) to create the new T-Mobile. The company also announced that with close of the merger, it has successfully completed its long-planned CEO transition from John Legere to Mike Sievert ahead of schedule.

Last night, Xerox ($XRX) announced that "the current global health crisis and resulting macroeconomic and market turmoil caused by COVID-19 have created an environment that is not conducive" to the company continuing to pursue an acquisition of HP Inc. ($HPQ). The smaller business equipment maker has withdrawn its tender offer to acquire its larger rival and will no longer seek to nominate a slate of candidates to HP's board.

MAJOR MOVERS: Among the noteworthy gainers was Kinross Gold ($KGC), which rose 5% after it said its mines continue to operate and have not materially been impacted by the COVID-19 pandemic. The company also withdrew guidance for fiscal 2020 in light of the outbreak. Also higher was Novavax ($NVAX), which gained 3% after Emergent BioSolutions ($EBS) announced a pact with Novavax whereby Emergent will provide molecule-to-market contract development and manufacturing services to produce Novavax's NanoFlu, its recombinant quadrivalent seasonal influenza vaccine candidate with its proprietary Matrix-M adjuvant.

Among the notable losers was Capri Holdings ($CPRI), which fell 16% after Fitch downgraded Capri to BB+ from BBB- with a negative outlook. In addition, Whiting Petroleum ($WLL) plunged 44% after it filed for Chapter 11 bankruptcy protection.


Source: (Briefing.com)(theFly.com)

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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