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End of Day Briefing - Tuesday June 16, 2020

Stock rally aided by positive by media reports, retail sales data

Dow +526.82 at 26290.00, Nasdaq +169.84 at 9895.88, S&P +58.15 at 3124.61

[BRIEFING.COM] The S&P 500 gained 1.9% on Tuesday, paced higher by all 11 of its sectors amid positive-sounding media reports and encouraging retail sales data. The Dow Jones Industrial Average (+2.0%) and Nasdaq Composite (+1.8%) performed comparably to the benchmark index, while the Russell 2000 (+2.3%) outperformed.

The session started in risk-on mode after retail sales rebounded 17.7% m/m in May ( consensus 9.0%), Bloomberg reported that President Trump was preparing a $1 trillion infrastructure proposal, and the BBC reported on a COVID-19 steroidal treatment in the UK that reduced deaths in severely ill patients.

All 11 S&P 500 sectors were up big. The benchmark index, however, went from being up as much as 2.8% intraday (and up 6.3% from Monday's intraday low) to being up just 0.3% during Fed Chair Powell's semiannual monetary policy testimony before the Senate Banking Committee.

Mr. Powell told lawmakers he thinks there will be long road to a recovery, but the Fed will continue to be proactive in supporting financial markets, adding that the central bank would think about capping yields if rates go up too much on certain parts of the curve. The S&P 500 financials sector (+1.4%) turned negative shortly after this acknowledgement.

The broader market was weaker, though, as recovery hopes were further pressured by news that Texas reported a new high for COVID-19 hospitalizations and that Beijing raised its COVID emergency response level and closed its schools. Investors bought the dip (again), sending the S&P 500 back above the 3100 level on a closing basis.

Five sectors increased by at least 2.0%, including the energy (+2.8%) and health care (+2.4%) sectors at the top. The utilities sector (+0.5%) lagged. In the health care space, Eli Lilly ($LLY 163.71, +22.19, +15.7%) shares surged 15.7% after the company announced its breast cancer therapy met its primary endpoint and its insulin drug received FDA approval.

U.S. Treasuries ended the session with losses that caused some curve-steepening activity. The 2-yr yield increased two basis points to 0.21%, and the 10-yr yield increased five basis points to 0.76%. The U.S. Dollar Index increased 0.4% to 97.05. WTI crude rose 3.2%, or $1.20, to $38.56/BBL.

Reviewing Tuesday's economic data:

  • Retail sales for May in the U.S. surged 17.7% m/m ( consensus 9.0%) following an upwardly revised 14.7% decline in April (from -16.4%). Excluding autos, retail sales jumped 12.4% m/m ( consensus 5.2%) following an upwardly revised 15.2% decline for April (from -17.2%).
    • The key takeaway from the Retail Sales report is that it reflects pent-up demand that was unleashed as reopening efforts took root. Granted the April base was severely depressed and sales were still down 6.1% yr/yr, yet this market is thriving right now on hopeful sequential comparisons; hence, this was seen as very encouraging news.
  • Total industrial production increased 1.4% m/m in May ( consensus 3.0%) on the heels of a downwardly revised 12.5% decline (from -11.2%) in April. The capacity utilization rate was 64.8% ( consensus 67.9%) versus a downwardly revised 64.0% (from 64.9%) in April.
    • The key takeaway from the report is that the improvement was all manufacturing-based thanks largely to an uptick in the output of motor vehicles and parts.
  • The NAHB Housing Market Index for June increased to 58 ( consensus 45) from 37 in May.
  • Business Inventories declined 1.3% in April ( consensus -0.4%) following a revised 0.3% decline in March (from -0.2%).

Looking ahead, investors will receive Housing Starts and Building Permits for May and the weekly MBA Mortgage Applications Index on Wednesday.

  • Nasdaq Composite +10.3% YTD
  • S&P 500 -3.3% YTD
  • Dow Jones Industrial Average -7.9% YTD
  • Russell 2000 -13.0% YTD

Market Snapshot

SP 5003124.61+58.15(1.90%)
10-yr Note -24/320.750
NYSEAdv 2361 Dec 522 Vol 1.3 bln
NasdaqAdv 2496 Dec 819 Vol 4.6 bln

Industry Watch

Strong: Energy, Materials, Health Care, Information Technology, Consumer Discretionary
Weak: Utilities

Moving the Market

-- Stock rally aided by positive-sounding media reports, encouraging retail sales data

-- President Trump working on $1 trillion infrastructure proposal; news of steroidal treatment in the UK that reduced deaths in severely ill COVID-19 patients

-- Retail sales rebounded 17.7% m/m in May ( consensus 9.0%)

-- Volatility following Fed Chair's Powell semiannual monetary policy testimony

Stocks end higher after retail sales report, Powell testimony

Stocks advanced following a report that the U.S. is contemplating a $1T infrastructure program and retail sales saw a record bounce in May. Tempering some of the enthusiasm, though, were reports of virus increases in Texas and Florida, among other emerging hotspots in the U.S., along with headlines that Beijing will shut all of its schools due to a COVID resurgence.

ECONOMIC EVENTS: In U.S. data, retail sales bounced a record 17.7% in May, with sales excluding autos jumping 12.4%, nearly double expectations. Industrial production rebounded 1.4% in May, shy of expectations.

In his semiannual monetary policy report to congress, Federal Reserve Chair Jerome Powell said some recent indicators have pointed to a stabilization, and in some areas a modest rebound, in economic activity. "That said, the levels of output and employment remain far below their pre-pandemic levels, and significant uncertainty remains about the timing and strength of the recovery. Much of that economic uncertainty comes from uncertainty about the path of the disease and the effects of measures to contain it. Until the public is confident that the disease is contained, a full recovery is unlikely," Powell added in his prepared remarks.

In Asia, the Bank of Japan kept monetary policy settings unchanged, but expanded its special lending program.

In other COVID-19 news, dexamethasone, a "cheap and widely available drug," cut the risk of death by a third for COVID-19 patients on ventilators, according to a trial lead by a team from Oxford University, reported BBC News and other media outlets.

TOP NEWS: The European Commission this morning said it has opened formal antitrust investigations to assess whether Apple's ($AAPL) rules for app developers on the distribution of apps via the App Store violate EU competition rules. The investigations concern the mandatory use of Apple's own proprietary in-app purchase system and restrictions on the ability of developers to inform iPhone and iPad users of alternative cheaper purchasing possibilities outside of apps, the agency said. The investigations follow-up on separate complaints by Spotify ($SPOT) and by an e-book/audiobook distributor on the impact of the App Store rules on competition in music streaming and e-books/audiobooks, noted the Commission.

In other antitrust news, the Washington Post reported that Facebook ($FB) CEO Mark Zuckerberg and Google ($GOOG) CEO Sundar Pichai signaled that they are open to testifying to the U.S. Congress as part of lawmakers' ongoing antitrust probe into the tech industry. The Post noted that Apple has not yet explicitly agreed to send its leader. Yesterday it was reported that Amazon ($AMZN) CEO Jeff Bezos is open to testifying in a House antitrust probe into the market power of major technology firms.

Meanwhile, Citi analyst Jim Suva raised the firm's price target on Apple to $400 from $310 and reiterates a Buy rating on the shares. Despite the recent stock price, he sees five reasons that Apple shares could trade higher, including the upcoming 5G iPhone launch.

Shares of Eli Lilly ($LLY) rose 15.7% following this morning's positive monarchE study results. Eli Lilly announced Verzenio in combination with standard adjuvant endocrine therapy met the primary endpoint of invasive disease-free survival, or IDFS, significantly decreasing the risk of breast cancer recurrence or death compared to standard adjuvant ET alone.

McDonald's ($MCD) issued an update on its same-store sales trends through April and May. After McDonald's reported U.S. same-store sales were down 19% in April and down 5% in May for a quarter-to-date decline of 12%, Stephens analyst James Rutherford noted that even if the May trend just held constant into June, the Q2 domestic comp would be down 7%, which compares to the consensus forecast for a 14% decline.

AT&T ($T) was in focus after the Communications Workers of America said that the company informed the union of its plans to cut over 3,400 technician and clerical jobs across the country over the next few weeks.

MAJOR MOVERS: Among the noteworthy gainers was iQIYI ($IQ), which jumped 25.9% after Reuters reported that Tencent ($TCEHY) wants to become the company's biggest shareholder. Also higher was WW ($WW), which gained 18.9% after reporting 4.9M subscribers as of June 6, up 7% from June 8, 2019.

Among the notable losers was Axon Enterprise ($AAXN), which slid 6.7% after it announced an offering of 3M shares of common stock. Also lower was Tata Motors ($TTM), which fell almost 6% after JPMorgan analyst Gunjan Prithyani downgraded the stock to Underweight from Neutral.

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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