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End of Day Briefing - Monday April 27, 2020

Stocks gain on reopening efforts, small-caps outperform

Dow +358.51 at 24133.78, Nasdaq +95.64 at 8730.17, S&P +41.74 at 2878.48

[BRIEFING.COM] The S&P 500 gained 1.5% on Monday, as investors showed optimism in reopening efforts indicated by more states and countries. The Dow Jones Industrial Average (+1.5%) and Nasdaq Composite (+1.1%) also advanced more than 1.0%, while the Russell 2000 outperformed with a 4.0% gain.

At least nine U.S. states had their economies partially reopened as of Monday, according to The New York Times, while other states like New York, Texas, and Ohio announced plans to gradually reopen in the coming weeks. The prospective increase in economic activity, even without a confirmed COVID-19 treatment, had investors piling into previously-neglected cyclical sectors.

For instance, all 11 S&P 500 sectors ended the day higher, but strength was found in the S&P 500 financials (+3.6%) and materials (+2.6%) sectors, the Dow Jones Transportation Average (+2.8%), and the SPDR S&P Retail ETF ($XRT 36.36, +1.82, +5.3%). The consumer staples sector (+0.3%) underperformed.

Even the energy sector (+2.1%) showed relative strength despite the 24% plunge in oil prices ($12.97, -4.05, -23.8%) and news of Diamond Offshore ($DO), a small-cap company, filing for Chapter 11 bankruptcy protection. The bullish price action in the face of bad news suggested for investors that the sector may have already seen its bottom.

Likewise, Caterpillar ($CAT 115.20, +1.16, +1.0%) overcame an analyst downgrade at Morgan Stanley, and General Motors ($GM 22.45, +0.50, +2.3%) overcame a dividend suspension update.

Perhaps most noteworthy about today's action was that the market's most recognizable, and widely-held, mega-cap technology stocks did not participate in the broader advance. Instead, small-caps, as represented by the Russell 2000, welcomed renewed buying interest.

Overseas, Italy, France, Spain initiated steps to reopen their economies, but some attention should also be given to the Bank of Japan. The central bank lifted the cap on its JGB bond purchases, which some attributed to the initial gains in stocks, and said it will be increasing its purchases of corporate bonds and commercial paper.

U.S. Treasuries finally showed some weakness amid the bullish price action in equities. The 2-yr yield increased three basis points to 0.23%, and the 10-yr yield increased six basis points to 0.66%. The U.S. Dollar Index declined 0.3% to 100.07.

Investors did not receive economic data on Monday. Looking ahead to Tuesday, investors will receive the Conference Board's Consumer Confidence Index for April, the S&P Case-Shiller Home Price Index for February, and the Advance March reports for International Trade in Goods, Retail Inventories, and Wholesale Inventories.

  • Nasdaq Composite -2.7% YTD
  • S&P 500 -10.9% YTD
  • Dow Jones Industrial Average -15.4% YTD
  • Russell 2000 -23.2% YTD

Market Snapshot

SP 5002878.48+41.74(1.47%)
10-yr Note -27/320.657
NYSEAdv 2303 Dec 634 Vol 969.6 mln
NasdaqAdv 2565 Dec 697 Vol 3.6 bln

Industry Watch

Strong: Financials, Real Estate, Materials
Weak: Consumer Staples, Communication Services

Moving the Market

-- Stocks close higher, as more states and countries take steps to reopen economies

-- Sharp drop in oil prices (-24%), but energy stocks showed relative strength

-- Small-cap companies outperformed

ECONOMIC EVENTS: There was no U.S. economic data of note reported.

In White House news, Press Secretary Kayleigh McEnany said via Twitter that the Trump administration will announce additional testing guidance, and that President Trump will brief the nation during a press conference this evening.

In New York, Governor Andrew Cuomo reported 337 coronavirus deaths versus 367 deaths the day before, with the governor adding that he will extend the state's stay-at-home order and non-essential business closure for most areas in the state. Cuomo added, however, that the state will "start to turn the valve on reopening." Additionally, the latest data from the Johns Hopkins Whiting School of Engineering shows there are now over 3M confirmed cases of COVID-19 and about 210,000 deaths due to the disease.

In Asia, the Bank of Japan, as expected, announced that JGB purchases, which had been formerly capped at Y 80T per year, can now be unlimited while announcing an increase in corporate bond and commercial paper.

TOP NEWS: Boeing ($BA) announced over this weekend that it has terminated its Master Transaction Agreement with Embraer ($ERJ), under which the two companies had planned to create a joint venture comprising Embraer's commercial aviation business and a second joint venture to develop new markets for the C-390 Millennium medium airlift and air mobility aircraft. In response, Embraer said it "believes strongly that Boeing has wrongfully terminated the MTA, that it has manufactured false claims as a pretext to seek to avoid its commitments to close the transaction and pay Embraer the $4.2B purchase price." The smaller planemaker further accused Boeing of "a systematic pattern of delay and repeated violations of the MTA, because of its unwillingness to complete the transaction in light of its own financial condition and 737 MAX and other business and reputational problems."

In addition to the deal-break news, Boeing hosted its annual shareholder meeting, during which CEO Dave Calhoun said he expects it to take two to three years for air travel to recover. "When it does, the commercial market will be smaller," Calhoun added, according to CNBC's recap of the event. In addition, Reuters reported that Calhoun said during the meeting that the company would have to borrow more money over the next six months and does not expect to pay dividends again for years.

Meanwhile, General Motors ($GM) announced that it has suspended the quarterly cash dividend on its common stock, suspended its share repurchase program and taken "other significant austerity measures to preserve near-term available cash."

Diamond Offshore Drilling ($DO) shares plunged over 61% after the company became the latest oil driller to announce that the company and select subsidiaries have filed voluntary petitions for reorganization under chapter 11 of the U.S. Bankruptcy Code. Loews Corporation ($L), which is the approximately 53% owner of subsidiary Diamond Offshore, noted that it will no longer consolidate Diamond's results in its financial statements.

The Wall Street Journal reports that Apple ($AAPL) is pushing back the production ramp-up of its flagship iPhones coming later this year by about a month. According Yoko Kubota's sources, Apple is still moving forward with plans to release four new iPhones later this year, including some 5G models.

MAJOR MOVERS: Among the noteworthy gainers Avadel Pharmaceuticals ($AVDL), which rose 13.4% after it reported top-line data from its Phase 3 REST-ON trial of FT218. Also higher was Bed Bath & Beyond ($BBBY), which gained 22.6% as it has extended its temporary store closures until at least May 16.

Among the notable losers was Verastem ($VSTM), which dropped 49% after it announced preliminary data from its VS-6766 Phase 1 clinical study. Also lower was Regeneron ($REGN), which fell 3.3% after the company announced the preliminary results from the Phase 2 portion of an ongoing Phase 2/3 trial evaluating Kevzara in hospitalized patients with "severe" or "critical" respiratory illness caused by COVID-19. Following a review by the Independent Data Monitoring Committee, or IDMC, the trial will be immediately amended so that only "critical" patients continue to be enrolled to receive Kevzara 400 mg or placebo.

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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