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End of Day Briefing - Wednesday April 29, 2020

Stock rally driven by positive remdesivir update

Dow +532.31 at 24633.86, Nasdaq +306.98 at 8914.72, S&P +76.12 at 2939.51

[BRIEFING.COM] The S&P 500 climbed 2.7% on Wednesday, primarily driven by positive remdesivir news and aided by better-than-feared earnings reports and a market-friendly reminder from the Fed. The Nasdaq Composite rose 3.6%, the Dow Jones Industrial Average rose 2.2%, and the Russell 2000 rose 4.8%.

The day started with Gilead Sciences ($GILD 83.14, +4.47, +5.7%) affirming that remdesivir, an antiviral treatment for COVID-19, met its primary endpoint in an NIAID placebo-controlled study. The news helped the market open noticeably higher, as it fueled reopening hopes and overshadowed data depicting Q1 GDP contracting at a 4.8% annualized rate ( consensus -4.3%).

The ensuing advance in stocks was paced by the S&P 500 energy (+7.4%), communication services (+5.1%), and information technology (+4.2%) sectors, while the defensive-oriented consumer staples (-0.4%) and utilities (-0.9%) sectors were left out of the rally.

Alphabet ($GOOG 1341.48, +107.81, +8.7%), MasterCard ($MA 283.69, +19.09, +7.2%), and Boeing ($BA 139.00, +7.70, +5.9%) contributed to the bullish price action following their earnings reports. Energy stocks received an added boost from the 22% spike in oil prices ($15.13/BBL, +2.76, +22.3%).

Later in the day, the Fed unanimously voted to maintain the target range for the fed funds rate at 0.00-0.25%, as was expected, and said rates will remain there until the economy is on track to achieve the Fed's goals of full employment and price stability. The inference is that rates will stay there for much longer, as the record unemployment isn't expected to return to normal anytime soon.

Fed Chair Powell acknowledged that low rates alone won't revive economic activity and reiterated the Fed's commitment to using its full range of policy tools. Mr. Powell also said legislators should embrace policies that protect against avoidable insolvencies. Market reaction was relatively muted to the policy directive and the Fed Chair's comments.

While most stocks finished the day higher, notable holdouts included Starbucks ($SBUX 76.86, -1.83, -2.3%), Advanced Micro Devices ($AMD 53.66, -1.85, -3.3%), and General Electric ($GE 6.58, -0.22, -3.2%) following their earnings reports.

Small-cap companies Hertz Global ($HTZ 4.00, -1.00, -20.0%) and Chesapeake Energy ($CHK 26.85, -2.33, -8.0%) sold off on news of potential bankruptcy filings.

U.S. Treasuries were relatively unchanged throughout the session, as bond investors were unfazed by the equity rally given the weak GDP data and precarious economic environment. The 2-yr yield declined one basis point to 0.19%, while the 10-yr yield increased two basis points to 0.63%. The U.S. Dollar Index declined 0.3% to 99.53.

Reviewing Wednesday's economic data:

  • First quarter GDP declined at an annualized rate of 4.8% ( consensus -4.3%) while the GDP Price Deflator was 1.3% ( consensus 1.1%). This was the largest decline in GDP since the fourth quarter of 2008.
    • The key takeaway from the report is that it hints at how ugly the Advance Q2 GDP report will be given that shutdown measures in the U.S. didn't start to gain steam until the latter half of March.
  • Pending Home Sales dropped 20.8% in March after increasing a revised 2.3% in February (from +2.4%).
  • The weekly Mortgage Applications Index declined 3.3% following a 0.3% decline in the prior week.

Looking ahead, investors will receive the weekly Initial and Continuing Claims report, Personal Income and Spending for March, the Q1 Employment Cost Index and the Chicago PMI for April on Thursday.

  • Nasdaq Composite -0.7% YTD
  • S&P 500 -9.0% YTD
  • Dow Jones Industrial Average -13.7% YTD
  • Russell 2000 -18.4% YTD

Market Snapshot

SP 5002939.51+76.12(2.66%)
10-yr Note -1/320.622
NYSEAdv 2562 Dec 350 Vol 1.2 bln
NasdaqAdv 2644 Dec 596 Vol 4.3 bln

Industry Watch

Strong: Communication Services, Energy, Financials
Weak: Consumer Staples

Moving the Market

-- Stock market in rally mode

-- Gilead Sciences' (GILD) remdesivir drug meets primary endpoint in NIAID study

-- Alphabet (GOOG) shares climb after better-than-feared quarterly results

-- WTI crude futures climb 22%

-- Fed keeps rates unchanged

ECONOMIC EVENTS: In U.S. data, GDP plunged 4.8% in the first quarter, marking the first contraction since 2014 and halting the longest expansion in U.S. history. An index of pending home sales plummeted 20.8% to 88.2 in March for its largest drop in a decade and its lowest reading since May 2011.

TOP NEWS: Shares of Gilead Sciences ($GILD) are up nearly 7% at midday after the company said it is aware of positive data emerging from the NIAID study of remdesivir for the treatment of COVID-19. Additionally, the company announced topline results from its own Phase 3 SIMPLE trial evaluating 5-day and 10-day dosing durations of the antiviral in hospitalized patients with severe manifestations of COVID-19 disease. Following the announcements, Jefferies analyst Michael Yee told investors that he believes the results will be taken as good news, while his peer at Piper Sandler argued that remdesivir could be approved for COVID-19 "very soon."

Class A shares of Alphabet have jumped 9% after the parent of Google reported better than expected revenue for the first quarter. Mizuho analyst James Lee, who was one of a number of Wall Street pundits to raise his price target on Alphabet shares, said that although Alphabet's advertising business came under pressure in March and April, trends were modestly better than expectations. Lee is also encouraged by the "strong underlying usage" of YouTube and its continued path to gain share against TV advertising.

Meanwhile, Boeing ($BA) shares are up 9% following the plane maker's quarterly report despite cores losses and revenue in the first quarter that were worse than consensus forecasts. Of note, Boeing said 737 MAX aircraft production will resume at low rates in 2020, while Reuters reported that Boeing is working with investment banks on a multibillion-dollar bond-fueled financing package in a move to bolster its balance sheet.

General Electric ($GE) reported mixed Q1 results, with lower than expected adjusted EPS and better than expected revenue. GE CEO Larry Culp said the impact from COVID-19 "materially challenged our first-quarter results, especially in Aviation, where we saw a dramatic decline in commercial aerospace as the virus spread globally in March." Culp added that the company is targeting more than $2 billion in operational cost out and $3 billion of cash preservation to mitigate the financial impact, and has "executed a series of actions to de-risk and de-lever our balance sheet amid a challenging environment." 

Starbucks ($SBUX) reported that global comparable store sales declined 10% in its second fiscal quarter, driven by a 13% decrease in comparable transactions, partially offset by a 4% increase in average ticket. The coffee giant, which noted that it sees COVID-19 effects intensifying in Q3 and moderating in Q4, said it expects to open over 90% of its U.S. stores by early June.

MAJOR MOVERS: Among the noteworthy gainers was AMC Entertainment ($AMC), which rose 22% after it said it would no longer play Universal ($CMCSA) films in its U.S. theaters. Also higher were Brinker ($EAT) and MasterCard ($MA), which gained a respective 28% and 7% after reporting quarterly results.

Among the notable losers was Hertz Global ($HTZ), which fell 16% after the Wall Street Journal reported that the car rental company is preparing for a possible bankruptcy filing after it failed to make lease payments. Also lower were Akamai ($AKAM) and Community Health ($CYH), which each fell about 6% after reporting quarterly results.

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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