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End of Day Briefing - Tuesday July 7, 2020

Market falls into close, snaps winning streak

Dow -396.85 at 25890.20, Nasdaq -89.76 at 10343.89, S&P -34.40 at 3145.19

[BRIEFING.COM] The stock market pulled back from its recent gains on Tuesday, with the S&P 500 (-1.1%), Dow Jones Industrial Average (-1.5%), and Russell 2000 (-1.9%) losing more than 1.0%. The Nasdaq Composite declined 0.9% after setting a new intraday high in the morning.

Early in the session, money continued to flow into the mega-cap technology companies, which briefly lifted the S&P 500 into positive territory. A lack of conviction, however, gradually subsumed the market on the thesis that it had gotten overextended on a short-term basis. The benchmark index had risen for five straight days coming into the session.

Cyclical sectors declined the most, specifically the energy (-3.2%), financials (-2.1%), industrials (-1.9%), and consumer discretionary (-1.7%) sectors. The consumer staples sector (+1.0%), on the other hand, was the only sector that closed higher due to a 7% gain in shares of Walmart ($WMT 126.95, +8.06, +6.8%).

Walmart, according to Recode, plans to launch Walmart+ later this month as a competing delivery service to Amazon ($AMZN 3000.12, -56.92, -1.9%) prime.

Separately, Atlanta Fed President Bostic cautioned in a Financial Times interview that economic activity appears to be leveling off due to the continued spread of the coronavirus. On Tuesday, the cities of San Francisco and Melbourne, Australia scaled back reopening efforts, joining many other local governments to do so, while Carnival ($CCL 14.57, -1.04, -6.7%) canceled some future cruise itineraries.

On a related note, Novavax ($NVAX 104.56, +25.12, +31.6%) announced it received a $1.6 billion investment from the federal government to advance its COVID-19 vaccine candidate. NVAX shares surged nearly 32%.

Longer-dated U.S. Treasuries finished higher, causing some curve-flattening activity. The 2-yr yield was unchanged at 0.16%, while the 10-yr yield declined three basis points to 0.65%. The U.S. Dollar Index increased 0.3% to 97.00. WTI crude increased 0.2% to $40.60/BBL.

Tuesday's economic data was limited to the JOLTS - Job Openings report, which showed job openings increase to 5.397 mln in May from a revised 4.996 mln in April (from 5.046 mln). Looking ahead, investors will receive the Consumer Credit Report for May and the weekly MBA Mortgage Applications Index on Wednesday.

  • Nasdaq Composite +15.3% YTD
  • S&P 500 -2.7% YTD
  • Dow Jones Industrial Average -9.3% YTD
  • Russell 2000 -15.1% YTD

Market Snapshot

SP 5003145.19-34.40(-1.08%)
10-yr Note +4/320.640
NYSEAdv 707 Dec 2250 Vol 961.2 mln
NasdaqAdv 904 Dec 2435 Vol 4.2 bln

Industry Watch

Strong: Consumer Staples, Materials
Weak: Financials, Energy, Industrials, Consumer Discretionary

Moving the Market

-- Stock market closes lower after recent stretch of gains, relative weakness in cyclical sectors

-- Walmart (WMT) shares gain 7% on news that the company plans to launch a competing delivery service this month

-- Lingering growth concerns

Stocks end lower as COVID-19 cases continue to rise in U.S.

The S&P was little changed near midday, as markets continued to weigh rebounding economic data and continued stimulus measures against the daily reports of COVID-19 case counts from hot spot states and countries. The benchmark index, and the other major averages, weakened in the afternoon and finished in the red, bringing to an end the market's five-day rally.

ECONOMIC EVENTS: In U.S. data, the JOLTS report showed that job openings rose 401,000 in May to 5.4M, after dropping to about 5M in April.

In COVID-19 news from the U.S., California, Florida and Texas are reversing the opening process. California reported an increase of 6,090 COVID-19 cases from the previous day, while Arizona reported a hike of 3,653 cases. Florida reported 213,794 COVID-19 cases in the state, up from 206,447 yesterday.

Outside the U.S., Australia has locked down Melbourne for six weeks and the U.K. city of Leicester is back in lockdown. In addition, Brazil's President, Jair Bolsonaro, is reported to have told CNN Brasil in a live interview that he has tested positive for COVID-19.

TOP NEWS: Shares of Novavax ($NVAX) surged 31.6% after the company announced that it has received $1.6B in funding from the federal government's accelerated COVID-19 vaccine development program. The company has been selected to participate in "Operation Warp Speed," which aims to begin delivering millions of doses of a safe, effective vaccine for COVID-19 in 2021, Novavax reported. Additionally, Regeneron ($REGN) said that, as part of Operation Warp Speed, the Biomedical Advanced Research and Development Authority, part of the Office of the Assistant Secretary for Preparedness and Response at the U.S. Department of Health and Human Services, and the Department of Defense Joint Program Executive Office for Chemical, Biological, Radiological and Nuclear Defense have awarded the company a $450M contract to manufacture and supply REGN-COV2.

Shares of Shake Shack ($SHAK) fell 6.5% after the company reported lower than expected second quarter revenue, with same-Shack sales for the period down 49% year-over-year. The company said that sales were estimated to be negatively impacted by approximately $3.2M in the fiscal period ending in June due to nationwide protest activity and resulting curfews causing temporary Shack closures and reduced operating hours.

Meanwhile, Amazon ($AMZN) was in focus after Baird analyst Colin Sebastian raised his price target on the stock to $3,300 from $2,750, saying the company has largely stabilized logistics operations, third parties are generally back on track, and the company has gained share in multiple "essentials" product categories. In addition, Recode's Jason Del Rey reported that Walmart ($WMT) plans to launch a new subscription service later this month to compete with Amazon Prime. Following that report, shares of Walmart rose 6.8%.

In M&A news, Sunrun ($RUN) shares jumped 22.6% after the company announced an agreement to acquire Vivint Solar ($VSLR) in an all-stock deal with an enterprise value of $3.2B. Vivint Solar shares surged 38.2% after the news.

The Wall Street Journal reported that Sirius XM ($SIRI) is close to a deal to acquire E.W. Scripps' ($SSP) Stitcher podcasting business for roughly $300M. The satellite-radio company is seeking to expand into the podcasting industry, following similar moves by Spotify ($SPOT) and iHeartMedia ($IHRT), according to the Journal.

In addition, CNBC reported that the Centers for Disease Control and Prevention said in a new report that roughly 9% of workers at meat and poultry processing plants across 14 states have been diagnosed with the novel coronavirus. According to the CDC, as of May 31, 86 worker deaths across 23 states can be tied to COVID-19, with nearly 240 meat processing plants having at least one confirmed case among staff, and over 16,200 workers across 23 states having tested positive for the virus. Publicly traded meat producers include Hormel Foods ($HRL), Pilgrim's Pride ($PPC), Sanderson Farms ($SAFM) and Tyson Foods ($TSN).

MAJOR MOVERS: Among the noteworthy gainers was Livongo ($LVGO), which advanced 20.8% after raising its Q2 revenue outlook. Also higher was MaxLinear ($MXL), which gained 15.8% after raising its Q2 revenue outlook.

Among the notable losers was Evolus ($EOLS), which dropped 27.4% after announcing that the Administrative Law Judge overseeing the United States International Trade Commission case filed by Allergan ($ABBV) and Medytox in January 2019 against Daewoong and the company released a notice of initial determination finding a violation of Section 337 of the Tariff Act of 1930. Also lower was CommScope ($COMM), which fell 8.1% after Raymond James analyst Simon Leopold downgraded shares to Market Perform from Outperform.

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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