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End of Day Briefing - Friday May 1, 2020

Stock market closes lower, erases weekly gains

Dow -622.03 at 23723.69, Nasdaq -284.60 at 8604.96, S&P -81.72 at 2830.71

[BRIEFING.COM] The S&P 500 declined 2.8% on Friday, as investors increased profit-taking efforts after Amazon ($AMZN 2286.04, -187.96, -7.6%) underwhelmed investors with its earnings report and U.S.-China tensions appeared to escalate. The Dow Jones Industrial Average lost 2.6%, the Nasdaq Composite lost 3.2%, and the Russell 2000 lost 3.8%.

Amazon warned that coronavirus-related expenses would likely wipe out its expected $4 billion operating income in Q2, providing investors a good excuse to take some profits after a 50% rally off its March low. The notion that stocks have come too far, too fast was bluntly put by Tesla ($TSLA 701.32, -80.56, -10.3%) CEO Elon Musk tweeting that Tesla's stock price is too high.

As for the broader market, investors had to contend with President Trump threatening new tariffs on China for its handling of the coronavirus outbreak, as well as the ISM Manufacturing Index for April declining to its lowest level since 2009 with a 41.5% reading ( consensus 39.0%). The latter wasn't too shocking for investors.

All 11 S&P 500 sectors opened and closed in negative territory. The energy (-6.0%) and consumer discretionary (-4.6%) sectors took the biggest hits, while the consumer staples sector (-1.2%) declined the least.

Aside from Amazon, Apple ($AAPL 289.07, -4.73, -1.6%), Exxon Mobil ($XOM 43.14, -33.33, -7.2%), Chevron ($CVX 89.44, -2.56, -2.8%), and Visa ($V 175.57, -3.15, -1.8%) also succumbed to losses after reporting earnings. Note, Apple shares still rose 2.1% this week.

Separately, the FDA approved Gilead Sciences' ($GILD 79.95, -4.05, -4.8%) remdesivir for emergency use in treating COVID-19. Shares recouped some losses after the news.

U.S. Treasuries saw modest selling pressure despite the weakness in equities. The 2-yr yield and the 10-yr yield increased two basis points each to 0.20% and 0.64%, respectively. The U.S. Dollar Index finished little changed at 99.03. WTI crude increased 6.4%, or $1.19, to $19.77/BBL.

Reviewing Friday's economic data, which featured the ISM Manufacturing Index for April:

  • The ISM Manufacturing index for April registered a 41.5% reading ( consensus 39.0%), marking the lowest level since April 2009. The headline number was better than expected, but when you look within the report, it was mostly bad.
    • The key takeaway from the report is that the better-than-expected reading was a function of a sizable uptick in the index for supplier deliveries (to 76.0% from 65.0%) that is the result of supply chain disruptions and an uptick in the index for inventories (to 49.7% from 46.9%), which is really an indication of weak demand as inventory is sitting around longer because of weak demand.
  • Total construction spending increased 0.9% m/m in March ( consensus -3.5%) on the heels of a downwardly revised 2.5% decline (from -1.3%) in February. Residential spending was up 2.3% m/m while nonresidential spending declined 0.1% m/m.
    • The key takeaway from the report is that it is dated. It's nice to see that things held up reasonably well in March, but the enthusiasm for the increase in construction spending should be mitigated by the expectation that it is unlikely to be repeated in April.

Looking ahead, investors will receive Factory Orders for March on Monday.

  • Nasdaq Composite -4.1% YTD
  • S&P 500 -12.4% YTD
  • Dow Jones Industrial Average -16.9% YTD
  • Russell 2000 -24.5% YTD

Market Snapshot

SP 5002830.71-81.72(-2.81%)
10-yr Note +1/320.630
NYSEAdv 434 Dec 2483 Vol 923.3 mln
NasdaqAdv 563 Dec 2670 Vol 3.7 bln

Industry Watch

Strong: Consumer Staples
Weak: Consumer Discretionary, Energy

Moving the Market

-- Stocks start month in pullback mode: S&P 500 down nearly 3%

-- Amazon (AMZN) falls 7% after reporting earnings

-- President Trump threatens new tariffs on China for its handling of the coronavirus outbreak

ECONOMIC EVENTS: In U.S. data, Markit's manufacturing PMI was revised slightly lower to 36.1 in the final April print. That's down from the 36.9 flash reading and down 12.4 points from the 48.5 reading in March. The ISM manufacturing index dropped 7.6 points to 41.5 in April. Construction spending increased 0.9% in March. In energy news, Baker Hughes reported that the U.S. rig count is down 57 rigs from last week to 408.

In COVID-19 news, New York Governor Andrew Cuomo reported 289 coronavirus-related deaths in the state versus 306 deaths the day before. Cuomo noted that New Yorkers have reduced the infection rate in the state by 100,000.

TOP NEWS: Shares of Amazon ($AMZN) fell 7.6% despite the company reporting Q1 revenue that was well above consensus forecasts. The company's profits in the quarter missed expectations and CEO Jeff Bezos warned shareowners "to take a seat, because we're not thinking small." The company would expect to make $4B or more in profit in the coming quarter "under normal circumstances," but "these aren't normal circumstances" and Amazon expects to "spend the entirety of that $4 billion, and perhaps a bit more, on COVID-related expenses getting products to customers and keeping employees safe," Bezos stated in last nights earnings release.

Apple ($AAPL) shares slid 1.6% after the company reported better than expected results for the quarter ending in March, boosted its quarterly dividend by 6% and authorized an additional $50B for share repurchases. However, the iPhone maker gave no formal guidance for its result in the new quarter, which is a break from its typical practice, and said it saw downward pressure on demand, particularly for iPhone and wearables, during the last three weeks of the quarter.

Tesla ($TSLA) shares dropped 10.3% following a series of tweets from CEO Elon Musk, including one that said "Tesla stock price is too high imo." In addition to calling the stock price "too high," the tweet calls into question if Musk has broken an agreement with the SEC by commenting on his company's stock via the microblogging service after having previously been in trouble for doing the same. Following the news, Morgan Stanley analyst Adam Jones said that the sentiment shared by Musk "is out of genuine concern for the severity of the decline in profits and cash flow" during Q2.

Boeing ($BA) announced a bond offering that includes debt instruments with an aggregate principal amount of $25B across seven tranches with maturities ranging from three to 40 years. In a related statement, Boeing said, "We're pleased with the response to our bond offering today, which is one of several steps we're taking to keep liquidity flowing through our business and the 17,000 companies in our industry's supply chain. The robust demand for the offering reflects strong support for the long-term strength of Boeing and the aviation industry...As a result of the response, and pending the closure of this transaction expected Monday, May 4, we do not plan to seek additional funding through the capital markets or the U.S. government options at this time."

Meanwhile, shares of Gilead ($GILD) fell 4.8% following the company's earnings report last night. This morning, at least three Wall Street firms downgraded the stock, which has been stronger of late amid optimism about its remdesivir drug being studied as a treatment for COVID-19. This afternoon, the FDA authorized the emergency use of remdesivir for the treatment of COVID-19 under an Emergency Use Authorization.

In other news, The Wall Street Journal reported that the Media Rating Council has warned Facebook ($FB) that it is at risk of losing a seal of approval due to deficiencies in how its reports on the effectiveness of advertising on its products.

MAJOR MOVERS: Among the noteworthy gainers were Fortune Brands ($FBHS) and Clorox ($CLX), which gained a respective 6.9% and 3.4% following their earnings reports.

Among the notable losers were Exxon Mobil ($XOM) and Chevron ($CVX), which fell 7.2% and 2.8%, respectively, after reporting on their quarterly results and cutting their spending plans in response to the current oil price environment.

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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