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End of Day Briefing - Recap of Wednesday Dec. 16, 2020

Stocks close mixed after FOMC maintains interest rates

Stock futures spent the early morning in positive territory as hopes for a fresh stimulus bill provided support despite a disappointing retail sales report. Senate leader Mitch McConnell has reportedly said he is optimistic a deal can be reached, supporting expectations that lawmakers can settle their differences and pass a bill before the end of the year. The Fed, which was widely expected to maintain rates near zero, did just that while also stating that it plans to maintain its bond buying programs until "substantial" economic gains are seen.

ECONOMIC EVENTS: In the U.S., retail sales dropped 1.1% in November and fell 0.9% excluding autos, both of which were much weaker than expected. Markit's manufacturing PMI dipped 0.2 ticks to 56.5 in the preliminary December print after having risen 3.3 points to 56.7 in November. Business inventories tracked estimates with a 0.7% rise in October. The NAHB housing market index fell 4 points to 86 in December, slipping from a record high of 90 reached in November.

The Federal Reserve's FOMC kept its interest rate benchmark unchanged at 0%-0.2%, with the Fed saying it will continue to increase bond purchases until "substantial" further progress is made toward the FOMC's maximum employment and price stability goals.

In Capitol Hill news, Politico's Jake Sherman tweeted that "negotiators are on the brink" of a $900B coronavirus rescue package that would include a new round of direct payments, but would leave out state and local aid and a liability shield.

TOP NEWS: Shares of Tilray ($TLRY) rose 18.5% after the company entered into a definitive agreement with Aphria ($APHA) to combine their businesses to create an entity valued at roughly $3.9B. Under the terms of the arrangement, the shareholders of Aphria will receive 0.8381 shares of Tilray for each Aphria common share, while holders of Tilray shares will continue to hold their Tilray shares with no adjustment to their holdings. Upon the completion of the arrangement, Aphria shareholders will own approximately 62% of the outstanding Tilray shares on a fully diluted basis, resulting in a reverse acquisition of Tilray, representing a premium of 23% based on the share price at market close on December 15 to Tilray shareholders.

Brinker ($EAT) shares finished 1.5% lower after the restaurant group withdrew its financial guidance for the second quarter as a result of recent dining room restrictions and COVID-19 related impacts. As a result of government mandates to close dining rooms, approximately 77% of Chili's and 69% of Maggiano's restaurants were operating with dining rooms open as of December 9, the company said.

In other COVID-19 news, The Wall Street Journal reported that while data show that some Moderna ($MRNA) and Pfizer ($PFE) trial volunteers experienced side effects from the coronavirus vaccines, even those who had harsh reactions recommend the shots. An FDA advisory panel is set to review the safety and efficacy of Moderna's experimental vaccine on Thursday.

Starbucks ($SBUX) was in focus after the company provided first quarter guidance at the Wolfe Research Consumer Access Day, noting that it expects comparable sales to decline 5%-6% in the U.S. in its fiscal first quarter, but to rise 4%-5% in China during the same period.

Meanwhile, Texas Attorney General Ken Paxton said on Twitter that the state is filing a lawsuit against Google ($GOOGL) for "anticompetitive conduct." The "internet Goliath used its power to manipulate the market, destroy competition, and harm YOU, the consumer," Paxton tweeted.

Additionally, Facebook ($FB) said in a blog post that Apple's ($AAPL) new iOS privacy policy updates will hurt small businesses, as well as its own diversified ads business. "We disagree with Apple's approach and solution, yet we have no choice but to show Apple's prompt," Facebook said. "If we don't, they will block Facebook from the App Store, which would only further harm the people and businesses that rely on our services. We cannot take this risk on behalf of the millions of businesses who use our platform to grow."

MAJOR MOVERS: Among the noteworthy gainers was Sio Gene Therapeutics ($SIOX), which rose over 9% after announcing six-month follow-up data from the low-dose cohort of the company's dose escalation study of AXO-AAV-GM1, its adeno-associated viral vector 9-based gene therapy candidate for the treatment of GM1 gangliosidosis. Also higher was American Outdoor Brands ($AOUT), which gained 11% after reporting quarterly results.

Among the notable losers was Galapagos ($GLPG), which declined 18.8% after saying that it and Gilead ($GILD) will not pursue FDA approval of Jyseleca for rheumatoid arthritis. Also lower was Penumbra ($PEN), which fell 7.4% after the company announced that it is voluntarily recalling all configurations of the Penumbra JET 7 Reperfusion Catheter with Xtra Flex technology, citing the catheter's susceptibility to distal tip damage.

Reviewing Wednesday's economic data:

  • Total retail sales declined 1.1% m/m in November ( consensus -0.2%) on top of a downwardly revised 0.1% decline (from +0.3%) in October. Retail sales, excluding autos, declined 0.9% ( consensus +0.1%) after declining a downwardly revised 0.1% (from +0.2%) in October.
    • The key takeaway from the report was that the sales declines were broad based. Building materials (+1.1%), food and beverage stores (+1.6%), and nonstore retailers (+0.2%) were the only major categories that saw m/m increases.
  • The NAHB Housing Market Index decreased to two points to 86 in December ( consensus 88).
  • Business inventories increased 0.7% in October ( consensus 0.6%) following an upwardly revised 0.8% increase in October (from 0.7%).
  • The preliminary IHS Markit Manufacturing PMI for December decreased to 56.5 from 56.7 in November, while the Services PMI decreased to 55.3 from 58.4 in November.
  • The weekly MBA Mortgage Applications Index increased 1.1% following a 1.2% decline in the prior week.

Looking ahead, investors will receive weekly Initial and Continuing Claims, Housing Starts and Building Permits for November, and the Philadelphia Fed Index for December on Thursday.

  • Nasdaq Composite +41.1% YTD
  • Russell 2000 +17.0% YTD
  • S&P 500 +14.6% YTD
  • Dow Jones Industrial Average +5.7% YTD

Market Snapshot
SP 5003701.18+6.55(0.18%)
10-yr Note -1/320.928
NYSEAdv 1429 Dec 1670 Vol 953.3 mln
NasdaqAdv 1756 Dec 1887 Vol 4.5 bln

Industry Watch
Strong: Consumer Discretionary, Information Technology, Real Estate
Weak: Energy, Industrials, Materials

Moving the Market

-- Fed maintains dovish monetary policy framework

-- Reports indicate that a $900 billion stimulus deal is close to being reached

-- Retail sales for November weaker than expected

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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