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End of Day Briefing - Monday July 13, 2020

Technology stocks drag market lower

Dow +10.50 at 26085.80, Nasdaq -226.50 at 10390.94, S&P -29.82 at 3155.22

[BRIEFING.COM] The S&P 500 advanced as much as 1.6% on Monday, but a confluence of negative-sounding headlines caused noticeable profit taking in many of the technology-related stocks that left the benchmark index down 0.9% for the session. The Nasdaq Composite fell 2.1%, and Russell 2000 fell 1.3%. The Dow Jones Industrial Average (+0.04%) eked out a fractional gain.

The S&P 500 information technology (-2.1%), communication services (-2.0%), and consumer discretionary (-1.7%) sectors declined the most, while the health care (+0.5%), industrials (+0.4%), and financials (+0.3%) sectors showed relative strength.

The day started in rally mode with the FAANG stocks hitting fresh all-time highs and health care stocks outperforming after two COVID-19 vaccine candidates from the Pfizer ($PFE 35.21, +1.38, +4.1%) and BioNTech ($BNTX 77.78, +7.42, +10.6%) collaboration received fast-track designation from the FDA.

After the S&P 500 topped out at the 3235.28 level at around 1:40 p.m. ET, the Treasury Budget for June revealed a record $864.1 billion deficit, the Los Angeles and San Diego Unified School Districts announced that the new school year will start remotely, and Secretary of State Pompeo confirmed the U.S. will strengthen its policy on China's territorial claims in the South China Sea.

Losses accelerated, taking the market into negative territory, after California Governor Newsom announced all counties have to re-close indoor operations in several business sectors due to the coronavirus. In addition, the inability of the S&P 500 to stay above its June 8 closing level (3232.39) likely contributed to the downwards momentum.

Shares of Tesla ($TSLA 1497.06, -47.59, -3.1%), which were up as much as 16%, turned negative and encouraged profit taking in many of the other mega-cap technology stocks that some say had gotten overbought. Each of the FAANG stocks closed lower.

In other developments, PepsiCo ($PEP 134.94, +0.45, +0.3%) beat top and bottom-line estimates; Analog Devices ($ADI 117.25, -7.25, -5.8%) issued upside Q3 guidance and agreed to acquire Maxim Integrated ($MXIM 69.29, +5.20, +8.1%) for approximately $21 billion in stock; and Macau lifted its quarantine travel restrictions, boosting many of the casino stocks.

U.S. Treasuries ended the session near their flat lines. The 2-yr yield was flat at 0.16%, and the 10-yr yield increased one basis point to 0.64%. The U.S. Dollar Index decreased 0.1% to 96.54. WTI crude decreased 1.2%, or $0.49, to $40.08/BBL.

Reviewing Monday's economic data:

  • The Treasury Budget was earmarked with a gaping (and record) $864.1 billion deficit for the month of June. This budget data is not seasonally adjusted, so the June deficit cannot be compared to the May deficit of $398.7 billion other than to say both qualify as massive shortfalls in terms of government finances. The deficit in June 2019 was $8.5 billion.
    • The key takeaway from the report is that the huge swing in the budget was a function of the tax filing deadline being extended, and government spending surging, due to stimulus measures employed in response to the COVID-19 impact.

Looking ahead, investors will receive the Consumer Price Index for June on Tuesday.

  • Nasdaq Composite +15.8% YTD
  • S&P 500 -2.3% YTD
  • Dow Jones Industrial Average -8.6% YTD
  • Russell 2000 -15.9% YTD

Market Snapshot

SP 5003155.22-29.82(-0.94%)
10-yr Note +24/320.625
NYSEAdv 1056 Dec 1886 Vol 1.0 bln
NasdaqAdv 910 Dec 2188 Vol 4.8 bln

Industry Watch

Strong: Health Care, Financials, Industrials, Utilities
Weak: Information Technology, Communication Services, Consumer Discretionary, Real Estate

Moving the Market

-- Market closes at lows amid negative-sounding developments; technology stocks succumbed to profit taking

-- California Governor Newsome announced all counties to re-close indoor operations in several sectors

-- Los Angeles and San Diego Unified School Districts announced that the new school year will start remotely

-- June Treasury Budget reveals a record $864.1 billion deficit; the U.S. plans to oppose certain Chinese territorial claims in the South China Sea

-- Pfizer (PFE) and BioNTech (BNTX) received fast track designation from FDA for two of their COVID-19 vaccine candidates

Stocks end mixed following Florida's new record virus case surge, California "re-closing" measures

The major averages were rallying this morning despite the fact that Florida broke the U.S. record for the largest single-day increase in COVID-19 cases in any state since the beginning of the pandemic on Sunday, adding more than 15,000 cases. The Nasdaq was the first of the indexes to give up its gains and turn red as the day wore on and the S&P followed suit as headlines crossed that California was rolling back some of its re-opening measures statewide and taking stronger lockdown measures in its most affected counties as the virus continues to surge in the state.

ECONOMIC EVENTS: The latest data from the Johns Hopkins Whiting School of Engineering shows there are now 12.95M confirmed cases of COVID-19 worldwide, including 3.31M in the U.S., and 569,878 deaths due to the disease. At the state level for some U.S. hot spots, Florida reported 282,435 COVID-19 cases, up 12,624 cases from yesterday, while Arizona reports 123,824 COVID-19 cases, up 1,357 from yesterday. Additionally, California reported 329,162 COVID-19 cases, up 8,358 from the previous day, and is now closing indoor operations statewide for restaurants and all operations for bars. In addition, 30 counties will be required to close indoor operations for fitness centers, places of worship and select other businesses, the state's governor announced.

TOP NEWS: Shares of PepsiCo ($PEP) closed fractionally higher after the company's core earnings per share and revenues topped consensus forecasts, with chairman and CEO Ramon Laguarta calling out "a notable level of resiliency in our global snacks and foods business." The company's snacks business remained "very resilient" with 5% organic revenue growth in Q2, while global beverages declined (7%) as increased take-home consumption was more than offset by a decline in the convenience and gas and away-from-home channels, Pepsi noted.

In M&A news, Analog Devices ($ADI) announced an agreement to acquire Maxim Integrated Products ($MXIM) in an all stock transaction that values the combined enterprise at over $68B. Upon closing, current ADI stockholders will own approximately 69% of the combined company, while Maxim stockholders will own approximately 31%. Meanwhile, Fisker and Spartan Energy Acquisition ($SPAQ), a special purpose acquisition company sponsored by an affiliate of Apollo Global Management ($APO), announced they have entered into a definitive agreement for a business combination that would result in electric car maker Fisker becoming a publicly listed company.

In news on the search for pharmaceutical answers to COVID-19, Pfizer ($PFE) and BioNTech SE ($BNTX) announced that two of the companies' four investigational vaccine candidates from their BNT162 mRNA-based vaccine program received Fast Track designation from the FDA. BNT162b1 and BNT162b2 are the two most advanced vaccine candidates in the program currently being evaluated in ongoing Phase 1/2 clinical studies in the U.S. and Germany, the companies noted.

Meanwhile, casino stocks with Macau exposure - such as MGM Resorts ($MGM), Wynn Resorts ($WYNN), and Melco Resorts ($MLCO) - traded higher after Bloomberg reported that Macau's neighboring Chinese province, Guangdong, announced on Monday that it will remove the 14-day quarantine requirement put in place in late March for travelers returning from the gaming area.

MAJOR MOVERS: Among the noteworthy gainers was Vaxart ($VXRT), which rose 51.9% after B. Riley FBR analyst Mayank Mamtani initiated coverage of the stock with a Buy rating and $22 price target. Also higher was Rigel Pharmaceuticals ($RIGL), which gained 21.4% after Citi and Cantor analysts pointed to some recent research that they say supports a possible role for Rigel in treating COVID-19.

Among the notable losers was NextCure ($NXTC), which dropped 54.4% after announcing the company does not plan to advance the non-small cell lung cancer and ovarian cancer cohorts into the stage 2 portion of the Simon 2-stage trial. NextCure also announced that its Chief Medical Officer, Dr. Kevin Heller, is resigning. Also lower was CytoDyn ($CYDY), which fell 21.8% after the company received a Refusal to File letter from the FDA on its Biologics License Application for leronlimab.

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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