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End of Day Briefing - Thursday May 21, 2020

Large-caps close lower, trim weekly gains

Dow -101.78 at 24474.12, Nasdaq -90.90 at 9284.90, S&P -23.10 at 2948.38

[BRIEFING.COM] The S&P 500 declined 0.8% on Thursday, failing to overcome weak economic data and a fresh increase in U.S.-China tensions. The Dow Jones Industrial Average lost 0.4%, and the Nasdaq Composite lost 1.0%. The small-cap Russell 2000, however, eked out a 0.1% gain.

Losses broadened out to ten of the 11 S&P 500 sectors, including energy (-1.5%) and information technology (-1.4%). The industrials sector (+0.2%) was the lone sector to close in positive territory, thanks to shares of Boeing ($BA 139.00, +5.68, +4.3%) after the stock was initiated with an Outperform rating at RBC Capital Mkts.

Regarding today's economic data and U.S.-China news, it should be prefaced that the market wasn't too shocked or upset by the news. That's been the case since its March 23 low, at least. In fact, advancing issues outpaced declining issues at the NYSE, but the market was without the leadership from its mega-cap components.

Weekly initial claims decreased by 249,000 to 2.438 million ( consensus 2.400 million), bringing the nine-week total to 38.636 million; continuing claims increased to an all-time high of 25.073 million; and existing home sales fell 17.8% m/m in April to a seasonally adjusted annual rate of 4.33 million ( consensus 4.32 million).

On the U.S.-China front, the White House issued a report criticizing China’s economic and military policies, President Trump accused China of a "disinformation and propaganda attack" on the U.S. and Europe, and a bipartisan group of Senators planned to introduce legislation to sanction China over new national security laws in Hong Kong.

Separately, buyers appeared to concentrate their efforts to the retail space following positive earnings/reopening news from TJX Cos. ($TJX 54.30, +3.45, +6.8%) and BJ's Wholesale ($BJ 35.25, +6.28, +21.7%). Best Buy ($BBY 77.98, -3.56, -4.4%) was an exception despite reporting positive quarterly results. The SPDR S&P Retail ETF ($XRT 39.09, +0.7) rose 2.0%.

On a related note, Starbucks ($SBUX 78.05, +0.29, +0.4%) told partners that it's tracking slightly above its forecasted recovery curve.

U.S. Treasuries finished the session little changed. The 2-yr yield declined one basis point to 0.15%, and the 10-yr yield was unchanged at 0.68%. The U.S. Dollar Index increased 0.3% to 99.44. WTI crude increased another 1.3%, or $0.45, to $33.96/BBL.

Reviewing Thursday's economic data, which featured the weekly jobless claims report:

  • Initial claims for the week ending May 16 decreased by 249,000 to 2.438 million ( consensus 2.400 million), bringing the 9-week total to 38.636 million. Continuing claims for the week ending May 9 surged by 2,525,000 to 25.073 million, which is an all-time high.
    • The key takeaway from the report in the market's mind is that the pace of initial claims is decelerating; however, the real-world takeaway is that the economic damage runs deep as initial claims and continuing claims keep piling up.
  • Existing home sales plummeted 17.8% m/m in April to a seasonally adjusted annual rate of 4.33 million ( consensus 4.32 million). That is the lowest level of home sales since July 2010.
    • The key takeaway from the report is that sellers pulled listings amid the COVID-related downturn in demand, yet the inventory constraint translated into higher prices for buyers remaining in the market.
  • The Conference Board's Leading Economic Index decreased 4.4% m/m in April ( consensus -5.3%) following a downwardly revised (and record) 7.4% decline (from -6.7%) in March.
    • The key takeaway from the report is the Conference Board's conclusion that the breadth and depth of the decline in the index does not imply a fast rebound for the economy at large, even with the imminent reopening of some sectors.
  • The Philadelphia Fed Index for May increased to -43.1 ( consensus -43.0) from the -56.6 reading in April.

Investors will not receive any notable economic data on Friday.

  • Nasdaq Composite +3.5% YTD
  • S&P 500 -8.7% YTD
  • Dow Jones Industrial Average -14.2% YTD
  • Russell 2000 -19.2% YTD

Market Snapshot

SP 5002948.38-23.10(-0.78%)
10-yr Note +2/320.667
NYSEAdv 1500 Dec 1374 Vol 975.9 mln
NasdaqAdv 1340 Dec 1895 Vol 3.7 bln

Industry Watch

Strong: Consumer Discretionary, Industrials
Weak: Information Technology, Energy

Moving the Market

-- Stocks ease back from weekly gains

-- Initial claims for the week ending May 16 decreased by 249,000 to 2.438 million ( consensus 2.400 million)

-- Fresh increase in U.S.-China tensions

-- Relative strength in the industrials sector

Stocks are running in the red, but only modestly so, following yesterday's strong rally on Wall Street. Yesterday the U.S. Senate passed a bill that could potentially bar Chinese companies from listing on U.S. exchanges if it becomes law. The White House has now thrown more fuel on the fire with the release of a 20-page dossier of complaints about China, in which it accuses Beijing of predatory economic policies, military build-up, disinformation, and human rights violations. There remains cautious optimism over the reopening of economies, though that might be challenged by reports that infections in parts of China, and possibly a new strain of the COVID-causing virus, are rising.

ECONOMIC EVENTS: In U.S. data, initial jobless claims fell 249,000 to 2.44M in the week ended May 16, bringing the 4-week average down to about 3.04M from 3.54M. The Philly Fed index rose 13.5 points to -43.1 in May. Markit's manufacturing PMI edged up modestly to 39.8 in the flash May print from 36.1 in April. Existing home sales plummeted 17.8% to a 4.33M rate in April, marking the biggest drop since July 2010 and the slowest pace since July 2011. The leading index dropped another 4.4% to 98.8 in April following the historic 7.4% decline in the prior month.

TOP NEWS: Shares of Best Buy ($BBY) are about 5% lower near noon after the electronics retailer reported its domestic revenue decreased 6.7% versus last year as it shifted all its stores to a curbside-only operating model in the middle of Q1 amid the COVID-19 pandemic. Best Buy, which still sees "a high level of uncertainty" at the macro and micro level, said it expects its Q2 sales rate to "be pressured."

Meanwhile, fellow retailers Macy's ($M) and TJX ($TJX) are up 3.5% and 6%, respectively, after reporting on their quarterly results and discussing their reopening plans on their associated earnings calls.

Shares of Expedia ($EXPE) are down 1% following the online travel agency's quarterly report. Barclays analyst Deepak Mathivanan said the company reported Q1 results largely as expected, impaired by a sharp decline in new bookings and spike in cancellations due to the COVID-19 pandemic, but also noted that new bookings are now growing modestly from depressed levels. Furthermore, the company has taken steps to improve its cost structure, which should help profit margins materially over long-term, Mathivanan tells investors.

Starbucks ($SBUX) issued a business update in the form of a letter from CEO Kevin Johnson to the company's employees. Stephens analyst James Rutherford believes the coffee company's leader expressed confidence in an eventual recovery, but tempered near-term expectations with his missive.

Amazon ($AMZN), which typically holds its Prime Day shopping event in July, is moving the promotion to September amid strains on the company's warehouses due to surging demand, The Wall Street Journal's Dana Mattioli reported.

MAJOR MOVERS: Among the noteworthy gainers was Aurora Cannabis ($ACB), which rose 24% after it agreed to acquire U.S. CBD company Reliva for $40M in stock. Also higher were L Brands (LB) and BJ's Wholesale ($BJ), which gained a respective 16% and 13% after reporting quarterly results.

Among the notable losers was International Game ($IGT), which slid 5% after analysts from Societe Generale and Credit Suisse downgraded the stock. Also lower were Huya ($HUYA) and Boot Barn ($BOOT), which fell 11% and 6%, respectively, 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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