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End of Day Brief - Friday April 23 - Dip buying to end the week

SP 5004180.17+45.19(1.09%)
10-yr Note -2/321.567
NYSEAdv 2532 Dec 714 Vol 778.4 mln
NasdaqAdv 3077 Dec 1079 Vol 4.3 bln

Industry Watch

Strong: Information Technology, Materials, Financials
Weak: Consumer Staples, Utilities

Moving the Market

-- Investors play down tax concerns and buy the dip

-- New home sales surge in March

-- Disappointing earnings reactions in Intel (INTC), Honeywell (HON), and American Express (AXP) contributed to relative underperformance of Dow

Stocks higher in continuation of up and down trend

The major averages rose to close out the week as the market continued its recent see-saw action. Stocks slid yesterday after Bloomberg reported that the Biden administration was considering nearly doubling the capital gains tax rate on wealthy taxpayers. The market also continues to ponder the spike in virus cases in some regions and nations relative to ongoing progress on vaccinations, especially in the U.S.

ECONOMIC EVENTS: In the U.S., Markit's flash April PMI data remained robust and solidly above record low levels from a year ago. The manufacturing index rose 1.5 points to 60.6, the services PMI climbed 2.5 points to 63.1 and the composite index increased 2.5 points to 62.2 in the flash print for this month. New home sales surged 20.7% to a 1.02M pace in March, which was stronger than forecast. In energy news, Baker Hughes reported that the U.S. rig count is down 1 from last week at 438 with oil rigs down 1 to 343.

TOP NEWS: Intel (INTC) shares fell 5.3% despite the company reporting better than expected earnings and revenue for the first quarter. Of note, Intel provided slightly downbeat second quarter earnings guidance, but raised its fiscal 2021 adjusted earnings view. Following the results, Needham analyst N. Quinn Bolton cut the firm's price target on Intel to $70 from $74 but maintained a Buy rating on the shares, saying that the "strong" first-half gross margin level is expected to be offset by a softer second half.

Shares of American Express (AXP) were also trading lower after its earnings report, down about 1.9% after its Q1 revenue came in below consensus estimates. Commenting on the quarter, CEO Stephen Squeri said he saw continued improvements in the core business and is "encouraged" by the progress the company is making to "rebuild our growth momentum going forward."

Also on the earnings front, Snap (SNAP) shares rose 7.4% after the social media company reported better than expected Q1 results, with daily active users for the quarter rising 22% and ARPU jumping 36% year-over-year. The company also provided upbeat revenue guidance for Q2.

In non-earnings news, shares of Silicon Labs (SLAB) jumped 6.9% after the company agreed to sell its Infrastructure & Automotive business to Skyworks Solutions (SWKS) for $2.75B in all-cash consideration. The transaction includes Silicon Labs' power/isolation, timing and broadcast products, intellectual property and associated employees. Skyworks shares rose 4.1% after the news.

Meanwhile, the Wall Street Journal reported that the Advisory Committee on Immunization Practices panel is set to meet this Friday to determine whether the pause on the Johnson & Johnson (JNJ) COVID-19 vaccine should be lifted or continued. Many public-health authorities have already determined the benefits of the vaccine outweigh the risks, the Journal noted.

Additionally, Bloomberg reported that Kansas City Southern (KSU) is expected to declare that Canadian National's (CNI) recent takeover bid is likely to lead to a "superior proposal" to its existing agreement with Canadian Pacific (CP), paving the way to hold talks with the rival bidder.

MAJOR MOVERS: Among the noteworthy gainers was Microvision (MVIS), which rose 36.8% after gaining focus as a short squeeze candidate on WallStreetBets subreddit. Also higher was Meridian Bancorp (EBSB), which gained 23% after signing a definitive merger agreement to be acquired by Independent Bank (INDB). Independent Bank fell over 4% after the news.

Among the notable losers was Inovio (INO), which declined 25% after the Department of Defense discontinued funding for the Phase 3 segment of the INNOVATE trial. Also lower was Kimberly Clark (KMB), which fell 5.8% after reporting quarterly results.

Reviewing Friday's economic data:

  • New home sales surged 20.7% month-over-month in March to a seasonally adjusted annual rate of 1.021 million ( consensus 912,000) from an upwardly revised 846,000 (from 775,000) in February. March marked the highest annual rate for new home sales since August 2006. On a yr/yr basis, new home sales were up a whopping 66.8%, having lapped a very depressed comparison period due to the pandemic.
    • The key takeaway from the report is that new home sales, which are counted when contracts are signed, rebounded sharply from the deep freeze experienced in the Midwest and South during February; however, the sizable drop in new home sales month-over-month in the West (-30.0%), and the higher proportion of new homes sold for $399,999 or less, also speaks to the increased affordability pressures being applied by high prices and rising mortgage rates.
  • The preliminary IHS Markit Manufacturing PMI for April increased to 60.6 from 59.1 in March. The preliminary IHS Markit Services PMI for April increased to 63.1 from 60.4 in March.

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

  • Russell 2000 +15.0% YTD
  • S&P 500 +11.3% YTD
  • Dow Jones Industrial Average +11.2% YTD
  • Nasdaq Composite +8.8% YTD

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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