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End of Day Brief - Friday May 14 - Stocks up on dip buying again

SP 5004173.85+61.35(1.49%)
10-yr Note -2/321.661
NYSEAdv 2666 Dec 632 Vol 851.7 mln
NasdaqAdv 3206 Dec 768 Vol 4.0 bln

Industry Watch

Strong: Energy, Information Technology, Consumer Discretionary
Weak: Health Care, Utilities, Consumer Staples

Moving the Market

-- Stocks end week on high note as investors followed through on dip-buying mentality

-- Market overlooked soft retail sales data for April, drop in consumer sentiment for May, and higher import/export prices for April

-- Treasury market appeared unconcerned by inflation expectations

Stocks higher to finish up and down week

The major averages finished the week with two strong sessions following three straight down days. The underlying drivers of the rally - a strong and broadening recovery, dovish monetary policy and expected further increases in federal spending - appear to remain intact, prompting dip buying after the pullback seen in the first half of this week.

ECONOMIC EVENTS: In the U.S., April retail sales were unchanged month-over-month, and declined 0.8% excluding autos, both of which were weaker than forecast. Import prices rose 0.7%, with export prices up 0.8% in April, which was a little firmer than expected. Industrial production undershot estimates with a 0.7% April increase, while capacity utilization rose to 74.9% from 74.4%. A reading on consumer sentiment dropped 5.5 points to 82.8 in the preliminary figure for May from the University of Michigan survey. Business inventories edged up 0.3% in March, while sales rebounded 5.7%. In energy news, Baker Hughes reported that the U.S. rig count is up 5 from last week to 453 with oil rigs up 8 to 352.

TOP NEWS: Shares of Disney (DIS) closed 2.6% lower after the company's mixed fiscal second quarter earnings report last night. While Disney's earnings per share, excluding certain items, topped consensus forecasts, its revenue was a bit light and most notably its Disney+ paid subscriber figures missed expectations.

Canadian National (CNI) announced that it submitted an "enhanced" binding superior proposal and merger agreement to Kansas City Southern (KSU) and Canadian Pacific (CP) responded by stating it will not enter into a bidding war but plans to respond in the "allotted time." Under the terms of CN's revised proposal, KCS shareholders will receive $200 in cash and 1.129 shares of CN common stock for each KCS common share, with KCS shareholders expected to own 12.6% of the combined company. CN's proposal offers KCS shareholders $325 per common share based on yesterday's closing price of CN shares, which implies a total enterprise value of $33.6B, including the assumption of approximately $3.8B of KCS debt, the company's said.

In other M&A news, General Mills (GIS) announced that it has entered into a definitive agreement to acquire Tyson Foods' (TSN) pet treats business, which includes the Nudges, Top Chews and True Chews brands. The deal for $1.2B in cash provides an estimated tax benefit of $225M, "equating to an effective purchase price of $975M," said General Mills.

Marathon Petroleum (MPC) shares finished the day 2.2% higher after the company announced the close of the $21B sale of Speedway to 7-Eleven, a wholly owned, indirect subsidiary of Seven & i Holdings (SVNDY). In conjunction with closing, Marathon announced its plans regarding the estimated $16.5B of after-tax cash proceeds. In connection with and subject to the closing of the Speedway sale, the company's board of directors approved an additional $7.1B share repurchase authorization, giving the company the authority to repurchase up to a total of $10B of its common stock. In the coming days, the company intends to commence a "modified Dutch Auction" tender offer to purchase up to $4B of its common stock at an anticipated price range between $56 and $63 per share. In response, FTC Acting Chairwoman Rebecca Kelly Slaughter said she believes the merger agreement between 7-Eleven (SVNDY) and Marathon Petroleum is "illegal."

Two "sharing and gig economy" names both rose following their earnings reports last night, as Airbnb (ABNB) gained 4% and DoorDash (DASH) advanced 21.7%. Another newcomer to public markets, Coinbase (COIN), finished 2.5% lower following its first quarterly report since its direct listing last month.

Meanwhile, Reuters reported that a bipartisan group of U.S. senators, including Mark Kelly, John Cornyn, Mark Warner and Tom Cotton, is anticipated to unveil a $52B proposal on Friday that would significantly increase U.S. semiconductor production and research over five years. Shares of semiconductor companies were trading higher after the news, including Intel (INTC), AMD (AMD), Micron (MU), and Qualcomm (QCOM).

Additionally, Reuters reported that consumer financial advice website owner NerdWallet (NERD) has hired a group of investment banks, led by Morgan Stanley (MS), to arrange an initial public offering and confidentially submitted paperwork to SEC in advance of its plans to come public.

MAJOR MOVERS: Among the noteworthy gainers was Monster Beverage (MNST), which rose 3% after Beverage Digest reported that Coca-Cola (KO) will discontinue Coca-Cola Energy in the U.S. and Canada. Also higher were Aeva Technologies (AEVA) and Farfetch (FTCH), which both gained 12.5%, respectively, after reporting quarterly results.

Among the notable losers was Aurora Cannabis (ACB), which declined 6.7% after the company reported quarterly results, announced that Ronald Funk has assumed the role of chairman, announced plans to file a $300M at-the-market offering program, and said it will transfer its U.S. listing from NYSE to Nasdaq effective May 24. Also lower after reporting quarterly results were Solid Biosciences (SLDB) and Poly (PLT), which fell a respective 21.4% and 20.4%.

Reviewing Friday's economic data:

  • Total retail sales were flat month-over-month in April ( consensus +1.8%) following an upwardly revised 10.7% increase (from 9.8%) in March. Excluding autos, retail sales declined 0.8% ( consensus +1.2%) following an upwardly revised 9.0% increase (from 8.4%) in March.
    • The key takeaway from the report is that the "weakness" was really driven by a tough sequential comparison; moreover, the market won't be too concerned by the "miss," knowing that hiring activity is going to increase, that wages will likely increase, and that there is a huge amount of personal savings at the ready to spend in coming months.
  • The preliminary May reading for the University of Michigan Index of Consumer Sentiment dropped to 82.8 ( consensus 90.2) from the final reading of 88.3 for April.
    • The key takeaway from the report is that consumer attitudes were adversely impacted by inflation expectations, which were captured in the highest expected year-ahead inflation rate (4.6%) and the highest expected long-term inflation rate (3.1%) in the last ten years.
  • Total industrial production increased 0.7% m/m in April ( consensus 0.7%) following an upwardly revised 2.4% increase (from 1.4%) in March. The capacity utilization rate increased to 74.9% ( consensus 75.1%) from an unchanged 74.4% in March.
    • The key takeaway from the report is that it suggests industrial production is running at a solid clip, although it would be stronger if not for the semiconductor supply shortage that is holding back motor vehicle production.
  • Import prices were up 0.7% month-over-month in April and up 0.7% as well, excluding fuel. Export prices increased 0.8% month-over-month in April and were up 0.9%, excluding agricultural exports
  • Business inventories increased 0.3% m/m in March ( consensus 0.3%) following an upwardly revised 0.6% increase (from +0.5%) in February.

  • Russell 2000 +12.7% YTD
  • Dow Jones Industrial Average +12.3% YTD
  • S&P 500 +11.1% YTD
  • Nasdaq Composite +4.2% 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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