Market Brief: April 20, 2020

A daily summary of news, analysis and data shaping the market.
Market Brief
Monday, April 20, 2020
Less Than Zero. U.S. stock indexes on Monday started the week sharply lower, as investors braced for a deluge in earnings this week and contended with an unraveling of the energy market, highlighted by a historic plunge into negative territory in the price of one oil contract. The Dow Jones Industrial Average finished down 592 points, or 2.4%, at around 23,650, the S&P 500 index declined 1.8% to 2823, while the Nasdaq Composite Index ended the session off by about 1% near 8561. The declines for the equity benchmarks come as the May contract for West Texas Intermediate oil, the front-month contract, which expires on Tuesday, dropped more than 300%, settling at negative $37.63 a barrel. About one-fifth of S&P 500 companies are set to report quarterly results this week, with investors expecting the worst earnings since the 2008 financial crisis, unsurprisingly due
to closures in response to the Covid-19 pandemic. Results this year for the first quarter are on track to decline 14.5% from a year ago, according to John Butters, senior earnings analyst at FactSet, which would represent the biggest decline since the 15.7% plunge in the third quarter of 2009.
DJIA 23,650.44 -592.05
S&P 500 2,823.16 -51.40
NASDAQ 8,560.73 -89.41
US 10-Year Note 0.63 -0.02
Dollar Index 99.99 0.21
Crude Oil -26.01 -44.28
Gold 1,712.10 13.30
Global Dow 2,584.25 -24.13
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Oil Futures Go Negative in Historic Rout
West Texas Intermediate oil futures were plunging Monday afternoon—first into the single-digits and then into the red later in the afternoon. It was the first time since they started trading in 1983 that crude futures fell below $0. The previous settlement low was $10.42, which crude hit on March 31, 1986.

Oil has been tumbling for months, but fell off a cliff on Monday in part because of a technical shift. The May crude futures contract expires on Tuesday, and when futures expire their price tends to converge with the spot price of the commodity. Anyone buying the May contract on Monday is likely planning on taking physical possession of the oil. And no one right now seems to want to own a barrel of oil at any price.

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IBM Profit Beat Estimates, but the Company Declined to Forecast the Rest of 2020
IBM reported better-than-expected first-quarter profit, but withdrew its full-year guidance and declined to provide a projection on second-quarter results, given the Covid-19 pandemic and its impact on the global economy.

For the quarter, the enterprise-computing company posted revenue of $17.6 billion, down 3.4% from a year earlier, but in line with Street estimates. IBM said revenue was up 0.1% when adjusted for divested businesses and currency. Non-GAAP profit was $1.84 a share, a nickel ahead of the Street consensus at $1.79 a share.

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United Airlines’ Preliminary Results Are Worse Than Wall Street Expected
United Airlines on Monday reported a preliminary net loss of $2.1 billion for the quarter ended in March, missing analysts forecasts for a net loss of $533 million. Revenue came in at $8 billion, a 17% decline year over year. Analysts had forecast $8.4 billion in sales, according to FactSet.

United expects to borrow up to $4.5 billion from the Treasury Department’s loan program—part of the Cares Act package of financial support for the airline industry. The company has also applied for $5 billion to help cover payrolls through September, including a $3.5 billion grant and $1.5 billion as a loan. United said it had $6.3 billion in cash and liquid investments as of April 16, including $2 billion in an undrawn credit facility.

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Neiman Marcus Could File for Bankruptcy as Soon as This Week
Neiman Marcus Group could become one of the first major retailers to file for bankruptcy because of the coronavirus shutdown.

The high-end department store is considering a filing as soon as this week, according to a Reuters report citing people familiar with the matter. The retailer is also said to be negotiating with creditors to obtain financing so it can maintain some operations during a restructuring.

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Shake Shack Is Returning Its Bailout Check
The burger chain Shake Shack said Sunday night that it will return a $10 million loan it got under the federal Covid-19 stimulus program, after news that the government’s small-business assistance program had run out of funds before helping many small, privately owned restaurants. The chain said it had raised $75 million from stock sales to tide itself over as the pandemic forces it to furlough many workers and only serve takeout.

As part of the Cares Act, the government’s Covid-19 rescue package, Congress provided $349 billion to help small businesses keep paying their employees. The Paycheck Protection Program, or PPP, is overseen by the Small Business Administration. Commercial banks give out the money as loans that will be forgiven if the small businesses hire back their workers by June. Although the program was meant to help businesses with 500 or fewer employees, big hotel and restaurant chains successfully lobbied to be included.

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DuPont’s Quarterly Earnings Beat Estimates
Chemical giant DuPont de Nemours—like many other companies recently—pre-announced first-quarter results and suspended full-year 2020 financial guidance. The Covid-19 pandemic has impacted every segment of the economy, including demand for chemicals.

The company’s first quarter numbers on Monday, however, look terrific. DuPont earned about 83 cents a share from $5.2 billion in sales. Wall Street analysts were looking for 68 cents from $5 billion in sales. The results easily beat expectations.

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Amazon Is Building a Delivery Powerhouse. Look Out, FedEx, UPS, USPS.’s shares have rallied this year for the obvious reason that e-commerce is accelerating as a result of the Covid-19 pandemic, while before the arrival of coronavirus, the story was more about the company’s industry-leading cloud-computing business. Now, there could be another leg to the stool: package delivery.

In a research note Monday, BofA Global Research analyst Justin Post argues that Amazon’s enormous investment in logistics has created a valuable asset that will allow the company to become a major player in the package-delivery sector—and not just for goods sold on Post contends the company’s delivery capabilities could be worth $100 billion to $230 billion by 2025.

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Online Gambling Is Booming—and That Could Persuade More States to Allow It
With casinos closed across the country and sports betting drying up, online casino-style gambling is proving to be a bright spot for the industry.

Internet gambling revenues (excluding sports betting) in New Jersey rose 66%, to $65 million in March, the state reported recently. Online gambling includes slots as well as table games like blackjack. New Jersey is a leader in internet gambling. “We believe the impact of Covid-19 could spur more states to legalize online casino and sports betting,” Morgan Stanley gaming analyst Thomas Allen wrote in a client note.

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Alibaba Plans Big Cloud Investment
Chinese e-commerce giant Alibaba has announced a broad plan to bolster its cloud business in the coming years. Its shares traded higher following the news.

Alibaba said in a statement on Monday that it plans to invest an additional 200 billion yuan (approximately $28 billion) in cloud technology over the next three years, including operating systems, servers, chips, and network.

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Alexion Will Test Rare Disease Drug in Covid-19 Patients
The biotechnology firm Alexion Pharmaceuticals announced on Monday that it would join the ranks of companies seeking to repurpose existing medicines as potential Covid-19 therapies, saying that it would test its drug Ultomiris in severe Covid-19 patients.

Ultomiris has Food and Drug Administration approval in two rare diseases: atypical hemolytic uremic syndrome and paroxysmal nocturnal hemoglobinuria. It is the successor to another Alexion drug, Soliris, which is expected to face generic competition in the near future.

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