Market Brief: July 6, 2020

A daily summary of news, analysis and data shaping the market.
Market Brief
Monday, July 6, 2020
Optimism Outweighs Doubt. U.S. stocks closed higher on Monday to kick off the first week of full trading for July as the market saw broad-based gains in tech and financial shares despite worries around climbing Covid-19 infections across the country. The S&P 500 rose 1.6% to 3180. The Dow Jones Industrial Average added 460 points, or 1.8%, to end at 26,287, based on preliminary numbers. The Nasdaq Composite advanced 2.2% to 10,434, stringing together a fifth consecutive gain. Equities managed to extend their upbeat tone even as investors held doubts about the ability of the U.S. to contain the viral outbreak and its further economic fallout. In economic data, the Institute for Supply Management reported its index of service sector companies jumped to 57.1 in June from 45.4 in May.
DJIA 26,287.03 459.67
S&P 500 3,179.72 49.71
NASDAQ 10,433.65 226.02
US 10-Year Note 0.68 0.01
Dollar Index 96.75 -0.42
Crude Oil 40.65 0.00
Gold 1,795.70 5.70
Global Dow 2,912.91 54.56
Powered by Dow Jones Research, FactSet, Eurostat, SIX Financial Information.
Activity Surges in Services Sector. Employment, However, Continues to Contract.
The Institute for Supply Management said activity across the services sector, everything from hotels and restaurants to finance, grew in June after two consecutive months of decline. The ISM’s non-manufacturing index, based on a survey of service-sector businesses across the country, jumped to 57.1 from 45.4 in May—its biggest month-over-month increase since the series launched in 1997. The result was far better than the reading of 50 economists polled by FactSet predicted.

On one hand, the services-sector reading is the latest sign that the worst of the economic pain caused by the coronavirus pandemic is over, with activity springing back as businesses reopen and rehire. On the other hand, it’s a reminder of how long a road it will be to fully recover—especially as a renewed rise in infections slows or reverses reopening plans in some states. Moreover, the report shows ongoing weakness in services-sector employment.

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Buffett Makes $10B Natural Gas Purchase
Warren Buffett’s Berkshire Hathaway is buying Dominion Energy’s natural gas storage and transmission assets in a deal worth a total of $9.7 billion, the company said in a release Sunday.

Once the deal closes in the fourth quarter of 2020, Berkshire Hathaway’s energy subsidiary will gain ownership of 7,700 miles of natural gas pipelines, vast storage facilities, and a 25% stake in a liquefied natural gas export, import, and storage site in Maryland. Buffett is usually a bargain hunter during significant market downturns, placing big bets on Goldman Sachs and General Electric during the financial crisis. But until Dominion, Buffett hadn’t made similarly large acquisitions during the coronavirus pandemic.

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Uber to Buy Postmates for $2.65 Billion
Uber Technologies announced on Monday a deal to acquire venture-backed Postmates for $2.65 billion in stock. The combination follows Uber’s recent failed attempt to buy Grubhub, which instead accepted a takeover bid from Just Eat Takeaway, an Amsterdam-based food delivery company.

An Uber/Postmates merger would reduce the number of primary players in the U.S. market to three from four, along with Grubhub and DoorDash. The deal will also likely increase speculation on the potential timing of an initial public offering for DoorDash, which recently raised a new round of funding at a valuation of nearly $16 billion.

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Regeneron’s Covid-19 Antibody Moves Into Phase 3 Tests
Regeneron said Monday it was starting three late-stage trials of a drug designed to treat and prevent Covid-19. It said the so-called antibody cocktail returned positive results in a small Phase 1 safety trial, though it didn’t provide details.

Antibody drugs like Regeneron’s experimental cocktail are thought to hold substantial promise for curbing the pandemic. Barron’s reported last month that a number of companies, including Eli Lilly and Vir Biotechnology in collaboration with GlaxoSmithKline, will be testing Covid-19 antibody drugs this summer.

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Target, Walmart Pull Redskins Merchandise From Online Stores as Team Reviews Name
More retailers joined Nike in pulling Washington Redskins merchandise from their online shops after the team said Friday it would undergo a thorough review of its name.

As of Monday morning, links to the Washington Redskins’ team landing page on both Walmart‘s and Target’s websites did not return any results. Walmart said following the team’s announcement on Friday it would discontinue the sale of items that reference the name and logo. A Target representative confirmed to Barron’s that such team merchandise was removed from its website.

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Royal Caribbean, Norwegian Cruise Line Enlist Health Experts to Shape Safety Protocols
Royal Caribbean Cruises and Norwegian Cruise Line Holdings have enlisted a panel of experts to vet and beef up their safety and health protocols as they aim to reassure cruise-goers amid the Covid-19 pandemic.

The companies have tapped Dr. Scott Gottlieb, a former U.S. Food and Drug Administration commissioner and a vocal public-health expert during the pandemic, and former Utah Gov. Mike Leavitt to be co-chairmen of a panel of experts. The panel members will be compensated in a manner consistent with senior subject matter experts; the expenses of the panel will be divided among the two cruise operators.

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737 MAX Tests Are Set to Continue
The Wall Street Journal reported the FAA is testing the Boeing 737 MAX again. It is another step in the process to unground the troubled plane and get it back into commercial service.

The Journal news article says the additional tests will assess the safety of Boeing software fixes. The 737 MAX—Boeing’s latest single-aisle jet model—has been grounded world-wide since mid-March 2019 following two deadly crashes inside of five months. Both crashes were tied back to new flight control software called MCAS, short for maneuvering characteristics augmentation system. Boeing has been working on MCAS, and other issues, since the grounding.

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Mergers and Acquisitions Dropped 83% in the U.S. Because of Covid
The Covid-19 pandemic delivered a harsh blow to announced mergers in the U.S., with deal value in second quarter plunging 83% compared with last year, according to data from Refinitiv.

There were 2,064 announced M&A transactions in the U.S. for the quarter ended June 30, totaling $106.4 billion. This compares to 2,895 deals valued at $622.9 billion for the same period in 2019.

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Sally Beauty Says June Sales Were Stronger Than Expected
Sally Beauty, the largest beauty-products distributor in the U.S., on Monday issued a better-than-expected June update.

The company said most of its stores were open and June sales rose 9% year over year, and 33% from May. Sales in the company’s fiscal third quarter, ended in June, are expected to be $705 million, more than the $657 million Wall Street has forecast. Financial flexibility is improved as well. “As of June 30, the Company estimates that it had more than $815 million of cash on-hand, with an additional $200 million of undrawn capacity on its asset-based line of credit,” the update says.

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How Luxury Real Estate Deals Are Moving Forward in States With Spiking Virus Cases
Nearly as soon as lockdown orders started to lift, regions across the U.S. started to see troubling new spikes in coronavirus cases, prompting states like Texas and Florida to pause aspects of their reopening plans in recent days.

And though some real estate buyers and sellers are balking or insisting on taking additional precautions, in many cases, showings and transactions in areas with increasing cases are still moving full steam ahead. Pent-up demand from the usual spring sales season combined with a newfound sense of urgency from buyers coming out of quarantine in less-than-ideal living situations, has led to unusually brisk markets even in states like Florida, Texas, and Arizona that are currently seeing some of the fastest-rising infection rates.

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