Market Brief: March 23rd, 2020

A daily summary of news, analysis and data shaping the market.
Market Brief
Monday, March 23, 2020
Stimulus Disappointment. U.S. stocks ended Monday’s session with significant losses as investors looked past an aggressive Fed action to back private and municipal debt markets, focusing instead on the steady rise in new coronavirus cases and Congress’ inability to come to an agreement on a fiscal stimulus package. The Dow Jones Industrial Average fell about 582 points, or 3%, to close at 18,591, the S&P 500 shed 68 points, or 2.9%, to end the session at around 2,237 and the Nasdaq Composite index lost 19 points, or 0.3% to close at around 6,860. Sentiment suffered from more worrying news on the coronavirus outbreak, with New York State announcing 5,700 new cases Monday to bring the state’s total to more than 20,000, the most in the nation. Meanwhile Congress and the Trump Administration failed to come to an agreement on a nearly $2 trillion fiscal stimulus
plan aimed at supporting individuals and businesses as the economy suffers from the fallout of the pandemic.
DJIA 18,591.93 -582.05
S&P 500 2,237.40 -67.52
NASDAQ 6,860.67 -18.84
US 10-Year Note 0.77 -0.09
Dollar Index 102.47 -0.35
Crude Oil 23.53 0.90
Gold 1,561.50 76.90
Global Dow 2,138.19 -98.94
Powered by Dow Jones Research, FactSet, Eurostat, SIX Financial Information.
Federal Reserve Rolls Out New Measures to Support Financial Markets
The Federal Reserve is introducing a slate of new measures, including a facility for corporate-bond purchases and open-ended Treasury and mortgage-backed purchases, intended to support the U.S. economy as officials scramble to deal with the growing economic fallout from the coronavirus.

“The coronavirus pandemic is causing tremendous hardship across the United States and around the world. Our nation’s first priority is to care for those afflicted and to limit the further spread of the virus. While great uncertainty remains, it has become clear that our economy will face severe disruptions,” the Fed said in a statement. “Aggressive efforts must be taken across the public and private sectors to limit the losses to jobs and incomes and to promote a swift recovery once the disruptions abate.”

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Corporate Bond Markets Cheer Fed’s Intervention
Investors in high-quality corporate bonds—and bond exchange-traded funds—cheered the Federal Reserve’s decision to create vehicles to buy companies’ debt. The question now is how much debt the central bank will be able to buy, and whether its array of interventions will be enough to stabilize other markets as well.

The investment-grade corporate-bond market gained, even though strategists such as Daniel Sorid, high-grade bond strategist at Citigroup, characterized the size of the new corporate debt programs as modest.

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Boeing Halts Seattle-Area Production
Commercial aerospace giant Boeing will temporarily halt production at its Puget Sound operations because of the Covid-19 coronavirus outbreak. The halt is intended to last two weeks beginning March 25.

“This necessary step protects our employees and the communities where they work and live,” said CEO Dave Calhoun in the company’s news release. “We will keep our employees, customers and supply chain top of mind as we continue to assess the evolving situation.”

Boeing added in an email to Barron’s that employees who cannot work remotely will receive paid leave for 10 working days, double the company policy.

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GE Is the Latest to Cut Workforce, Laying Off 10% of Its Aviation Employees
General Electric is the latest company to announce layoffs as the economic impact of the coronavirus outbreak continues to mount.

The company said Monday that plummeting air travel has reduced demand from airlines and that its aviation subsidiary, GE Aviation, would lay off about 10% of its workers and furlough approximately 50% of its maintenance, repair, and overhaul employees for three months.

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PG&E to Plead Guilty to Involuntary Manslaughter Charges in Deadly Wildfire
PG&E Corp. has agreed to plead guilty to felony involuntary manslaughter charges for its role in starting the deadliest wildfire in California history.

The indictment in Butte County, where 85 people died during the 2018 Camp Fire, charges the company with 84 counts of manslaughter and one count of unlawfully causing a fire.

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Twitter Withdraws First-Quarter Revenue Guidance Due to Coronavirus
Twitter on Monday said it is withdrawing revenue and operating income guidance for the first quarter of 2020, as well as its outlook for expenses, stock-based compensation, headcount, and capital expenditures for the full year because of economic fallout from the coronavirus pandemic.

The San Francisco-based company expects a slight decline in first-quarter revenue from the same quarter a year ago, and anticipates an operating loss. Twitter shares are down 24% in the last year.

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These Are the Stocks Investors See Benefiting in the Shift to Work From Home
While the broad market continues to struggle, investors are embracing shares of companies that are perceived to benefit from the growing number of people in the U.S. and around the world who are working from home.

The poster-child for the trend is Zoom Video Communications, an application spreading like wildfire. A case study is taking place in my own house. My college-freshman daughter is taking her spring semester classes over Zoom. My wife is preparing to teach a law school class by Zoom. A few days ago, I “attended” a class via Zoom. The tool is popping up everywhere, and the stock is taking off in response.

Shares of Teladoc Health, a telemedicine company, and Slack Technologies, the collaborative-communications software company, also soared on Monday.

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SoftBank Reveals Plan to Sell Assets, Buy Back Shares, and Reduce Debt
Under pressure from a falling stock price, activist investors and credit-market concerns about its balance sheet, SoftBank Group responded Monday with a plan to sell up to $41 billion in assets and use the proceeds to buy back up to $18 billion in stock and reduce debt.

The buyback plan is in addition to the $4.8 billion repurchase program announced on March 13. Combined, the repurchase programs would retire 45% of the company’s stock, SoftBank said. The company previously announced a $5.5 billion repurchase program in February 2019. SoftBank said it has about $245 billion of assets and $15 billion of cash on its balance sheet.

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Bailouts Might Bring Bans on Stock Buybacks. Here’s What It Means.
Stock buybacks are expected to decline this year as American companies hit hard by the coronavirus outbreak seek to conserve cash. Government bailouts could limit the total further.

Already, the nation’s eight major banks have said they will suspend their stock-repurchase programs through the second quarter in an effort to support “customers, clients, and the nation’’ amid the pandemic. The move could be followed by other industries, especially those with deeply disrupted businesses such as energy and travel companies.

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Royal Caribbean Secures $2.2B Credit Line
Royal Caribbean Cruises stock soared Monday afternoon, bucking the broadly lower market, as the cruise operator entered into a $2.2 billion secured credit facility to bolster its liquidity.

Royal Caribbean, which is the second largest U.S. cruise operator, said it now has more than $3.6 billion of liquidity. That includes cash deposits and existing undrawn revolving credit lines. Royal Caribbean added that it has financing committed for the ships that are on order.

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