Market Brief: May 11, 2020

A daily summary of news, analysis and data shaping the market.
Market Brief
Monday, May 11, 2020
Mixed Start to Week. U.S. stocks recovered most of their early losses on Monday after rising last week on optimism that beginning to reopen some economies around the world would bring a quick rebound in economic activity. The risk has been that those steps would lead to an uptick in coronavirus cases, requiring new lockdowns. There were some potential signs of both outcomes over the weekend. South Korea, which recently lifted some restrictions, reportedly saw more than 50 cases tied to nightclubs and bars emerge over the past week. The country quickly restored some social-distancing measures in Seoul. Germany likewise saw an uptick in cases after recently relaxing requirements. New virus cases have increased elsewhere as well, notably in parts of Africa, Brazil, and Russia.
DJIA 24,221.99 -109.33
S&P 500 2,930.19 0.39
NASDAQ 9,192.34 71.02
US 10-Year Note 0.71 0.02
Dollar Index 100.17 0.43
Crude Oil 24.73 -0.01
Gold 1,700.30 -13.60
Global Dow 2,629.01 -11.47
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Chesapeake Energy May File for Bankruptcy
Chesapeake Energy, once a dominant player in shale exploration, said on Monday that it doesn’t expect to be able to meet its financial covenants, and is preparing for a possible bankruptcy.

The notable thing about the news is how rare it is—oil and gas producers have stayed out of bankruptcy court even amid the worst oil slump in decades. Chesapeake, an Oklahoma City producer, has long carried substantial debt, and was recently at risk of having its stock delisted. Chesapeake’s financial situation had been improving, with the company signing a distressed debt exchange late last year that reduced its near-term obligations. But debt covenants loom, and the larger market is unlikely to save the company.

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Discount Retailer Stage Stores Files for Bankruptcy
Stage Stores has filed for Chapter 11, days after reports that bankruptcy preparations were in the works. The company plans to liquidate its inventory when its stores reopen in phases beginning May 15.

Stage Stores’ portfolio includes Stage department stores, Bealls, Goody’s, and Palais Royal. “[T]he increasingly challenging market environment was exacerbated by the Covid-19 pandemic, which required us to temporarily close all of our stores and furlough the vast majority of our associates,” said CEO Michael Glazer in a statement. “Given these conditions, we have been unable to obtain necessary financing and have no choice but to take these actions.”

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Under Armour’s Earnings Were Grim and Could Get Worse
Under Armour shares took a beating Monday after the athletic-apparel brand reported wider-than-expected losses in the first quarter and hinted at a difficult path ahead.

Losses totaled $590 million, or $1.30 share, on sales of $930 million, compared with a profit of $22.5 million on sales of $1.2 billion a year earlier. Sales fell 23% year over year. When adjusted for restructuring and impairment charges, losses totaled $152 million, or 34 cents a share—still well below the 19-cent loss Wall Street expected.

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AMC Entertainment Reported to Be in Talks With Amazon
Shares of AMC Entertainment Holdings spiked on Monday following a report that the financially troubled movie theater company had talks about selling itself to

The British newspaper the Daily Mail, citing unidentified sources, reported on Saturday that the two companies “are thought to have held talks about a potential takeover of AMC by Amazon,” but that “it is not clear if the discussions are still active or if they will lead to a deal.” AMC is the world’s largest movie theater operator, with about 1,000 theaters world-wide with 11,000 total screens, with leading market share in both the U.S. and Europe.

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Tesla CEO Elon Musk Wants to Reopen the Flagship Plant Amid the Coronavirus
Tesla CEO Elon Musk tweeted Saturday his company would sue Alameda County in Northern California over stay-at-home orders that are keeping the company’s flagship Fremont plant shut. It’s a bold move that carries some risks for the EV pioneer. Still, the company has to make cars because everyone else will be soon.

Musk, for his part, appears anxious to reopen the facility. Tesla has new a growing backlog to deliver as well as its new Model Y crossover SUV.

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Boeing Plans to Resume Building the 737 MAX This Month
Boeing CEO Dave Calhoun said Friday the commercial aerospace giant would resume building the company’s grounded 737 MAX jets this month.

The MAX, is on the verge of returning, according to the company, and will re-enter service amid the disruption in air travel caused by the coronavirus pandemic. “The airplane is in great shape…I’m confident we will start our [assembly] line again this month,” Calhoun said in a Fox Business interview.

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Gilead’s Remdesivir Supply Will Fall Short of U.S. Need This Summer, Analyst Says
The number of doses of the Gilead Sciences Covid-19 antiviral remdesivir being allocated to the U.S. is smaller than expected, according to analyst Brian Abrahams at RBC Capital Markets, and could mean that hundreds of thousands of sick Americans eligible for remdesivir treatment would not have access the drug in the coming months.

Gilead has said it would donate 1.5 million doses of the drug globally, all of its existing supply, roughly enough to treat 140,000 people. The Food and Drug Administration issued an emergency-use authorization on May 1 allowing the drug to be prescribed to treat Covid-19 patients in the U.S.; Japan’s drug regulator followed with its own special approval on May 7.

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Cardinal Health Reports Strong Earnings
The drug distributor Cardinal Health reported strong third-quarter earnings on Monday morning, sending shares up.

The company reported earnings of $1.62 a share for the quarter, beating the S&P Capital IQ Consensus by 17 cents. Cardinal also maintained its previously issued guidance for non-GAAP diluted earnings of between $5.20 and $5.40 a share. The report continued a trend of health-care companies reporting solid sales figures for the start of the year, but warning of troubles to come.

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Coty Will Collect About $4B in Deals With KKR
Coty has found a buyer for its professional beauty and retail hair businesses, and is getting an immediate injection of cash as it and other companies struggle with the coronavirus recession.

KKR, a global investment firm, has agreed to buy 60% of the beauty and hair operations in a deal that values the Coty unit, which includes the Wella, Clairol, OPI, and ghd brands, at $4.3 billion. Coty said it and KKR have signed a memorandum of understanding on the transaction, which would carve out the Wella business into a stand-alone company jointly owned by the two firms.

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How Amazon Could Boost Covid-19 Testing While Crushing E-Commerce Rivals
In announcing first-quarter earnings, said it expects to spend $4 billion or more in the second quarter on expenses related to its response to the Covid-19 pandemic. Among other things, the company is spending “hundreds of millions to develop our own Covid-19 testing capabilities.”

That has Morgan Stanley analyst Brian Nowak thinking about the possibility that Amazon might evolve into a substantial player in Covid-19 testing—to the benefit of the company’s reputation, its competitive position, and, well, the health of humanity.

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