Market Brief: May 26, 2020

A daily summary of news, analysis and data shaping the market.
Market Brief
Tuesday, May 26, 2020
Rosy on Reopenings. U.S. stocks closed sharply higher Tuesday as markets focused on evidence of the global economy reemerging from Covid-19 shutdowns and some signs of progress on the race for a vaccine. The Dow Jones Industrial Average rose 530 points, or 2.2%, to close around 24,995, and the S&P 500 index gained 36 points, or 1.2%, to finish the session near 2992. The Nasdaq Composite index rose 16 points, or 0.2%, to close at about 9340. Sentiment was buoyed by news that Novavax had started human trials of a Covid-19 vaccine. Also fueling gains were recent data showing U.S. air travel has risen and evidence that restaurants and freight trucking were seeing greater demand. Airline stocks surged Tuesday, with the U.S. Global Jets ETF gaining 11.2% on the day, led by shares of Delta Air Lines, United Airlines, and American Airlines, all of which posted
double-digit gains. The session was also colored by evidence of a rotation out of what has been a defensive technology sector into cyclical names that benefit during economic recoveries. Financial stocks posted the biggest gains on a sector basis, with the Financial Select Sector SPDR Fund rising 5.3% on the day.
DJIA 24,995.11 529.95
S&P 500 2,991.77 36.32
NASDAQ 9,340.22 15.63
US 10-Year Note 0.69 0.03
Dollar Index 98.98 -0.88
Crude Oil 34.12 0.87
Gold 1,705.20 -30.30
Global Dow 2,708.55 68.55
Powered by Dow Jones Research, FactSet, Eurostat, SIX Financial Information.
Novavax Is Starting Covid-19 Vaccine Trials
The small-cap vaccine specialist biotech Novavax said Tuesday morning that it had enrolled the first participants in a Phase 1/2 trial of its experimental Covid-19 vaccine.

Novavax said Tuesday the initial stage of the study would involve 130 healthy participants at two different sites in Australia, and would study the effects of a two-dose regimen of the experimental vaccine at two separate dose sizes. The study is also testing the vaccine with and without a Novavax-designed adjuvant, which is meant to increase the effectiveness of the vaccine.

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Merck Dives Into Covid-19 Fray With Two Vaccines and One Antiviral
As the world’s drugmakers announced effort after effort to develop drugs and vaccines to confront the Covid-19 pandemic, the big pharma firm Merck had been conspicuous among its big pharma peers for its silence.

That changed on Tuesday morning, as the company unveiled a barrage of Covid-19 programs: Two experimental vaccines and one experimental treatment.

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Better New-Home Sales Data Point to a Housing Recovery
Sales of new homes in April unexpectedly improved from March, a sign that normalcy is returning to some parts of the U.S. economy as coronavirus lockdowns ease.

The Census Bureau said Tuesday that new-home sales increased 0.6% in April from a month earlier, to an annual rate of 619,000. That is still down about 6% from a year earlier, but the result is much better than the 480,000 economists polled by FactSet predicted.

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AutoZone Stock Is Rising Because Car Repairs Usually Can’t Wait
AutoZone stock gained on Tuesday, following the auto parts retailer’s fiscal third-quarter earnings. AutoZone said it earned $14.39 a share on revenue of $2.78 billion. Analysts were expecting earnings per share of $13.19, on revenue of $2.65 billion.

The impact of Covid-19 was front-and-center in AutoZone’s report, as it has been throughout the retail sector. “During the third quarter, we experienced the most extreme fluctuations in sales, both negative and positive, in the Company’s more than 40 year history,” management said in its news release. The company didn’t provide guidance, which has been the pattern, but said it remains flexible to meet the challenges ahead.

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Aston Martin Activates Ejector Seat on CEO
Shares in Aston Martin surged by more than a third on Tuesday after the struggling luxury car maker said it is replacing its chief executive Andy Palmer with senior Mercedes executive Tobias Moers.

The 107-year-old British luxury car maker, famed for its top customer, fictional spy James Bond, has already collapsed into administration seven times and in 2014 brought in former Nissan executive Palmer to help turn around the company’s fortunes. Palmer will be replaced in August by Tobias Moers who currently oversees Mercedes-AMG, the high-performance division of Mercedes-Benz owner Daimler AG.

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Regeneron Is Finally Free of Sanofi
Regeneron Pharmaceuticals stock fell midday Tuesday, following news that Sanofi is exiting its stake in the drugmaker. On Monday, Regeneron said it would buy back $5 billion of its shares directly, and announced a secondary offering for the rest of its shares held by Sanofi, save 400,000, which the French drugmaker plans to retain.

The news isn’t too much of a surprise, as Sanofi had been reportedly considering selling its Regeneron stake since late last year. The partnership between the two companies, which produced the eczema and asthma treatment Dupixent, first turned a profit in mid-2019.

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Bank Dividends Are at Risk. How Regulators Could Force Cuts.
Bank dividends have been under pressure over the past two months as profits have been constrained by low interest rates and increasing loan losses. As banks have been working to conserve capital to serve struggling clients—namely by halting buybacks—there have been calls by regulators to also suspend dividends.

While European regulators were successful in urging banks there to curb their dividends, few observers are certain that U.S. regulators, such as the Federal Reserve, will take similar steps. However, the Fed has other ways of achieving the same objective—namely through its annual Comprehensive Capital Analysis and Review and Dodd-Frank Act Stress Tests, which are set to wrap up in June.

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Covid-19 and Vaccine News Drive Boeing Stock Now. But Don’t Forget the MAX.
The Boeing 737 MAX drama isn’t over, and Wall Street is still trying to figure out what the MAX will mean to Boeing shares in the near future. Positive MAX news can give shares a bump, but the impact isn’t what it used to be. What’s more, investors shouldn’t assume all the coming MAX news will be positive.

“Remember the MAX?” asks Vertical Research Partners analyst Rob Stallard in a Tuesday research report. The MAX, for months, was the topic his clients inquired about the most. But now the impact of the Covid-19 virus on the commercial aerospace cycle trumps all other news.

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Warner Music Is Inching Toward an IPO Despite the Hit From Coronavirus
Things have been very slow for initial public offerings, but the market last week snapped up shares of SelectQuote, an online insurance broker, which priced an IPO at $20 a share, above the $17-$19 anticipated range. It was at nearly $27 on Tuesday morning.

Next up is Warner Music Group, which set the price range for its much-anticipated but long-delayed stock offering. The music publisher said it plans to sell 70 million Class A common shares at between $23 and $26 a share, with all of the proceeds going to Access Industries, a company controlled by the Russian-born, U.K.-based billionaire investor Leonard Blavatnik. Warner plans to list on Nasdaq using the ticker WMG.

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The Newest Risk to Department Stores: Direct-to-Consumer Sales by Brands
From the rise of to the decline of the mall—and now the forced closures because of the coronavirus, it seems as if department stores haven’t been able to catch a break. Now, warns Citigroup, they have another problem: a desire by brands to start selling directly to consumers.

Amid the pandemic, department stores are struggling more than ever, Citigroup’s Paul Lejuez writes, and many brands and vendors have decided to invest in their own direct-to-consumer businesses. Many were already considering the move, as department stores have long seen their market share shrink, but Lejuez thinks the recent events will accelerate the shift away from the wholesale channel.

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