Market Brief: May 4, 2020

A daily summary of news, analysis and data shaping the market.
Market Brief
Monday, May 4, 2020
Late-Session Comeback. U.S. stocks rallied in the final hours of trade to end the day in positive territory as investors looked past rising U.S.-China tensions to focus on hopes of an economic rebound from the coronavirus-induced slowdown. The Dow Jones Industrial Average rose 26 points, or 0.1%, to end the session around 23,750, the S&P 500 index gained 12 points, or 0.4%, to close near 2843, and the Nasdaq Composite index rallied 106 points, or 1.2%, to about 8,711. Mega-cap technology companies helped power the major indexes higher with Dow component Microsoft rising 2.5% in a rebound, after losing 2.6% Friday in a broad market selloff. Other tech gainers included Tesla, which led the Nasdaq-100 with an 8.5% gain, and Netflix, which ended the session up 3.1%. Analysts pegged earlier losses to comments from the Trump administration Sunday suggesting it could impose additional tariffs on Chinese goods in retaliation for its mishandling of the Covid-19 outbreak, and comments by Warren Buffett, who said he sold his firm’s airline stakes as a result of the virus. An airline-focused exchange-traded fund, U.S. Global Jets ETF, lost about 4.3% on the day.
DJIA 23,749.76 26.07
S&P 500 2,842.74 12.03
NASDAQ 8,710.71 105.77
US 10-Year Note 0.64 0.02
Dollar Index 99.54 0.46
Crude Oil 21.21 1.43
Gold 1,711.50 10.60
Global Dow 2,571.40 -35.51
Powered by Dow Jones Research, FactSet, Eurostat, SIX Financial Information.
J. Crew Is the First Major Retailer to File for Bankruptcy Because of Coronavirus
J. Crew has reached a deal with its lenders to restructure its debt, becoming the first major retailer to file for bankruptcy because of the coronavirus recession.

The privately owned retailer filed for Chapter 11 bankruptcy early Monday to carry out the restructuring agreement with lenders and equity investors. J. Crew will convert about $1.65 billion of debt into equity. It has obtained $400 million of debtor-in-possession financing and committed financing to exit bankruptcy from its lenders.

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Warren Buffett Jettisons Airline Stocks
Warren Buffett has bailed on airlines, sending the stocks into another tailspin.

Buffett said Saturday that he had sold his entire stake in U.S. airline stocks through his holding company Berkshire Hathaway. Buffett held stakes of roughly 8% and 10% in the four largest U.S. carriers: American Airlines Group, Delta Air Lines, United Airlines, and Southwest Airlines.

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Boeing Is Just Too Hard to Predict for Buffett
Warren Buffett knows commercial aerospace. His Berkshire Hathaway owned—until recently—large stakes in major U.S. airlines. His company also owns a large aerospace supplier: Precision Castparts. But it doesn’t look like he’s is going to add Boeing stock to his list of holdings anytime soon.

“We shut off air travel in this country. And what that does to people’s habits, how they behave in the future, it’s just hard to evaluate. I don’t know the answer,” said Warren Buffett at Saturday’s Berkshire Hathaway annual meeting, answering a question about the downturn in commercial aerospace. “If you think about Boeing, it is one hell of a company…we hope for the best and we wish everybody the best, obviously, and we wish ourselves the best in [aerospace], but part of [our success] is out of our—certainly out of our control.”

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Factory Orders Slid 10.3% in March, Before Brunt of Stay-Home Orders
New orders for U.S. manufactured goods fell at the fastest pace on record in March, the latest report to show the scope of the damage from the coronavirus pandemic.

Factory orders tumbled a worse-than-expected $51 billion, or 10.3%, from February, the Census Department said Monday. Economists polled by Bloomberg predicted a 9.7% decline. Transportation-related orders were a big factor behind the drop—they fell 41%—as travel slowed to a trickle and supply-chain disruptions started to build midway through the month. Backing out those, overall orders fell 3.7% from a month earlier.

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Add a Trade War With China to the Covid-19 Worry List
Fresh from logging the best month in over two decades, stocks are now faced with a familiar threat: rising U.S.-China tensions on multiple fronts. Investors are trying to assess how much of the heightened rhetoric between the world’s two largest economies could lead to action.

President Donald Trump in recent days has floated the idea of tariffs, and other possible retaliatory measures have reportedly been under discussion, including lifting China’s sovereign immunity, which would allow U.S. citizens or governments to file lawsuits against Beijing seeking damages. Shortages in critical medical and other equipment have also fueled calls for the U.S. to bring supply chains back home.

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Carnival Cruise Line Lays Out Plan to Begin Limited Sailings Aug. 1
Carnival, the world’s largest cruise operator, said it plans to resume North American sailings on a limited basis starting Aug. 1 after being sidelined amid the coronavirus pandemic.

The Miami-based cruise operator, which oversees nine brands and more than 100 ships, on Monday cited in a press release eight ships that it plans to use when it reopens.

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GE Will Lay Off 25% of Its Aviation Workers
General Electric announced more job cuts in its largest and most profitable division as it takes additional actions to resize its commercial aerospace franchise for a post-Covid world. Yes, its stock is dropping—and nearing financial crisis lows.

In a letter to employees, GE Aviation head David Joyce called the situation the industry is facing unprecedented, pointing out commercial air traffic will be down 80% year over year in the second quarter. On a typical spring day, more than 2 million passengers go through TSA checkpoints at U.S. airlines. That number is now below 200,000 a day.

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What Might Gilead’s Covid-19 Drug Cost—$10 or $4,500?
What will be the cost of a course of treatment of remdesivir, the Gilead Sciences therapeutic authorized by the Food and Drug Administration on Friday to treat Covid-19? One influential research group has come up with two suggestions based on different factors: $10, and $4,500.

The debate is moot for the moment, as Gilead has said it would donate its current stock of more than 140,000 treatment courses. But it could be important in the coming months if remdesivir becomes and remains the standard of care for Covid-19 patients.

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Tyson’s Earnings Miss Estimates
Tyson Foods missed Wall Street earnings estimates for the first calendar quarter of 2020. The meat producer reported 77 cents in per-share earnings from $10.9 billion in sales for its fiscal second quarter ending in March. Analysts were looking for $1.04 from $11 billion in sales.

“During the quarter, we witnessed an unprecedented shift in demand from food service to retail, temporary plant closures, reduced team member attendance, and supply chain volatility as a result of the virus,” said CEO Noel White in the company’s news release. “While we cannot anticipate how long the challenges presented by Covid-19 will persist, we remain focused on driving long-term growth.”

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Telefónica and John Malone’s Liberty Global Are in Talks to Merge Their U.K. Operations
Spain’s Telefónica said on Monday it is in talks with U.S. tycoon John Malone’s cable group Liberty Global over a possible merger of their U.K. operations, in a deal that would create a new television and mobile company with a combined value of almost £28 billion ($35 billion).

The Spanish telecom group said discussions to combine its O2 mobile business with Liberty Global’s Virgin Media cable network were in “negotiation phase” and it couldn’t guarantee the terms of the deal or the probability of success. People close to the situation said the talks were at an advanced stage and a deal could be announced as early as Thursday, when Telefónica is due to report its first-quarter earnings.

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