Tag: Daily Market Brief

Biden is now the Democrats’ presumptive nominee to take on President Donald Trump in November. Efforts to curtail the spread of coronavirus may have been the last nail in the coffin for the Sanders campaign. A number of states pushed back their primaries, and both candidates have suspended campaign events and rallies to prevent the spread of the virus.

Yes, the stock market is rallying. The S&P 500 rose 3.4% on Wednesday, following a 7% jump on Monday and a slight dip on Tuesday. The growth rates of new cases of the virus and related fatalities have slowed in recent days in many of the outbreak’s hot spots around the world. It’s far from an all-clear signal for overburdened hospitals and the economy, but the news has spurred a frenzy of buying nonetheless.

At the same time, the minutes also reflect how quickly the U.S. economy deteriorated and the urgency of the Fed’s effort to engineer a soft landing for the economy after the sharpest, quickest hit since the Great Depression.

According to the Bloomberg report, the plan would begin by relaxing restrictions in small cities that haven’t seen a boom in Covid-19 cases. The plan could be put into effect in as little as four weeks. The plan could rely on blood tests that determine whether people have previously been exposed to the virus and might be immune.

Despite the falling sales, McDonald’s is often viewed as a defensive play given its stable fundamentals and competitive advantages over other restaurant chains. The stock has lost 11% year to date, holding up better than most of its restaurant peers in the S&P 500, which tumbled an average of 18% during the same period.

If the production restart is the good news, salary cuts—also reported Wednesday—are the bad news. Vice presidents and above will receive temporary 30% pay cuts. Directors and up will take a 20% cut. Other U.S. employees will see pay cuts of 10%, with similar cuts planned for overseas workers. Pay cuts are expected to last through the second quarter. Reduced pay might be better than no pay at all. Hourly workers are being furloughed until May 4. Tesla employs about 48,000 people—salaried and hourly—worldwide.

Under the contract, struck under the Defense Production Act, GM is expected to deliver 6,132 ventilators by June 1 and the remainder by the end of August, the department said Wednesday.

The San Francisco-based bank had been in the regulator’s penalty box since 2018 because of the millions of bogus accounts it had created, without customers’ knowledge, to meet aggressive sales targets. The Fed imposed a $1.95 trillion asset cap on Well Fargo, preventing it from expanding its balance sheet.

The online retail behemoth will no longer offer delivery of packages not connected to Amazon’s own e-commerce platform, removing an overhang from the parcel-delivery sector. That is good news for FedEx and UPS, which have lagged behind peers in recent weeks.

Boeing said one issue involves “hypothetical faults” in the flight-control computer microprocessor, which could potentially lead to a runaway stabilizer. The second issue discovered led to the unexpected engagement of autopilot during final approach. The company said the changes it’s making to fix these issues aren’t related to the Maneuvering Characteristics Augmentation System, or MCAS, which was linked to two fatal MAX crashes.

Exxon, which had been spending more aggressively than peers, is now cutting more aggressively, too. The company will reduce its capital spending to $23 billion this year, from an expected $33 billion. It will also reduce operating expenses by 15%.

Mike Roman, the company’s CEO, said the imports will supplement the 35 million N95 respirators 3M currently produces each month in the U.S. Including local production, 3M plans to supply more than 270 million masks over the next three months. The imports will come primarily from 3M facilities in China.

As of Feb. 1, TJX had about 286,000 employees globally. Such plans would affect the majority of store and distribution center associates in the U.S. Existing employee benefits will continue for eligible employees at no cost. It plans to take comparable actions with respect to its non-U.S. workforce.

The amount of commercial and industrial loans outstanding jumped by $365 billion between March 11 and March 25, according to new data published by the Federal Reserve. That represents a 15.4% increase in the span of two weeks, which is by far the fastest growth rate in C&I lending since the data begin in 1973.

The sometimes-activist investor behind Pershing Square disclosed his newfound optimism in a series of tweets Sunday and in Pershing Square’s annual report, released late Monday. Ackman said that the aggressive use of lockdowns and stay-at-home orders to prevent the spread of the coronavirus appears to be working, meaning that his worst fears about the virus’ spread—and hell coming—may not be realized. He said he was also encouraged by recently passed fiscal relief to the country’s workforce.

As expected, WeWork parent We Co. has filed a lawsuit against SoftBank Group on behalf of a special committee of outside directors, seeking to force its single largest investor and financial rescuer to complete a now-terminated tender offer for $3 billion of WeWork shares.

That was one of the more startling disclosures in a lengthy letter to shareholders published Monday night by IAC CEO Joey Levin. A holding company best known for its large stake in the digital dating company Match Group, IAC operates a variety of ad-supported businesses, in particular through a set of content sites under the company’s Dotdash unit. In the letter, IAC said it is seeing ad rates down about 30% year over year across its ad-related businesses.

The company said in an update Monday that it now expects 3% sales growth in the first quarter. That is about $200 million better than Wall Street was modeling. Investors appeared to like the news. Kraft Heinz stock was trading 2.7% higher late in Tuesday’s session.

Lone Pine Capital had been a buyer of Luckin’s American depositary receipts late last year. It disclosed an overall investment of 6.1 million Luckin ADRs, a 14.5% stake, as of Nov. 29. But according to an SEC filing, Lone Pine’s stake in Luckin slipped below 5% on April 2—the day the alleged fraud was disclosed—and by the next day, it was zero.

Mallinckrodt shares have been slammed in recent years, as the company has struggled under a heavy debt load, an avalanche of opioid lawsuits, and other challenges. The company reached a tentative deal in February to settle the thousands of opioid lawsuits it faces. Under the terms of that deal, certain Mallinckrodt subsidiaries, including SpecGx, will file for bankruptcy and pay $1.6 billion to the opioid plaintiffs.

Trump said in the tweet that he had spoken to the Saudi Crown Prince, who had spoken with Putin. “I expect & hope that they will be cutting back approximately 10 million barrels, and maybe substantially more.”

The jump in jobless claims for the week ended March 28 doubles the 3.3 million claims in the previous week, the Labor Department said Thursday. Economists expect the ranks of the unemployed to keep rising in the weeks ahead. Goldman Sachs, for example, predicted an increase of 6 million for the latest week and sees 18 million in claims by the end of April.

The supplementary leverage ratio, or SLR, requires banks to hold an extra buffer of high-quality capital against a bank’s total assets (including derivatives exposure and off-balance sheet transactions). Under the Fed’s new rule, banks’ Treasury securities and deposits with Federal Reserve Banks won’t count toward those assets.

There are several databases available for investors and others to track. Some, including the Centers for Disease Control and Prevention as well as the World Health Organization, lag behind others—including the Johns Hopkins Coronavirus Research Center—which are updated more frequently. The trends and totals, however, closely approximate one another.

“It will take time for the aerospace industry to recover from the crisis,” CEO Dave Calhoun said in a letter to employees on Thursday. “When the world emerges from the pandemic, the size of the commercial market and the types of products and services our customers want and need will likely be different.” He said the recovery process would take years.

It is a downbeat message. To address the “new reality,” Boeing is offering a voluntary layoff plan. It is essentially a buyout for employees who want to, or can afford to, leave the company.

In a statement released on Thursday, the board said an internal investigation found that Luckin’s chief operating officer, Jian Liu, along with several employees reporting to him, fabricated transactions worth as much as 2.2 billion Chinese yuan ($310 million) from the second quarter to the fourth quarter of 2019. The number hasn’t been independently verified by the special committee, said the company, and is subject to change as the investigation proceeds.

And in a March 26 letter to investors reviewed by Barron’s, WeWork said that $1.1 billion of debt financing committed by SoftBank had been conditioned on the now-scrubbed tender offer. Multiple sources connected with that $1.1 billion loan note that SoftBank hasn’t yet committed to go forward with the funding but that it still could.

On Wednesday, the Federal Trade Commission sued Marlboro maker Altria Group to demand the unwinding of its $12.8 billion investment in the e-cigarette seller Juul Labs. Before the FTC’s move, the tobacco giant had already written down its Juul investment by two-thirds because of disappointing e-vaping sales volumes and profits and private lawsuits.

The company said Thursday morning that it has priced private offerings of $4 billion of senior secured notes with a coupon of 11.5%. It also is raising $1.75 billion in convertible notes at 5.75%. The debt matures in 2023.

Cannabis operations in every state that allows them to operate are reporting a rush on dispensaries, which have been deemed “essential services” as states close other retail activities. Recreational sales are up, too. “Like alcohol, people cope with stress by using cannabis,” says Matt Hawkins, who runs $165 million in cannabis private-equity investments at Entourage Effect Capital.

Oil prices bounced back slightly around 9 a.m., with Brent crude futures down 8.1% to $22.92 and WTI crude down 5.4% to $20.35.

The basic dynamics in energy trading markets haven’t changed. Investors are concerned that Saudi Arabia and other nations have boosted production just as Covid-19 causes economies around the world to stall and stop using as much oil.

Macy’s has been hit hard by the coronavirus pandemic, with all of its stores closed since mid-March. Plummeting consumer discretionary spending has taken a huge toll on the company’s sales.

“While the digital business remains open, we have lost the majority of our sales due to the store closures,” Macy’s said. As a result, the company is “moving to the absolute minimum workforce needed to maintain basic operations,” the statement said. “There will be fewer furloughs in our digital business, supporting distribution centers and call centers so we can continue to serve our customers online.”

The Abbott test is the second rapid point-of-care test from a major medical-device firm approved in recent days. Last week, a Danaher subsidiary received an FDA emergency-use authorization for a Covid-19 test that can return results in 45 minutes.

Though not a major vaccine maker, Johnson & Johnson was among the first companies to announce a Covid-19 vaccine development program back in January. Now, the company said its program has developed a candidate vaccine and two backup candidates. It plans to begin testing the vaccine in humans in September.

While President Trump hasn’t shut the door on these companies receiving financial assistance, they currently don’t qualify as outlined in the $2 trillion stimulus package signed into law Friday. They are effectively precluded from aid in the Cares Act because they’re incorporated overseas in countries like Liberia and Panama, meaning they pay little in U.S. taxes.

Earlier this month, Microsoft disclosed a sharp increase in users of its Teams collaborative communications software to more than 44 million daily users. In the latest disclosure, Microsoft added that Windows Virtual Desktop usage is up more than three times and noted that government use of the company’s business intelligence software to share “dashboards” on the virus has surged 42% in a week.

Declared dividends among S&P 500 companies increased by 9% in the first quarter, but “we expect a wave of dividend suspensions, cuts and eliminations will result in dividends declining by 38% during the next nine months,” the note observes. As a result, the dividends paid out this year will end up being 25% below last year’s level, Goldman adds.

Nearly 50 companies tapped markets to raise $109 billion last week, the highest ever. About $63 billion of that came in the first half of the week, just as investors were withdrawing record amounts of cash from bond funds: There were $38 billion of outflows from investment-grade corporate bond funds in the week ended March 25, according to Refinitiv Lipper data.

The government wants to ensure mail and packages keep flowing during this unprecedented period of economic pause. It’s a necessary step given that logistics providers are the lifeblood of any economy.

The health-care provisions under the package, which requires approval from President Trump before going into effect, will be particularly welcome to families with high-deductible health insurance plans and either health savings accounts (HSAs) or flexible spending account (FSAs), which are pretax savings accounts specifically for health-care expenses.

The Senate approved the bill just before midnight Wednesday, sending the measure to the House for a planned vote on Friday. It was passed in that chamber by a voice vote.

The text of the bill includes measures that Democrats fought for in negotiations, including additional oversight of the $500 billion corporate aid fund and a significant expansion in the duration and generosity of unemployment benefits. Also included is a measure that will send many individuals $1,200 checks along with $500 per child.

“As usual with ‘this’ General Motors, things just never seem to work out,” Trump tweeted Friday. “They said they were going to give us 40,000 much needed Ventilators, “very quickly.” Now they are saying it will only be 6000, in late April, and they want top dollar. Always a mess with Mary B.,” he said in reference to the company’s CEO Mary Barra.

One big concern: The companies don’t qualify for financial assistance as outlined by the U.S. Senate’s $2 trillion stimulus bill. Recipients of aid, including loans or loan guarantees, must be “organized in the United States” under U.S. laws, have significant operations there, and have a majority of its employees based there as well, according to the Senate bill.

A key sticking point for the cruise companies is that while they are based in the U.S., they are incorporated abroad. That means they don’t pay a lot of U.S. taxes. They do pay state income taxes and port fees, according to The Wall Street Journal.

The University of Michigan’s index of consumer sentiment dropped to 89.1 in March from 101.0 in February. That’s the lowest level in more than three years, and the monthly decline is among the worst on record. Economists polled by The Wall Street Journal expected a slightly less severe drop to 90.0.

Dell said in an SEC filing that it is seeing “heightened interest in work from home solutions and continuing execution in its global supply chain, and remains confident in its liquidity position,” but that it is “unable to predict the extent to which the global Covid-19 pandemic may adversely impact its business operations, financial performance and results of operations for the current fiscal year.”

In statements Thursday, Mylan and Pfizer said that the deal, which was expected to close in the middle of this year, will now close in the second half of this year. They also said that a Mylan shareholder meeting at which shareholders were to vote to approve the deal has been postponed from April 27 to June 30.

Now, after a slow start, there are nearly 60 programs under way to develop a Covid-19 treatment and more than 40 to develop a vaccine, by both commercial and noncommercial labs, according to an accounting by the Milken Institute. Brian Abrahams, an analyst at RBC Capital Markets, thinks the biotech industry should be doing much more.

In a note out on Friday, SVB Leerink analyst Geoffrey Porges argued that share buybacks would face far more scrutiny after the current crisis, which could force biopharma executives to spend their cash in other ways.

One could say it was for Ackman—though perhaps not in the way he would have intended. The win was overshadowed by an emotional interview Ackman gave to CNBC on March 18, just several days before he finished unwinding the hedges. Questions subsequently arose about his motives for the CNBC appearance, in which the billionaire investor warned that “hell is coming.”

The certain rise in unemployment, plus the fall in global commodities, especially those related to energy, will hold down prices for some time. But once the crisis caused by this pandemic has passed, the aftereffects of the efforts to counter it could be bad news for bond investors, in the form of higher inflation and higher interest rates.

The bill passed the Senate unanimously and was headed to the House, where it is expected to pass in a voice vote Friday morning, setting up President Donald Trump to quickly sign it into law.

The aid package allows for one-time checks of $1,200 to Americans with adjusted gross income up to $75,000 for individuals and $150,000 for married couples. Individuals and couples are eligible for an additional $500 per child. The payments decline by $5 for each $100 of income over those thresholds, and phase out for individuals whose incomes exceed $99,000, $146,500 for head of households with one child, and $198,000 for joint filers without kids.

In addition to the one-time checks, the Senate aid package includes a broad expansion of unemployment benefits. The bill allows for such benefits to extend to nontraditional employees, including gig workers and contractors who lack benefits in some states. Current unemployment assistance would rise by $600 a week for four months (through July 31).

In the week ended March 21, seasonally adjusted initial jobless claims were 3.28 million, up more than 1,000% from a revised 282,000 in the prior week, the Labor Department said Thursday. The result was far worse than the average Wall Street estimate: Economists polled by Bloomberg expected 1.64 million in new jobless claims.

Air travel isn’t likely to recover soon. But the stocks could continue to climb as the risk of bankruptcies and a liquidity crunch fades.

Boeing—one of the two dominant aircraft makers—is supportive of the bill, but it isn’t clear the company will take bailout dollars. CEO Dave Calhoun said earlier this week Boeing won’t take special support if it comes with too many strings attached. Still, federal loan guarantees and payments to the aviation industry are good news for Boeing. It wants its customers to be healthy. And Covid-19 is the worst episode in the airline industry’s history.

According to the Senate text, the bill creates a $100 billion fund for grants to health-care providers to help with expenses or lost revenues attributable to Covid-19. The bill gives Secretary of Health and Human Services Alex Azar substantial leeway in how the funds will be allocated, according to an analysis from Raymond James analyst Chris Meekins.

In a letter dated March 18, Cheesecake Factory Chairman, founder, and CEO David Overton wrote that the chain’s locations will resume paying rent as soon as possible.

That’s because enticing consumers carries a risk of triggering fiscal pressure, analysts Miao Ouyang, Helen Qiao and Xiaojia Zhi at Bank of America Merrill Lynch, told clients in a note Thursday.

That gloomy assessment, however, doesn’t mean dividends are dead everywhere. “There are plenty of opportunities to find equity income right now,” says David Kelly, chief global strategist at JPMorgan Asset Management, though he cautions that it depends on the individual company and sector. “There are plenty of sectors that will get through in a tough scenario,” he says, pointing to financials and health care as examples.

To qualify for the provisions, individuals need to fall into one of two main categories. You, your spouse or a dependent is diagnosed with Covid-19, the disease caused by the new coronavirus. Alternatively, you qualify if you have experienced adverse financial consequences as a result of being quarantined, furloughed, laid off, having work hours reduced, being unable to work due to lack of child care or closures related to the coronavirus pandemic.

The precise language was still being written on Wednesday morning, but a few key points were emerging. Companies that get aid will be required to stop buying back their stock, an oversight panel will keep tabs on $500 billion in aid for troubled companies, and the medical system will get a major chunk of aid that Sen. Minority Leader Charles Schumer described as a Marshall Plan for facilities battling the coronavirus.

The company, which has vast holdings in the Permian Basin in the U.S. and other areas, also said it had made a deal with activist investor Carl Icahn to add his nominees to the company’s board of directors. Icahn had criticized Occidental for buying oil-and-gas producer Anadarko last year, saying the deal was too expensive. Buying Anadarko left Occidental with more than $30 billion in net debt at the end of the year.

It is rare for short-term Treasury yields to fall into negative territory, though not unprecedented. And it probably is a sign that the coronavirus cash grab hasn’t fully abated, despite U.S. authorities’ efforts to ease the impact of the virus on the country.

The company said Wednesday that it is pulling its full-year profit, sales, and earnings-per-share guidance because of an “unusually wide range of potential outcomes” during the first quarter of the year.

The move shows just how hard it is for any business—and retailers in particular—to fully understand the financial impact that the coronavirus outbreak will have. Target, for instance, has seen a boom in sales, but it has also spent $300 million over and above usual costs to keep its stores stocked, as supply chain disruptions and massive customer demand for specific items hit the company simultaneously.

While China is reportedly the world’s largest producer of the active pharmaceutical ingredients used to make drugs, India is a major manufacturer of generic drugs. But analysts suggest that the Indian order, meant to diminish the spread of Covid-19, may not be an issue for Mylan.

That’s the conclusion of the J.P. Morgan Global Quantitative and Derivatives Strategy team headed by Nikolaos Panigirtzoglou. It sees net purchases of $3.25 trillion in equities in major investment sectors over the rest of the year, a dramatic reversal of the net selling of $1.88 trillion the team estimates took place during the first quarter.

Late Tuesday, Facebook disclosed in a blog post that it has “seen a weakening in our ads business in countries taking aggressive actions to reduce the spread of Covid-19.” On Monday, Twitter sharply reduced its own March quarter revenue outlook, citing the impact of a slowing global ad market. While both Facebook and Twitter are seeing an increase in usage, there has not been an accompanying boost in revenue.

According to the association’s latest Weekly Mortgage Applications Survey, the volume of home-purchase applications for the week ended Friday was 15% lower than it was a week earlier. It was down 11% from the same week one year ago.

Many of these workers are in customer-facing roles in retail, travel, and food service. But their customers have disappeared. Lacking personal resources, these millions of Americans could be reduced to desperate straits without quick government help. “This is a real issue, from a survival standpoint,” Alpert says, “and from ensuring law and order.”

Most insurers have already said they would cover the costs of Covid-19 tests. Aetna appears to be the first major insurer to take this further step.