Hammerstone’s Early Look
July 20, 2020|
Monday, July 20, 2020
Stock futures are edging slightly lower ahead of expected key vaccine data and ahead of a busy week of earnings results, while COVID-19 virus cases surge once again across the country over the weekend. Stocks closed higher on Friday on positive economic data, hopes for additional stimulus by the government and vaccine hopes ahead of Phase 1 trial results of AstraZeneca’s (AZN) COVID-19 vaccine developed with the University of Oxford, which are set to be published in in The Lancet today – all weighed against fears of further business disruptions due to a record rise in COVID-19 cases. Tech stocks look to resume the strong upward momentum ahead of important earnings results this week from Microsoft (MSFT), Intel (INTC), Skyworks (SWKS) and Tesla (TSLA) which are among the big names to report this week (NFLX tumbled Friday amid a slower-than-expected subscriber growth forecast for Q3). For the week, the S&P 500 and the Dow rose 1.2% and 2.3%, respectively, after optimism over an eventual coronavirus vaccine and hopes of a post-pandemic economic recovery helped investors look past a continuous surge in COVID-19 cases. The Nasdaq ended 1.1% lower for the week as investors sold shares of high-flying companies including MSFT, AMZN and NFLX. The Cboe Volatility Index (VIX) or fear index ended at 25.68, its lowest closing level since June 5 as unprecedented stimulus measures and improving economic data have helped the S&P 500 rise to within about 5% of its February record high. Markets are banking on more fiscal support as a program that offers additional unemployment benefits is set to expire on July 31. The U.S. Congress will return to Washington on Monday to debate another coronavirus aid bill. In Asian markets, The Nikkei Index rose 21 points to 22,717, the Shanghai Index jumped 100-points to settle at 3,314 and the Hang Seng Index slipped -31 points to 25,057. In Europe, the German DAX is up around 50 points to 12,970, while the FTSE 100 is down over 20 points to 6,260. The Shanghai Composite closed up 3.1% overnight after China’s regulators raised the limit on how much insurers can invest in equity assets to 45%, bringing fresh money into the stock market.
Market Closing Prices Yesterday
- The S&P 500 Index climbed 9.16 points, or 0.28%, to 3,224.73
- The Dow Jones Industrial Average fell -62.76 points, or 0.23%, to 26,671.95
- The Nasdaq Composite gained 29.36 points, or 0.28%, to 10,503.19
- The Russell 2000 Index advanced 5.76 points, or 0.39% to 1,473.32
Economic Calendar for Today
- No Major U.S. Economic Data
- Earnings Before the Open: CALM, CDNS, HAL, LII, MAN, ONB, PETS
- Earnings After the Close: ACC, BXS, CCK, ELS, GSBC, LLNW, STLD, TBK, ZION
- The U.S. counted yet another a daily record number of COVID-19 cases on Saturday, while the number of cases globally climbed above 14 million and some countries resumed restrictions on movement to contain the pandemic. The U.S. counted more than 76,000 cases overnight to set a new world record for most in a single day. Florida added another 11,000 new cases overnight, and now has 327,233 with 4,804 deaths.
- Bespoke Investment uncovered that buying the SPY on the close, and selling at the open every day since 1993 led to gains nearing 570%, while buying at the open and selling at the close returned just 3% over that period. But in 2020, this trend reversed amid the coronavirus pandemic, with all of the gains in the market coming from regular trading hour sessions, rather than after-hours and pre-market trading sessions. Buying the open and selling the close has returned 16.9% over the first 100 trading days of 2020, as per Bespoke. https://bit.ly/2WzXjJv
- Dan Clifton, head of Strategas Research Partners’ policy research unit, mentioned in Barro’s this weekend talking about sectors that would possibly benefit from a win for Democratic contender Joe Biden this November, as well as for President Donald Trump. The pure play on a Democratic sweep, Clifton says, is an infrastructure bill that will likely be considered early in 2021.
- Under Democratic win: a Democratic win will also boost renewable energy stocks, including NextEra Energy (NEE), AES Corp (AES), First Solar (FSLR), ExxonMobil (XOM), and Tesla (TSLA). A Biden administration will slow the speed of decoupling with China and be less confrontational with Europe. Applied Materials (AMAT), Broadcom (AVGO) and Western Digital (WDC) could benefit. Marijuana stocks like Canopy Growth (CGC) could get a push under Democrats, while gunmakers like Smith & Wesson (SWBI) could see a counterintuitive initial boost
- Under a Republican sweep, expect gains for energy companies such as EOG Resources (EOG) and Marathon Petroleum (MPC). Republicans are more likely to keep defense spending higher, benefiting Lockheed Martin (LMT) and Northrop Grumman (NOC). Further deregulation and tax cuts can be expected for the financial industry if Trump has a second win. Bank of America (BAC), Morgan Stanley (MS), Regions Financial (RF) and Equifax (EFX) could gain. For-profit prisons and student lenders could thrive under Republicans, benefiting GEO Group (GEO) and SLM Corp (SLM). Absent a push by Democrats for tougher regulation on tech and gig economy companies, Uber (UBER) could benefit.
Sector News Breakdown
- Nikola (NKLA) shares fell -14% after hours Friday after the company has filed to offer up to 23.9M shares, while the filing also relates to time-to-time sales from shareholders of up to 53.39M shares of common stock and up to 890,000 warrants
- Barron’s said Dollar General Corp. (DG) and the like (DLTR) are resilient while many other retailers are struggling. Could there be further upside in these stocks? Dollar Stores are ‘a retail growth story’ even in downturn, according to Barron’s noting that the number of COVID-19 cases in the U.S. is well over 3M, more than 30M Americans are still relying on unemployment benefits, and yet when times get tough, the dollar stores get going
- Cal-Maine (CALM) Q4 EPS $1.24 on sales $453.3M vs. est. $1.20 and $454M; says demand for eggs increased while prices rose 62.4% in Q4; will not pay a dividend this quarter
- Chevron Corp. (CVX) confirmed an all-stock deal to buy oil and gas producer Noble Energy (NBL) for about $5 billion or $10.38 per share. Including Noble’s debt, the deal would be valued at about $13 billion; deal was first reported by The Wall Street Journal https://on.mktw.net/2WANhIa
- Halliburton (HAL) Q2 operating income $236M vs. est. $32.9M; Q2 revs $3.2B vs. est. $3.29B; QA2 North American revs $2B; Q2 cash flow from ops $98M
- Orbital Energy (OEG) filed for a $50M mixed shelf offering
- Barron’s points out that investors have rewarded the index providers’ growth and could lift MSCI Inc (MSCI) and S&P Global Inc (SPGI) stocks further as profits climb. Notes shares of both index providers aren’t cheap, but both stocks could keep rising as new products and services translate into higher sales and profits. MSCI has rallied 45% this year to a recent $370, and trades for 47 times 2021 estimated earnings. SPGI has advanced 30% to a recent $354, and fetches 32 times next year’s expected profits
- Wells Fargo (WFC) stock could be a buy according to Barron’s noting Wells has something the other banks don’t have: problems to fix, while also noting the stock is also cheap relative to its peers. While there is no guarantee that Wells can engineer a turnaround quickly, if one is looking for a comeback story, Wells Fargo is it
- Vaccine players are on watch this morning ahead of Phase 1 trial results of AstraZeneca’s (AZN) COVID-19 vaccine developed with the University of Oxford, which are set to be published in in The Lancet. Reports last week suggested the journal will release positive news – the vaccine is believed to be in one of the most advanced stages of clinical trials.
- Overnight, the U.K. secured early access to 90M doses of vaccines in development by drugmakers including Pfizer (PFE), BioNTech (BNTX) and Valneva (INRLF), while GlaxoSmithKline (GSK) signed a deal with CureVac to develop mRNA-based vaccines and antibodies. Glaxo said CureVac’s mRNA technology would complement its own capabilities as it inked a deal worth up to £866 million ($1.09 billion).
- Grifols (GRFS) has executed purchase arrangements with the South Korean-based GC Pharma whereby Grifols will acquire the Montreal-based plasma fractionation facility and two purification facilities, along with 11 U.S.-based plasma collection centers for a total amount of $460M.
Industrials & Materials
- Boeing (BA) faces a financial drag from dozens of undelivered 787 Dreamliners on its premises in Seattle and South Carolina, just as the company starts to emerge from its 737 MAX crisis, Bloomberg reported
- Celanese Corporation (CE) enters into an agreement to sell its 45% equity investment in the Polyplastics JV to Daicel Corporation for $1.575B.
- Lockheed Martin (LMT) was awarded a $15B contract by the U.S. Air Force to develop, integrate, retrofit and produce variants of its C-130J transport aircraft, the Pentagon announces. The company also wins a $935M contract from the U.S. Navy for support equipment, autonomic logistics information system hardware
- Maxar Technologies (MAXR) has renewed four contracts and expanded a fifth contract in Q2 combined worth more than $120M.
Technology, Media & Telecom
- eBay (EBAY) rises after a report said it was nearing a deal to sell its classified-ads unit to Norway’s Adevinta; eBay is in advanced talks to sell the unit to the Norwegian group as it seeks to refocus on its core marketplace business, according to the WSJ
- Walt Disney Co. (DIS) has slashed its Facebook (FB) advertising spend, DJ reports. According to research firm Pathmatics, Disney was Facebook’s top U.S. advertiser for the first six months of 2020, spending $210M on Facebook ads for Disney+ in the U.S.
- The UK gov’t asked Japan to help build its 5G wireless networks without Huawei Technologies, the Nikkei said on Sunday, a further step in a global technology and security war between the United States and China. Britain named NEC Corp. and Fujitsu Ltd. as potential alternative suppliers to Huawei, the business daily reported, without citing sources.
- Jabil files (JBL) automatic mixed securities shelf
- Graham Holdings (GHC) mentioned positively in Barron’s calling it a low-profile, small-scale conglomerate whose shares, which are down 40% this year to about $360, look attractive. It amounts to an undervalued, “mini-Berkshire” with a good chance of a positive catalyst in a potential TV spinoff
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