After Hours Summary: MHK -6.7% falls as it discloses receipt of subpoenas; VNDA +9.3% as it receives FDA authorization for protocolAfter Hours Gainers:
Companies trading higher in after hours in reaction to news: VNDA +9.3% (receives FDA authorization for protocol for the use of tradipitant for gastroparesis), SPAQ +3.3% (Fisker, which is being acquired by SPAQ, reportedly in talks to use Volkswagen platform to power its SUV, according to The Verge), BA +2.8% (awarded $22.9 bln Air Force contract), EW +1.6% (ABT and EW settle patent cases), IMMU +1.3% (expands collaboration with Roche to evaluate Trodelvy with Tecentriq), ABT +0.6% (ABT and EW settle patent cases)
After Hours Losers:
Companies trading lower in after hours in reaction to news: OSMT -8.2% (commences 5.0 mln share common stock offering), MHK -6.7% (discloses receipt of subpoenas), ALT -3.4% (stock offering), IVZ -1% (reports assets under management)
Last time we saw such a big discrepancy between Nasdaq and Ruseel was in 1999/2000
Closing Stock Market SummaryThe S&P 500 advanced as much as 1.6% on Monday, but a confluence of negative-sounding headlines caused noticeable profit taking in many of the technology-related stocks that left the benchmark index down 0.9% for the session. The Nasdaq Composite fell 2.1%, and Russell 2000 fell 1.3%. The Dow Jones Industrial Average (+0.04%) eked out a fractional gain.
The S&P 500 information technology (-2.1%), communication services (-2.0%), and consumer discretionary (-1.7%) sectors declined the most, while the health care (+0.5%), industrials (+0.4%), and financials (+0.3%) sectors showed relative strength.
The day started in rally mode with the FAANG stocks hitting fresh all-time highs and health care stocks outperforming after two COVID-19 vaccine candidates from the Pfizer (PFE 35.21, +1.38, +4.1%) and BioNTech (BNTX 77.78, +7.42, +10.6%) collaboration received fast-track designation from the FDA.
After the S&P 500 topped out at the 3235.28 level at around 1:40 p.m. ET, the Treasury Budget for June revealed a record $864.1 billion deficit, the Los Angeles and San Diego Unified School Districts announced that the new school year will start remotely, and Secretary of State Pompeo confirmed the U.S. will strengthen its policy on China's territorial claims in the South China Sea.
Losses accelerated, taking the market into negative territory, after California Governor Newsom announced all counties have to re-close indoor operations in several business sectors due to the coronavirus. In addition, the inability of the S&P 500 to stay above its June 8 closing level (3232.39) likely contributed to the downwards momentum.
Shares of Tesla (TSLA 1497.06, -47.59, -3.1%), which were up as much as 16%, turned negative and encouraged profit taking in many of the other mega-cap technology stocks that some say had gotten overbought. Each of the FAANG stocks closed lower.
In other developments, PepsiCo (PEP 134.94, +0.45, +0.3%) beat top and bottom-line estimates; Analog Devices (ADI 117.25, -7.25, -5.8%) issued upside Q3 guidance and agreed to acquire Maxim Integrated (MXIM 69.29, +5.20, +8.1%) for approximately $21 billion in stock; and Macau lifted its quarantine travel restrictions, boosting many of the casino stocks.
U.S. Treasuries ended the session near their flat lines. The 2-yr yield was flat at 0.16%, and the 10-yr yield increased one basis point to 0.64%. The U.S. Dollar Index decreased 0.1% to 96.54. WTI crude decreased 1.2%, or $0.49, to $40.08/bbl.
Reviewing Monday's economic data:
- The Treasury Budget was earmarked with a gaping (and record) $864.1 billion deficit for the month of June. This budget data is not seasonally adjusted, so the June deficit cannot be compared to the May deficit of $398.7 billion other than to say both qualify as massive shortfalls in terms of government finances. The deficit in June 2019 was $8.5 billion.
- The key takeaway from the report is that the huge swing in the budget was a function of the tax filing deadline being extended, and government spending surging, due to stimulus measures employed in response to the COVID-19 impact.
Looking ahead, investors will receive the Consumer Price Index for June on Tuesday.
- Nasdaq Composite +15.8% YTD
- S&P 500 -2.3% YTD
- Dow Jones Industrial Average -8.6% YTD
- Russell 2000 -15.9% YTD
Putin delays $360bn spending plan as Covid-19 batters economy
Volte-face comes shortly after vote that allows Russian president to extend his rule for another 16 years
Vladimir Putin has delayed his flagship $360bn national investment plan by six years as the coronavirus pandemic pitches Russia into recession and leaves a hole in the federal budget.
Mr Putin unveiled the so-called National Projects two years ago as a much-needed Rbs25.7tn ($362bn) injection into the Russian economy, and promised it would lift stagnant living standards and drive up moribund GDP growth to exceed the global average by 2024.
The decision to delay the initiative, billed by the Kremlin as Mr Putin’s primary domestic objective during his current term as president, is the starkest sign yet of the damage the Covid-19 pandemic is wreaking on Russia’s economy and the long-term impact on the country’s budget revenues.
It is also a volte-face on Mr Putin’s pledge earlier this year to boost short-term spending as he sought to revive his sagging public ratings, and comes just a few weeks after he won a national vote endorsing a new constitution that will allow him to ignore previous term limits and rule for another 16 years.
Postponing the investment bonanza is likely to further delay Russia’s recovery from a six-year economic funk and means real household incomes are likely to continue to fall, potentially deepening public discontent that has fuelled a series of protests against Mr Putin over the past year.
Analysts have pointed to a recent surge in arrests and detentions of political opponents, journalists and activists as a sign that the Kremlin will seek to combat public discontent with force rather than handouts.
“We have to work under tighter budget constraints,” prime minister Mikhail Mishustin told Mr Putin in a televised meeting on Monday.
“The spread of the coronavirus and its consequences for the global economy and our country . . . have created new limits, slowing economic growth and constricting consolidated budget revenues,” he added, before Mr Putin endorsed his suggestion that the National Projects deadline should be extended to 2030.
Russia’s domestic lockdown to prevent the spread of Covid-19 and a global slowdown that has hit demand for its natural resource exports are set to see the country’s economy contract by 6 per cent this year, according to World Bank forecasts, and only begin to recover in 2022.
In addition, a plunge in oil prices caused by a global collapse in demand for fuel from drivers, airlines and shippers is expected to result in a $40bn shortfall in budget revenues this year.
The Kremlin’s decision to save cash by delaying the National Projects plan comes as other European governments roll out massive stimulus programmes to help their economies bounce back from the pandemic.
Western sanctions imposed on Russia after its 2014 annexation of Crimea restrict Moscow from borrowing on international debt markets, and Mr Putin has resisted tapping the country’s $170bn national wealth fund, fearing that it will be necessary to protect against potential future sanctions.
Weekly Warm Up: Party Like It's 2020, Not 1999
While comparisons to 1999 abound, we look at the similarities and the differences. Bottom line, we don't expect a narrow blow-off move this time. Instead, we expect a new economic cycle will lead to broader participation in the bull market once this ongoing correction is over.
In the past few weeks we have heard more comparisons to 1999. The similarities
are numerous, but so are the differences. We do not think the US equity market
is about to enter a narrow 1999 type blow-off move led by the Nasdaq. Instead,
we believe the correction that began in early June is likely not over and has
potential downside to 2800-2850 on the S&P 500. Once the correction is over,
we expect a broadening of performance and leadership, with most sectors and
stocks doing well in this new bull market.
The past month has been very difficult for many of the early cycle/recovery
stocks. We think this underperformance represents a consolidation of the first
leg higher during which cyclicals trounced defensives by 42%. This is a clear
change of leadership from the late cycle environment of the past few years
during which cyclicals consistently underperformed defensives. The economic
data supports our V-shaped recovery, which means we want to buy this dip in
cyclicals as the market corrects over the next few weeks.
Many tech companies were beneficiaries of the stay-at-home environment, but
much of this benefit was likely a pull forward of demand. Morgan Stanley's
latest CIO Survey published this past week projects IT budgets to decline (4.4%)
in 2020, a record decline and worse than the (3.5%) drop seen in our 1Q09
survey at the trough of the GFC recession. This makes perfect sense to us given
the inherent cyclicality of technology capital spending. It also presents a risk and
opportunity for investors who can discern between the true secular growers that
are experiencing a sustainable acceleration in existing trends versus those that
got a one-time boost from the lockdown.
Earnings growth is expected to trough in the second quarter at -45% y/y.
Substantial dispersion between sectors/industry groups exists, with defensive
areas expected to experience relatively better growth while cyclical areas are
expected to see a severe decline in earnings. Coming out of a recession, we think
it pays to buy those stocks with the lowest expectations—i.e., cyclicals, and to be
careful with defensive stocks that have relatively high earnings growth
expectations.