After Hours Summary: GRUB -2.7% gives up some gains after hours; PGNY +16.3%, UNFI +3.8%, ALGT +2.5% up on earnings; VREX -11.9%, INFN -9.3%, EGHT -5.9% down on earningsAfter Hours Gainers:
Companies trading higher in after hours in reaction to earnings/guidance: PGNY +16.3%, UNFI +3.8%, ALGT +2.5%, NVST +0.3%, RXN +0.2%
Companies trading higher in after hours in reaction to news: STNG +4.7% (announces purchase of common shares by Scorpio Services), MYL +4.4% (confirms deal to distribute Gilead's remdesivir for COVID-19 in certain regions), GOSS +2.6% (co and ARPO announce amended licensing deal for GB004), MSA +0.7% (increases dividend)
After Hours Losers:
Companies trading lower in after hours in reaction to earnings/guidance: VREX -11.9%, INFN -9.3%, TCS -7%, EGHT -5.9% (also signs strategic partnership with Virgin Media Business), HCAT -5.8%, SWAV -5.6%, ADPT -5.4%, HLI -1.2%, RLJ -0.6%, OR -0.2%, ALC -0.1%
Companies trading lower in after hours in reaction to news: ATOM -10% (stock offering), FWP -7.4% (announces new data for EP2801355 appeal hearing on account of COVID-19), OYST -6.7% (commences public offering of 2.5 mln common shares), PRPL -5.9% (launches offering of 9 mln shares by selling stockholders), PODD -3.8% (announces $500 mln stock offering), GRUB -2.7% (CNBC indicating that Uber rejected a proposal to acquire Grubhub for 2.15 UBER shares per GRUB share), XRAY -0.5% (files mixed securities shelf offering)
*DRUCKENMILLER SAYS RISK-REWARD FOR STOCKS AS BAD AS I'VE SEEN
*DRUCKENMILLER: A V-SHAPED RECOVERY IS A FANTASY*DRUCKENMILLER: U.S. LIKELY TO SEE HIGHER TAXES, REGULATION
*DRUCKENMILLER: NEGATIVE RATES MAKE NO SENSE
*DRUCKENMILLER: STIMULUS WILL BE DEFLATIONARY, NOT INFLATIONARY
*DRUCKENMILLER: STIMULUS PROGRAMS PRETTY `ANTI-CAPITALIST'
*DRUCKENMILLER: STIMULUS PROGRAMS NOT BUILDING FUTURE GROWTH
Closing Stock Market SummaryThe S&P 500 fell 2.1% on Tuesday, with a bulk of losses coming in afternoon trade and into the close. The Dow Jones Industrial Average (-1.9%) and Nasdaq Composite (-2.1%) declined comparably to the benchmark index, while the Russell 2000 underperformed with a 3.5% decline.
There wasn't one specific catalyst driving stocks lower, but profit-taking interest might have been fueled by legislation put forth by Senate Republicans to impose sanctions on China and by Los Angeles reportedly planning to extend the county's stay-at-home order for another three months.
News of the Senate proposal did seem to initiate the selling in the market, which had been trading flat beforehand. The LA news also coincided with the late-day selling, as it paid heed to NIAID Director Fauci's Senate testimony in which he cautioned about reopening the economy too soon.
It's unclear if the market was truly perturbed by the news or if it provided a good excuse for some overdue selling. In either case, all 11 S&P 500 closed in negative territory, led lower by the real estate (-4.3%), industrials (-2.8%), and financials (-2.7%) sectors. The consumer staples (-0.9%) and utilities (-0.9%) sectors declined the least.
Bank and airline stocks were among today's the weakest performers, which was made evident in sharp declines in the SPDR S&P Bank ETF (KBE 27.51, -1.45, -5.0%) and the U.S. Global Jets ETF (JETS 12.68, -0.57, -4.3%).
Bank stocks were pressured by a modest decline in Treasury yields and by President Trump rehashing calls for negative interest rates. Airline stocks were pressured by Boeing (BA 125.22, -3.69, -2.9%) CEO Calhoun telling NBC's "Today" show that a major U.S. airline could go bankrupt because of COVID-19 disruptions.
Conversely, shares of Uber (UBER 32.40, +0.76, +2.4%) and GrubHub (GRUB 60.39, +13.60, +29.1%) exhibited strength after it was reported that Uber made a bid to acquire GrubHub.
As previously noted, U.S. Treasury yields declined amid an uptick in demand for the safe-haven asset. The 2-yr yield declined two basis points to 0.16%, and the 10-yr yield declined five basis points to 0.68%. The U.S. Dollar Index declined 0.3% to 99.97. WTI crude rose 5.3%, or $1.30, to $25.76/bbl.
Reviewing Tuesday's economic data:
- The Consumer Price Index declined 0.8% m/m in April, as expected, while core CPI, which excludes food and energy, declined 0.4% (consensus -0.2%). That was the largest drop in total CPI since December 2008 and the largest drop on record going back to 1957 for core CPI.
- The key takeaway from the report is that it is a telltale reminder that the Federal Reserve isn't moving off the zero bound anytime soon.
- The Treasury Budget for April showed a deficit of $737.85 billion versus a surplus of $160.3 billion in the same period a year ago.
- 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.
- The NFIB Small Business Optimism Index for April declined to 90.9 from 96.4 in March.
Looking ahead, investors will receive the Producer Price Index for April and the weekly MBA Mortgage Applications Index on Wednesday.
- Nasdaq Composite +0.3% YTD
- S&P 500 -11.2% YTD
- Dow Jones Industrial Average -16.7% YTD
- Russell 2000 -23.6% YTD
WSJ : Uber Technologies Makes Takeover Approach to GrubHub
Uber, GrubHub continue to discuss possible all-stock deal
Uber Technologies Inc. is seeking to acquire GrubHub Inc. in a deal that would unite two of the biggest players in meal delivery at a time when the coronavirus pandemic has sparked a surge in demand for their services.
Uber, which in addition to its flagship ride business operates a big meal-delivery unit known as Uber Eats, earlier this year approached GrubHub with a takeover offer and the companies continue to discuss a possible combination, according to people familiar with the matter.
It’s far from guaranteed the talks will produce a deal.
Should one come to pass, it would reshape the meal-delivery business, a key pillar of the new economy whose prominence has been heightened by the pandemic.
As of earlier Tuesday morning, GrubHub had a market value of $4.4 billion while Uber’s was $54 billion.
Boeing Predicts an Airline Bankruptcy. Here’s a Way to Calculate the Odds for Each.
Boeing CEO Dave Calhoun said in an NBC interview on Tuesday that a U.S. airline bankruptcy is likely in 2020. It is a curious comment coming from an executive whose company sells to airlines, but Covid-19 has hit the industry particularly hard.
Looking ahead, Calhoun’s comment raises two questions for investors: which airline and is that bad for Boeing?
The answer to the second question is: not so much. Many airlines have gone bankrupt in the past and demand for air travel —which fuels demand for Boeing’s (ticker: BA) planes—continued to grow year by year.
Covid-19, of course, is unprecedented, cratering demand for air travel like no other event in history. Air travel in the U.S. is down more than 90% year over year. Boeing expects demand to be back to roughly 50% of previous levels by year-end. That assumes the economy reopens and things start to get back to normal. Many Wall Street analysts think it will take years to get back to pre-virus demand.
Boeing shares are down on that expectation, falling about 60% year to date, worse than comparable drops of the Dow Jones Industrial Average and S&P 500. Shares of major U.S. airlines are down, on average, about 60% year to date too. But if bankruptcy is in the offing, some airline shares might have further to fall.
There are financial instruments that help investors judge the odds of default for any company, namely the credit default swaps, or CDS, that helped catalyze the 2008-09 financial crisis. Buying a CDS literally swaps the risk of a bond default from one investor to another investor. The investor who takes the risk gets paid. The riskier the bond, the higher the price.
Examples among airlines are Southwest Airlines (LUV) and Delta Air Lines (DAL), which have the best balance sheets in the industry and appear to be in the best position to weather the downturn.
Those prices are much higher than normal. Protecting Apple (AAPL) bonds, for instance, costs about 30 cents per $100, according to Bloomberg CDS pricing quotes.
American Airlines (AAL) CDS are trading at spreads of 54%. United Airlines (UAL) CDS trade for 24%. JetBlue Airways (JBLU) CDS trade for 1.6%. Investors appear to be most nervous about American’s ability to repay. Thus, its bonds are the costliest to insure.
There is, of course, no guarantee that Calhoun’s prediction will come true. The federal government is offering support to the airlines, including American, much like the support offered to banks in 2008-09. That is one way airlines might avoid bankruptcy. But the government will take some form of equity in the airlines receiving money, diluting the value of existing shareholder stakes.
Warren Buffett recently made headlines when he said his Berkshire Hathaway (BRK.A) sold all the airline stocks it held. He explained at the company’s annual meeting that it wasn’t anything that the airlines had done strategically. He makes a good point. No one saw the virus coming, nor its devastating impact on air travel.
China-focused hedge funds record best month in half a decade
Gains in April helped by optimism over rebound by world’s second-biggest economy
China-focused hedge funds recorded their best monthly performance in half a decade in April, as a rebound in the country’s markets following the coronavirus sell-off helped investors outperform their global peers.
The Eurekahedge Greater China Hedge Fund index — which tracks almost 70 hedge funds with about $30bn between them — climbed 9.7 per cent last month, according to new data. That was its best showing since April 2015, and brought its year-to-date performance to a gain of 2.5 per cent.
Hedge funds investing in the world’s second-biggest economy were supported by a strong rally in Chinese markets during the period, as Beijing began to restart commercial and industrial activities that had been paused to contain the Covid-19 outbreak.
Mohammad Hassan, head analyst for hedge fund research at Eurekahedge, said China-focused funds had benefited from a tendency to invest in small and mid-cap companies, which had gained more in April than the larger and more frequently traded stocks in the CSI 300 benchmark index. The investment firms had “done a good job of capturing the market upside,” he said.
Global funds tracked by Eurekahedge climbed 3.7 per cent over the same period, their strongest monthly performance in years but still leaving them down 4.6 per cent this year.
“We think China as a whole, for risk-adjusted return, is still the best,” said Monica Hsiao, chief investment officer at Hong Kong-based Triada Capital, an Asia credit-focused fund that saw a gain of 4.25 per cent in April.
The debt markets have generally been trickier to navigate. Concerns have mounted over the outlook for Chinese property developers, which have been hit hard by the pandemic and face a $20bn wall of payments on dollar debt maturing this year.
Tuesday also brought the first default in China’s offshore bond market to result from this year’s oil price crash. Hong Kong-listed oil explorer MIE Holdings confirmed it had failed to make an interest payment of about $17m within the 30-day grace period for its 2020 US dollar bond, which had a coupon of 13.75 per cent.
Ms Hsiao said that the default by MIE did little to move the dial for high-yield issuers in the region. The risk of offshore default for Chinese developers was also relatively low, she said, as borrowers had plenty of access to funding from banks onshore at rates far below what they could get from offshore markets.
With default rates by riskier Asian companies forecast to rise as high as 5.5 per cent this year, and US rates expected by some to climb into the double-digits, “it makes sense to look at Asia as a diversification strategy”, Ms Hsiao argued.