Closing Stock Market SummaryThe S&P 500 rebounded 6.0% on Tuesday, as investors reacted positively to additional monetary stimulus measures and the possibility of an estimated $1 trillion fiscal stimulus package. The Dow Jones Industrial Average rose 5.2%, the Nasdaq Composite rose 6.2%, and the Russell 2000 rose 6.7%.
The plan from the White House reportedly includes $500-550 billion for direct payments or tax cuts to Americans, $200-300 billion for small business assistance, and $50-100 billion for airline industry relief. The administration is also considering support for homeowners whose impact was cut due to the coronavirus, according to Bloomberg.
The Fed, meanwhile, established a temporary commercial paper funding facility to help alleviate strains induced on commercial paper markets. Companies typically acquire short-term financing from this market. The Treasury Secretary approved the decision and will provide the Fed $10 billion in credit protection and the ability to purchase up to $1 trillion in commercial paper if needed.
Elsewhere, efforts to contain the spread of COVID-19 continued to be made: NYC Mayor Bill De Blasio said New Yorkers should be prepared for an order to "shelter in place," the EU temporarily closed external borders, and Apple (AAPL 252.63, +10.42, +4.3%) extended store closures outside Greater China until further notice.
Despite the stimulus plans, and preventative measures, it was a defensive-minded rally led by the S&P 500 utilities (+13.1%), consumer staples (+8.4%), and real estate (+6.9%) sectors. The energy sector (+0.7%) underperformed amid continued weakness in the price of oil ($27.02/bbl, -1.83, -6.3%).
This defensiveness might be attributed to an understanding that economic disruptions will continue to lead to a negative, and currently unquantifiable, impact to the economy. This was painfully manifested in Marriott (MAR 75.24, -11.18, -12.9%) starting to furlough workers without pay. On a related note, Facebook (FB 149.42, +3.41, +2.3%) said it would give $1000 to employees.
Separately, the slight underperformance of the Dow was mainly due to the loss in shares of Boeing (BA 124.14, -5.47, -4.2%), which had its S&P credit rating downgraded to BBB due to weaker cash flows. President Trump did say he wants to help the company, though.
U.S. Treasuries sold off in a curve-steepening trade, not because of a better economic view but because of worries that longer-dated bonds will be needed to fund a rising deficit. The 2-yr yield rose eight basis points to 0.45%, and the 10-yr yield rose 27 basis points to 1.00%. The U.S. Dollar Index rose 1.7% to 99.81.
Reviewing Tuesday's economic data, which was wasn't fully representative of current conditions caused by the coronavirus:
- Total retail sales declined 0.5% m/m (consensus +0.1%) following an upwardly revised 0.6% increase (from 0.3%) in January. Excluding autos, retail sales were down 0.4% m/m (consensus +0.1%) after an upwardly revised 0.6% increase (from 0.3%) in January.
- The key takeaway from this report is that it reflected soft spending activity before the the coronavirus impact (and reaction) truly hit the U.S. That's not comforting knowing that the retail sales data in March is going to be absolutely awful.
- Industrial production increased 0.6% m/m in February, as expected, following a downwardly revised 0.5% decline (from -0.3%) in January. Total capacity utilization was 77.0% (consensus 77.1%) following a downwardly revised 76.6% (from 76.8%) in January.
- The key takeaway from the report is that the good feelings about the pickup in output in February will be stunted by the reality that March output is apt to look much worse given the economic shutdown measures employed to help curb the spread of the coronavirus.
- The NAHB Housing Market Index for March declined to 72 (consensus 74) from 74 in February.
- The January Job Openings and Labor Turnover Survey showed job openings increase to 6.963 million from a revised 6.552 million in December (from 6.423 million).
- Business inventories decreased 0.1% in January, as expected, while the December reading was unrevised at 0.1%.
Looking ahead, investors will receive Housing Starts and Building Permits for February and the weekly MBA Mortgage Applications Index on Wednesday.
- Nasdaq Composite: -18.3%
- S&P 500: -21.7%
- Dow Jones Industrial Average: -24.1%
- Russell 2000: -33.7%
A Generational War Is Brewing Over Coronavirus
Scientists say lack of alarm among young people could hinder the fight against the virus and endanger elders
Scientists and government officials fighting the coronavirus epidemic say they have a problem: Carefree youths.
As authorities moved to restrict social gatherings last week, bars and restaurants from New York to Berlin filled up with revelers, illegal “lockdown parties” popped up in France and Belgium, and campuses in the U.S. lit up for end-of-the-world dorm parties.
So far, most young Covid-19 patients have experienced mild or no symptoms from the virus, while more severe cases are concentrated among those aged 50 and over. Data released last week by the National Health Institute in Italy, currently the world’s worst-hit country, shows mortality rates starting at 0% for patients aged 0 to 29 and edging up to peak at 19% for those over 90.
Yet scientists say tests have shown children and young adults are no less likely than older people to get infected and transmit the virus. Epidemiologists are growing concerned that the millennial pushback against social-distancing measures—and an emerging generational divide about how the disease is perceived—could undo all efforts to slow the spread of the virus and put vulnerable people at high risk.
President Trump on Monday stressed that young people can spread the virus even if they only have mild symptoms and recommended that Americans avoid restaurants and gatherings of more than 10 people. French President Emmanuel Macron went further, announcing a nationwide lockdown and punishment for those who violate the rules.
So far, the young don’t seem to be listening.
After social media became filled with reports of packed bars and restaurants in New York, 30-year-old Rep. Alexandria Ocasio-Cortez (D., N.Y.) tweeted to her millions of followers on Saturday.
“To everyone in NYC but ESPECIALLY healthy people & people under 40, (bc from what I’m observing that’s who needs to hear this again), PLEASE stop crowding bars, restaurants, and public spaces right now. Eat your meals at home.”
After Princeton University said last week it would move classroom instruction on-line on March 19 and send most of its students home, the campus saw an explosion in gatherings and parties, according to students and staff.
“People were not ready to give up their lifestyle without one last hurrah,” said Ben Weissenbach, a Princeton undergraduate English major who was critical of some of the partying. “At a really privileged place like Princeton, we don’t tend to even consider the possibility that our bubble could be popped.”
In an email to all students on Friday, the university announced stricter measures and penalties for offenders, saying “we are disheartened to see that so many students are failing to heed these protective measures and engaging in disruptive behavior.”
In a display of juvenile gallows humor, the hashtag #BoomerRemover, a nickname for the novel coronavirus, briefly trended on Twitter last weekend.
Across Europe, where social life is shutting down faster than in the U.S., a divide is spreading between the young, many of whom say they don’t fear the virus, and their elders, including politicians and scientists, whose alarm about the illness is growing by the day.
In Berlin, a European clubbing hot spot, authorities ordered the closure of all bars and clubs on Saturday. Yet many establishments ignored the decree, forcing police to forcibly shut down some 63 establishments across the city.
That night, the Ernst basement bar in the trendy district of Kreuzberg was packed with patrons enjoying loud electronica. “Beware: Coronavirus” was sprayed on a bench near the entrance.
Inside the stylish Wagemut cocktail bar, a young woman pretended to sneeze in someone’s face, unleashing thunderous laughter.
On Sunday, Berlin health officials said 42 people were thought to have infected themselves in Berlin clubs. Some of those were club-hopping, spreading the virus as they went.
“This is the attitude of people who are part of this nightlife,” said Lutz Leichsenring, a director of the association of Berlin club owners. “So what? You get the flu, you’re not going to die.”
Last week, German Chancellor Angela Merkel herself, in her first press conference on the epidemic, urged young people to respect the new social restrictions for their grandparents’ sake.
Despite the pointed fingers and occasional excesses, many young people bristle at the accusation of selfishness, saying the new social constraints are disproportionate and unfairly target their generation.
“They’re preventing us from living,” said Timothée Thierry, a 30-year-old statistician at France’s health ministry. He spoke on Sunday, after the government shut down bars but before it locked down the entire country.
In Italy, which has been on lockdown for days, young people, especially students, face a choice between returning to their parents’ homes or remaining cooped up in small apartments, desperate for a social outlet.
One student in the Piedmont region of northwestern Italy said she sneaked out of her apartment to attend a dinner party because she was feeling depressed from days of isolation. The party was only a 10-minute walk away. Once there she joined four other people, drinking wine and eating around the dinner table.
Just before midnight, the police knocked on the door and asked for the identification cards and phone numbers of everyone in the group. They ordered the revelers to return home, warning them that their information was being kept on file. Each person was subject to a hefty fine or jail-time for attending the party, the police said, according to the student.
Some say they are less frustrated by the prospect of extreme confinement than they are doubtful it could ever work in the West, which prizes individualism and freedom.
“If I get sick, I will spend some days at home to avoid spreading it to others,” said Monica Rubio, 19, who was having a late breakfast with three friends late last week in Barcelona, Spain, one of Europe’s most heavily affected countries.
“Otherwise I won’t change my life because of it. I can’t imagine people would stop shaking hands, kissing or hugging. It is deeply entrenched in our society.”
In Asia, there have been fewer complaints from authorities about younger people flouting social-distancing rules, but with the epicenter of the pandemic now shifting to Europe, the sense of urgency, palpable at the peak of the Chinese epidemic, has begun to recede in the East.
Mong Kok, a busy shopping hub in Hong Kong’s Kowloon district, has been noticeably busier than in previous weeks, with many young people tentatively returning to their pre-coronavirus weekend routines. Despite the greater crowds, many youthful bystanders still wear surgical masks and keep hand sanitizer close to hand, even attached to rucksacks.
“I think it’s quite boring staying inside. Teens and young people you see, they’re stuck at home and out of the office. It’s quite hard,” said Hailey Cheng, 27, as a street performer tried to fire up a lackluster audience nearby.
On a recent night in the semiautonomous city, Peel Street, a thoroughfare lined with bars and popular with expats, thronged with hundreds of maskless drinkers. A band played in the lower half of the street, where people stood shoulder to shoulder.
“I stayed at home for two months. I’m not staying any more,” said Ryan, 26, who was walking with his friends down the main strip of nearby Lan Kwai Fong, a series of streets filled with bars and clubs. “Life goes on.”
“We worry,” said Nicole, 25. “But either you worry yourself to death or you drink yourself to death.”
Coronavirus sell-off weighs heavily on bond and equity issuance
Debt deals and IPOs on pause as health crisis jolts markets
Fast-falling global markets have prompted companies to shelve plans to raise tens of billions of dollars, as fears caused by the coronavirus outbreak close off critical sources of capital across the world.
On Monday there were zero sovereign, corporate and financial bonds issued in Europe, the Middle East, Africa or the Americas, according to records provided to the FT by data provider Dealogic, reflecting companies’ reluctance to test the market when investor appetite is uncertain. There were three bonds issued in Asia-Pacific, from financial companies.
“Primary market activity for most types of issuers is likely to remain anaemic for the foreseeable future,” said Antoine Bouvet, Senior Rates Strategist at ING in London.
Equity markets are not faring much better, with few companies daring to attempt initial public offerings. Burger King India put its planned float on hold on Monday after the nation’s equity markets tumbled. Last week, not a single company filed for an IPO in the UK or across Europe, according to Dealogic.
“At the moment, people don’t want to lock value at depressed levels, people want to hold on for a better date,” said one London-based senior banker. “There will need to be a few weeks of fair-weather market conditions for the [equity] market to pick up again.”
The amount of money raised in European IPOs has fallen from a peak this year of $5.7bn in the first week of February to just $1.7bn last week. One senior banker said a succession of deals had been put on ice in recent days.
Sales of corporate bonds and leveraged loans also stalled last week. Just 87 bonds were issued globally, totalling $37.9bn, compared with the first week of March in which 221 bonds were issued raising a combined $84bn.
Energy and consumer service providers — especially those that are asset-light and face cash-flow challenges as a result of the health crisis — were more likely to put money-raising plans on hold, said Jessie Gisiger, head of credit and investment themes at Zurich-based Credit Suisse. She said that borrowing costs had recently spiked for energy, airline and retail companies as they had less collateral to offer lenders.
Still, there were signs of life in the primary debt market last week. A bond issued by Danone for €800m garnered €5.8bn in offers, demonstrating there was appetite among investors.
Bankers say there is a lot of pent-up supply. “We have projects, quality projects, ready to go,” said one banker. He noted that for the year as a whole, international bond issuance was down just 2 per cent year on year, mostly buoyed by a 17 per cent increase in Asian deals over the period.
“There will be another week or two of this rough patch, but just as we have seen China turn around, we will turn around and the market will rally,” the banker said.
US healthcare industry: crisis will expose flaws
The biggest threat to insurers’ profits is political
With coronavirus tightening its grip, the past few years look like a lost golden age for US healthcare companies. The introduction of the Affordable Care Act in 2010 brought an influx of new business. Consolidation allowed companies to wring out costs and charge higher prices. The Big Five insurers — UnitedHealth, Anthem, Cigna, Humana and CVS Health — collectively raked in a record $33.1bn in profits on $820bn of revenues last year.
The pandemic will impose huge strains on a healthcare system where efficiency is low and rent-seeking is high. States have closed schools, bars and restaurants. Much of the country’s labour force has retreated into self-enforced isolation in a last-ditch attempt to slow the pandemic.
It is tough to calculate the financial impact on such an opaque, multi-layered labyrinth as the American healthcare system. Take testing. The government has ordered insurers to cover the cost of coronavirus tests. That varies according to manufacturer and lab, but assume a range of $500 to $1,500. If just 5 per cent of the US population, or 16.5m people, get tested, that implies a financial hit of between $8.3bn and $24.8bn.
A bigger unknown is the severity and resultant hospitalisation costs. A severe outbreak hospitalising 4m people would cost insurers $80bn, according to S&P Global. A moderate outbreak, comparable with a severe flu season, drops the bill to about $17.6bn.
Still, insurers have some leeway on the financial side. Some costs will be offset by the postponement of elective surgery as people stay indoors. The country’s top five insurers, which spent $18bn on share repurchases and dividend payments last year, can also suspend stock buybacks to preserve capital. And even if coronavirus threatens this year’s profits, insurers can push up premiums next year.
Instead, the biggest threat to insurers’ profits is political. Across the US, the coronavirus is shedding still more light on the healthcare system’s failings. Millions remain uninsured. For those that have cover, costs are rising. High deductibles and co-pays, a complicated system of in-network and out of network providers, and a proliferation of middlemen, all serve to snag the system. The epidemic will show how poorly Americans are served by their markets-based healthcare system. Reform may follow.
Gapping down
In reaction to disappointing earnings/guidance:
- BE -15.6% (also to delay its 10-K), HQY -7.1%, LE -2.2%, ZTO -1.8%
Other news:
- DBVT -44.9% (announces that FDA has identified questions regarding efficacy of Viaskin Peanut)
- RTIX -3.6% (to delay 10-K; co is conducting internal investigation of current and prior period matters)
- VXX -2.7% (falling with futures trading higher)
- CCL -2.1% (suspends service across its fleet in North America and will resume them on April 10)
- CNXM -0.6% (re-evaluating its current capital allocation opportunities)
Analyst comments:
- IMAX -1.6% (downgraded to Neutral from Overweight at JP Morgan)
- CPA -1.4% (downgraded to Hold from Buy at Deutsche Bank)
Gapping up
In reaction to strong earnings/guidance:
- RPAY +11.4%, YY +8.8%, COUP +6.8%, DBI +4.9%, TERP +4.1%, HUYA +2.1%, PLCE +1.8%, TME +1.2%
Other news:
- ENLC +95.2% (announces 30% reduction to 2020 capital expenditures and prioritizes financial flexibility)
- BNTX +63.7% (BioNTech and Pfizer (PFE) to to co-develop potential COVID-19 vaccine)
- CODX +46.8% (FDA changes policy to allow rapid domestic expansion of co-diagnostics COVID-19 test)
- AIMT +22% (up in sympathy on negative DBVT news)
- MNK +17.2% (completes rolling submission of New Drug Application for terlipressin for the treatment of patients with hepatorenal syndrome type 1)
- ABEO +17.2% (announces first patient in the pivotal phase III VIITAL study evaluating EB-101, the Company's gene-corrected cell therapy for recessive dystrophic epidermolysis bullosa)
- REGN +10% (announced the latest progress in its efforts to discover and develop a novel multi-antibody cocktail that can be administered as prophylaxis before exposure to the SARS-CoV-2 virus or as treatment for those already infected)
- REGI +9.9% (files mixed securities shelf offering)
- HOLX +8.5% (molecular test for the novel coronavirus, SARS-CoV-2, receives fda emergency use authorization)
- TMO +7.7% (Mad Money mention)
- WTI +7.3% (announces that it has reduced its capital expenditure budget for 2020 and that it has added natural gas costless collars to its hedging portfolio)
- GOL +6.5% (will reduce total flight capacity by 60-70% until mid-June)
- STOR +5.7% (plans to limit investment activity in the short run)
- JD +5% (announces $2 bln share repurchase program)
- CZR +4.4% (has fully drawn on revolving credit as a precautionary measure)
- AMZN +4.2% (announces it's opening 100,000 new full and part-time positions)
- UPS +3.6% (to support coronavirus test kit deliveries)
- TTD +3.4% (expands relationship with Samba TV)
- AZN +2.5% (confirmed a sustained overall survival benefit in final analysis of the Phase III CASPIAN trial in 1st-line extensive-stage small cell lung cancer)
Analyst comments:
- SQ +4.2% (upgraded to Outperform from Market Perform at Cowen)
- WMT +4% (upgraded to Outperform from Perform at Oppenheimer)
- PG +3.3% (upgraded to Buy from Hold at Deutsche Bank)
- PEP +3% (upgraded to Outperform from In-line at Evercore ISI)
- CHKP +2.7% (upgraded to Buy from Hold at SunTrust)
- CTXS +2.6% (upgraded to Outperform from Mkt Perform at Raymond James)
- BAC +2.3% (upgraded to Outperform from Neutral at Robert W. Baird)
- EA +1.7% (upgraded to Buy from Neutral at MKM Partners)
Early premarket gappers
- Gapping up:
- ENLC +95.2%, BNTX +70.3%, CODX +28.2%, AIMT +22%, RPAY +11.4%, HOLX +10.1%, REGI +9.9%, NCLH +7.4%, GOL +6.5%, COUP +6.4%, TTD +4.7%, AMZN +4.5%, TMO +4.5%, YY +4.1%, HUYA +3.7%, AZN +3.5%, LUV +2.5%, XOM +2.2%, TME +1.9%, JWN +1.8%, MCD +1.7%, PXD +1.5%, UPS +1.3%, OXM +1.2%, INSM +1.1%, GOOS +0.7%
- Gapping down:
- DBVT -57.2%, HQY -7.8%, BE -6.8%, VXX -6.2%, RTIX -5.5%, CSPR -1.7%, CCL -0.5%