Daily Markets: Investors Growing Increasingly Uneasy Over Rate of Coronavirus Growth

Today’s Big Picture

Asian equity markets finished the day’s trading mixed, with Japan’s Nikkei down 1.22% while China’s Shanghai Composite rose 0.26% and South Korea’s Kospi finished off 2.26%. Hong Kong’s markets were closed today marking the 2020 Dragon Boat Festival.

After taking a beating yesterday, European markets are slightly positive except the U.K. which is slightly lower on continued Covid-19 uncertainty. Yesterday, U.K. Prime Minister Boris Johnson reversed his March 20 decision to close pubs and restaurants nationwide. While fiscally the move is welcome, it has yet to be seen just how many Britons will feel comfortable popping down for a pint.

The day after White House announcements on H-1B Visa restrictions, the U.S. is considering levying $3.1B in additional tariffs on exports from France, Germany, Spain, and the UK. Newly impacted products include olives, beer, gin, and trucks while existing tariffs on aircraft, cheese, and yogurt would be raised. Futures are signaling U.S. equities will give back more of their quarter-to-date gains when those markets open this morning. SPX (e-mini) contracts are off 0.79%, Dow futures down 1.03%, and Nasdaq 100 (NDX) futures, while still down, are once again weathering the storm better than their peers, down only 0.27%. The declines are reflecting growing concern over uncertainty tied to the rate at which coronavirus is rebounding, which looks like it will impact the speed at which the economy re-opens. This will no doubt have a ripple effect on earnings and revenue expectations for the back half of 2020.

Data Download

Coronavirus

By the end of today, there will be 9.6 million confirmed cases of the coronavirus and over 485,000 lives lost to the pandemic. Yesterday, the U.S. saw an increase in cases of over 45,500 - a new record increase that beat the prior April 26 high, with 30 states experiencing daily new cases rising by 5% over more based on a 7-day moving average. Texas, Utah, Arkansas, and Arizona are seeing a rise in hospitalizations with Houston reporting its ICUs are near capacity. California and Florida are seeing record-high daily new cases.

Yesterday California’s governor Gavin Newsom said, “We cannot continue to do what we have done over the last number of weeks.” The governors of New York, New Jersey, and Connecticut have ordered that visitors from states where cases are rising (Alabama, Arizona, Arkansas, Florida, North and South Carolina, Texas, and Utah) will have to quarantine themselves for 14 days upon entering their states.

Paris’ Eiffel Tower reopened to tourists today after being closed for three months due to the pandemic. The elevators will not be in use, so visitors should expect to get a serious stair workout.

Brazil is the second most-affected nation with 1.2 million cases and around 54,000 lives lost. India, the fourth most-affected, after Russia, saw a record-high number of new daily cases yesterday, rising to nearly 17,000 with nearly 475,000 confirmed cases and just under 15,000 lives lost. New Delhi and Tamil Nadu account for around 60% of India’s cases.

South Korea is fighting a second wave of infections around its capital city of Seoul. China has reinstated some restrictions in Beijing after a new cluster developed, linked to a wholesale market. 

This morning PrecisionLife, a data analytics company, released a preprint paper using data from the UK Biobank, which found a new set of 68 genes that are associated with a high risk of developing severe Covid-19, twelve of which are involved in heart and blood circulation, including the regulation of calcium levels. 

After seeing various food processing facilities shut down due to a high number of employees being found to have the coronavirus, people are concerned with the potential for contamination from food processing. According to a joint statement from the USDA and FDA, “There is no evidence that people can contract COVID-19 from food or from food packaging.” So at least there is that!

MGM Resorts International (MGM) announced it will require masks for all guests and visitors inside public spaces at every MGM Resorts property in the United States. The company previously required all employees to wear masks, while guest and visitor mask requirements were based on local regulations. Masks - the must-have accessory for 2020.

International Economy

Germany’s GfK consumer sentiment indicator rose to -9.6 heading into July from an upwardly revised -18.6  in the prior month, beating expectations for an increase to -12. Economic and income expectations improved as did propensity to buy.

Spain’s Producer Price Index fell 8.7% YoY in May, the biggest decline on record going back to 1976.

The number of people registered as unemployed in France declined by 148.3k in May after recording in April the largest 1-month increase on record going back to 1996. 

The International Monetary Fund also cut its economic forecast for 2020, saying that the coronavirus pandemic has caused an unprecedented decline in global activity.  The fund now expects the global economy to contract by 4.9% in 2020, down from its prior estimate for a 3% contraction. This level of contraction will have a material impact on efforts to reduce extreme poverty. 

Domestic Economy

Yesterday saw updates in several housing-related metrics as mortgage applications fell 8.7% since the last week effectively erasing the previous week's gains and the MoM change in housing prices rose 0.20%. Overall 30-year mortgage rates continued lower to 3.30%.

Before U.S. equities begin trading today, market watchers and economists will receive the latest weekly initial jobless claims as well as May Durable Orders, the third estimate for U.S. GDP in the March 2020 quarter, and a look at May inventory data. Mid-morning, the weekly EIA Natural Gas Inventory data will be published. 

Markets

U.S. equities tumbled on Wednesday as the surge in reported coronavirus cases put the kibosh on the re-opening trade, calling into question hopes that efforts to ease social distancing restrictions and lockdowns would gain momentum. Highlighting that renewed concern, Apple (AAPL) announced it would temporarily close seven stores in Houston, Texas, and Walt Disney (DIS) employees are petitioning the company to delay its Florida re-opening. Meanwhile, New York, New Jersey, and Connecticut announced 14-day quarantines on Wednesday on visitors from states with high COVID-19 infection rates. 

The Dow Jones Industrial Average closed the day down 2.7% while the S&P 500 finished down  2.6% and the Nasdaq gave back 2.2%. Leading the indices lower were the double-digit declines at Norwegian Cruise Line Holdings (NCHLH), Royal Caribbean Cruises (RCL), and Carnival Corp. (CCL). Other notable decliners included United Airlines (UAL), American Airlines (AAL), Marriott International (MAR), Expedia Group (EXPE), Cheesecake Factory (CAKE), and Macy’s (M).  

Stocks to Watch

Accenture (ACN) reported better than expected May quarter EPS while revenue for the quarter dropped 1% YoY, matching the consensus forecast. Consulting revenues for the quarter were $6.0 billion, down 4% YoY, while Outsourcing revenue rose 3% YoY to $5 billion. The company guided current-quarter revenue to $10.6-$11.0 billion vs. the $10.92 billion consensus. Yesterday, Accenture released a study on Covid-19 impacts to global supply chains titled “A License for Growth: Customer-centric supply chains,” in which it concluded that a mere 10% of companies surveyed have built or are building truly effective supply chains. 

Darden Restaurants (DRI) shared revenue for its May quarter dropped 43% YoY as its same-store comps dropped 47.7% YoY, missing the -47.4% consensus. EPS for the quarter also came up short relative to the consensus expectation. As of June 22, 91% of the company’s dining rooms were open with at least limited capacity, and the company guided sales for the current quarter to roughly 70% of a year ago levels with EBITDA of at least $75million. Additionally, Darden now expects to open 35-40 net new restaurants for the year in full. 

McCormick & Co. (MKC) beat EPS estimates by $0.31 posting Q2 earnings per share of $1.47. YoY. Revenues rose 7.6% to $1.4B also exceeding expectations. While the company’s YTD performance has been strong, current market conditions with regards to COVID-19 provide enough uncertainty that the company declined to provide any forward guidance. That being said, McCormick management did say they expect a general increase in consumer demand on more households cooking at home given current trends in the spread of the virus.

Rite Aid (RAD) beat quarterly revenue expectations but missed on its bottom line for the company’s May quarter. Revenue at the company’s Retail Pharmacy Segment revenues rose 6.7% YoY to $4.12 billion while Pharmacy Services segment revenue jumped more than 26% YoY to $1.98 billion, primarily due to an increase in Medicare Part D membership of approximately 252,000 vs. year-ago levels. While the company shared it expects to generate positive free cash flow during its FY2021, it stopped short of issuing formal guidance. 

After state officials indicated they were not planning to issue guidelines to reopen theme parks until after July 4, Disney (DIS) announced it has delayed the planned July 17 reopening of California's Disneyland Resort. Tokyo Disneyland is set to welcome guests again starting July 1, and Disneyland Paris launches a phased reopening on July 15. Disney is reportedly now considering postponing the July 24 release of Mulan as the "theatrical landscape continues to be unpredictable." 

German technology company Wirecard (WRCDF) announced in a regulatory statement that it faced “impending insolvency and over-indebtedness.” Shares were suspended from trading before the announcement, but have fallen significantly since the company’s auditors announced a €1.9B hole in its balance sheet with the company later saying the money probably didn't exist, to begin with.

Citing COVID-19's impact on market demand, General Motors (GM) announced it will lay off the third shift at its SUV plant in Spring Hill, Tenn., leading to the dismissal of 680 workers. The third shift was originally scheduled to return on June 21.

Due to lower demand for cut-sized paper products resulting from the COVID-19 pandemic, Packaging Corporation (PKG) has notified affected employees that both paper machines and a majority of the converting operations at its Jackson, Alabama mill would remain idle during July and August.

Dow (DOW) President and CFO Howard Ungerleider shared he expects "an additional $350 million headwind" to total June quarter EBITDA vs current market expectations, primarily due to a delayed and slower recovery in the automotive, construction, appliance and furniture sectors. Ungerleider further commented that coming into the current quarter, Dow expected demand declines of 15%-20% for its polyurethanes applications but now sees it closer to 25%-30%. 

Homebuilder KB Home (KBH) reported May quarter revenue and EPS that missed consensus expectations last night. The homebuilder shared it has seen a "steady and significant improvement" improvement in order trends beginning in May, which accelerating further during the first three weeks of June.

Mastercard (MA) reported its switched volume has continued to improve since the end of April. Its US switched volume increased 5% for the week ended June 21, up from +3% in the week ended June 14, and -1% for the week ended June 7. The company’s total switched volume fell 1% during the week ending June 21, but that represents a pronounced rebound from the 12% declines registers for the weeks ended May 7 and May 14. Mastercard shared it has continued to see discretionary spending improvement in clothing, gas, home improvement, restaurants, auto, and domestic travel. 

Apple (AAPL) shares gave back some of their recent gains yesterday on the news the Department of Justice and state attorneys general are looking at an investigation that would focus on the company's App Store. Separately, security company Fleetsmith helps with device setup and security patching for Macs and iPhone used in enterprise settings acknowledged it was acquired by Apple.

AT&T (T) shared it intends to redeem in full all the outstanding principal amount of six series of bonds totaling roughly $4.3 billion and prepay term loans totaling $1.0 billion. The company also shared that for full-year 2020, its expected dividend payout ratio from free cash flow will be in the 60% range.

Target (TGT) announced that by the end of June, it will have added hundreds of grocery items, such as fruits, vegetables and meant, to its same-day service in which shoppers buy the items online and pick up their bagged purchases inside of the store or curbside. The company targets offering this service at more than 1,500 stores in time for the year-end holidays, a smart move in our opinion given the accelerating shift to digital shopping amid renewed COVID-19 concerns. 

In an SEC filing, Sonos (SONO) shared it would be eliminating 12% of its workforce globally as it looks for more"operating flexibility." Sonos is also closing its retail store in New York and six satellite offices.

Politico reports California AG Xavier Becerra plans to a preliminary injunction to force Uber (UBER) and Lyft (LYFT) to classify their drivers as employees under CA AB5 (19R). 

Ally Financial (ALLY) and Cardholder Management Services, otherwise known as CardWorks, announced they have mutually agreed to terminate their merger agreement that was announced on February 18. 

After today’s market close, Nike (NKE) and Progress Software (PRGS) are expected to report their latest quarterly results. Investors that wish to get a jump on those reports and other upcoming ones should visit Nasdaq’s earnings calendar page.

On the Horizon

• Dates to mark:
  • • June 26: Personal Income, Personal Spending, PCE, Univ of Michigan Consumer Sentiment
    • June 29: Pending Home Sales, Dallas Fed Manufacturing
    • June 30: Case-Shiller Home Prices, MNI Chicago PMI, Consumer Confidence
    • June 30: Before the market open, TopBuild (BLD) will replace Tech Data (TECD) in the S&P MidCap 400 while Retail Properties of America (RPAI) replaces TopBuild in the S&P SmallCap 600. 
    • July 1: ADP Employment Report, Markit Manufacturing PMI, Construction Spending, ISM Manufacturing, Wards Vehicle Sales
    • July 2: Nonfarm Payrolls, Unemployment Rate, Durable Goods, Capital Goods, Factory Orders

Thought for the Day

“Sometimes I go hours without drinking coffee. It’s called sleeping.” ~ each of your authors 

Disclosures

• Accenture (ACN) is a constituent in the Foxberry Tematica Research Cybersecurity & Data Privacy Index. 
• AT&T (T), McCormick & Co. (MKC), Target (TGT) are constituents in the Tematica Research's Thematic Dividend All-Stars Index. 

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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Stocks Economy Coronavirus US Markets