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The stock market rally pulled back this week on revived U.S.-China tensions and Fed chief Jerome Powell’s cautious comments about an economic recovery. But the Dow Jones and Nasdaq rebounded from key support levels. The Tesla Fremont plant began reopening as Elon Musk defied a local shutdown order, while Tesla (TSLA) sales in China plunged last month. Recent IPOs Datadog (DDOG) and OneMedical parent 1Life Healthcare (ONEM) soared out of bases on earnings, while Dynatrace (DT) and Progyny (PGNY) also rallied. Despite a grim retail sales report, Mastercard (MA) is starting to see “normalization” in spending.
Stock Market Rally Tested
The stock market rally hit a fresh high early in the week, but then sold off amid cautious comments from Fed chief Jerome Powell as well as rising U.S.-China tensions. But the Dow Jones rebounded from its 50-day line while the Nasdaq bounced off its 21-day line. The major indexes still suffered significant losses. Many chip stocks sold off Friday as the U.S. expanded curbs on semiconductor sales to China’s Huawei. The Tesla (TSLA) Fremont plant reopened, ahead of Big 3 automakers. Energy stocks rallied as crude oil prices shot up amid further supply cuts and improving demand forecasts.
Economic Data Grim, Fed’s Powell Cautious
The retail sales collapse amid April’s coronavirus lockdown was even worse than expected. Overall sales tumbled by a record 16.4% last month. Coming on top of March’s revised 8.3% slide, April retail sales dived 21.6% from a year ago. Restaurants and auto dealers saw plunging sales, along with apparel, furniture and department stores. Only one category grew last month. Nonstore retailers including Amazon (AMZN) saw sales surge 8.4% from March and 21.6% from a year ago. Some bounce seemed assured in May, with most states beginning to let nonessential retailers reopen, though many stores remain closed or are offering curbside pickup only.
Fresher data from the May Empire State manufacturing survey index didn’t offer much cause for near-term optimism. The index rose to -48.5 from a record low -78.2 in April, beating estimates of -60. Yet just 14.5% of firms saw business conditions improve, while 63.1% saw deterioration.
Fed chief Jerome Powell warned this week of “significant downside risks” and cautioned policymakers against taking their foot off the gas.
“The record shows that deeper and longer recessions can leave behind lasting damage to the productive capacity of the economy,” he said. Powell added that “additional fiscal support could be costly, but worth it if it helps avoid long-term economic damage.”
His comments came as Congress got off to a rocky start in negotiating an additional economic relief package, casting some doubt on the chances of more near-term support.
Coronavirus Cure?
Sorrento Therapeutics (SRNE) said Friday its experimental coronavirus treatment blocked 100% of viral cells within four days. The drug is antibody based and could, potentially, work to treat or prevent Covid-19. Shares of the tiny biotech soared.
On Monday, Quidel (QDEL) popped nearly 32% after the FDA authorized its new coronavirus test. The test looks for antigens, substances in the body that provoke an immune response. The FDA expects this type of test to be faster, cheaper and easier to use. Novavax (NVAX) soared 62.5% on Tuesday after the Coalition for Epidemic Preparedness and Innovation increased its funding in Novavax’s coronavirus vaccine by $384 million. Also last week, Thermo Fisher Scientific (TMO) gained an expanded FDA emergency authorization for its coronavirus test, and the diagnostics giant announced plans to develop an antibody test with WuXi Diagnostics and Mayo Clinic. Abbott Labs (ABT) refuted claims its 5-minute coronavirus test is inaccurate, but share s fell.
Cloud Software App IPOs Top Earnings Views
Datadog (DDOG) reported its second straight profitable quarter, defying views for a loss, with revenue soaring 87% to $131.2 million. The cloud-based monitoring and analytics platform for software developers and IT departments also guided higher for Q2. Shares skyrocketed. Meanwhile, Dynatrace (DT) earnings shot up 266% while revenue grew 30% to $150.6 million, both beating. For the current quarter, Dynatrace guided up on EPS but lower on revenue. Its software tools measure and analyze the performance of business-critical applications. Shares fell after its earnings report, but rose sharply for the week.
Tesla Reopens Fremont Plant
After a lengthy squabble with health officials in Alameda County, Tesla (TSLA) got the go-ahead to resume production at its car manufacturing plant, if it meets safety guidelines needed to battle the coronavirus outbreak. Tesla last week had defied orders and reopened the plant. Production, legally, could resume this coming week. Tesla stock fell modestly. Some foreign automakers have already reopened some U.S. plants, while General Motors (GM), Ford (F) and Fiat Chrysler(FCAU) will do so Monday.
China sales of electric cars rose 10% in April vs. March, but Tesla (TSLA) Model 3 sales plunged 64%. Overall Chinese auto sales rose 4.4% vs. a year earlier, with EVs down 26.5%.
Cisco Earnings Top
Cisco Systems (CSCO) rose a penny to 79 cents a share from a year earlier while revenue slid 8% to $12 billion, both beating lowered views. The networking giant sees current-quarter EPS falling but above analyst targets, while revenue will be in line. Shares rose after results.
Health IPOs Jump On Earnings
Progyny (PGNY) jumped after the fertility benefits manager reported better-than-expected Q1 results. But it noted that a majority of its members had treatment interrupted and that patient volumes fell sharply after fertility clinics postponed operations due to the coronavirus pandemic. Progyny said recent guidance from the American Society for Reproductive Medicine indicated that practices could reopen if they did so safely. Digitally-focused clinic operator 1Life Healthcare (ONEM), better known as OneMedical, surged on results to a record high. Progyny debuted in October and OneMedical in January.
Crude Oil Prices Rebound On Supply And Demand
U.S. crude prices surged this week. U.S. crude stockpiles fell by 745,000 barrels last week, the Energy Information Administration reported, the first time they’ve fallen since January and defying forecasts for another gain. Gasoline stockpiles fell by 3.5 million barrels, more than expected. The International Energy Agency said it sees 2020 oil demand falling less than it previously expected. Saudi Arabia said Monday that it would cut another 1 million barrels per day from its production in June, bringing its total output to 7.5 million bpd. Kuwait and the United Arab Emirates also pledged to scale back production further. On Wednesday, OPEC cut its 2020 crude demand outlook by 2.23 million bpd from its April forecast, and now sees a drop of 9.07 million bpd this year.
JD, Tencent Earnings
E-commerce giant JD.com (JD) hit a record high on better-than-expected quarterly earnings and solid revenue guidance. User growth jumped 25% during the coronavirus lockdown to 387.4 million. Online gaming and messaging giant Tencent Holdings (TCEHY), which owns a significant stake in JD.com, also beat results. Online games revenue jumped 31% to $5.2 billion with the nation locked down. Tencent shares rose to a record high but then slashed gains. Tencent Music(TME), a spinoff of Tencent holdings, climbed higher as it beat on earnings but missed slightly on revenue.
Boeing Order Cancellations Grow
Boeing (BA) saw an additional 108 net order cancellations for its 737 Max jetliner in April as airlines look to save cash amid the collapse in global air travel. The troubled Max jet has now been grounded for more than a year following two deadly crashes. Boeing delivered just six planes last month, taking the total for the first four months of the year to 56. That’s down 67% year over year.
News In Brief
Walt Disney (DIS) reopened its Shanghai Disneyland on May 11 but with attendance limited and patrons required to wear masks. Disney opened reservations for Walt Disney World starting July 1, but an official reopening date has not been set. Disney World has been shut since mid-March over the coronavirus pandemic. Disney’s also taking the filmed version of the blockbuster Broadway hit “Hamilton” straight to Disney+ this summer, forgoing a theatrical release.
Medical research company Schrodinger (SDGR) reported a wider loss in Q1, while revenue grew 25% to $26.2 million, beating views.
Mastercard (MA) said it’s seeing the start of “normalization,” with purchase transactions showing much smaller year-over-year declines in the past few weeks.
Grubhub (GRUB) stock soared on reports that Uber (UBER) could be close to making a bid to acquire the provider of food-delivery services. But a deal may not happen.
Logitech (LOGI), a maker of peripherals for PCs and other devices, reported EPS grew 11% while revenue rose 14% to $709 million, both beating thanks to the work-from-home boom spurred by the coronavirus pandemic.
DraftKings (DKNG) missed EPS and revenue views in its first report as a publicly traded company, with sports shut down due to the coronavirus pandemic. The online sports betting giant has pushed into esports betting and more. It doesn’t expect Covid-19 to have a big impact on fiscal 2021. Shares jumped.
Peloton Interactive (PTON) shrugged off a short seller’s claims of ‘retail mania’ to surge to fresh highs after the at-home exercise company revealed that it now has more than 1 million Connected Fitness subscribers. Subscription figures for its digital platform have ballooned as more people opt to work out at home amid the coronavirus crisis. The stock is up 59% so far in 2020.
Applied Materials (AMAT) missed quarterly EPS and sales views, but the chip-gear maker expected to make up some lost sales. Shares fell after results as chip stocks sold off on new Huawei curbs.