Friday Morning Reads

Friday Morning Reads



Open Interest Changes:


U.S. stocks lost ground during yesterday's session, while futures slid another 2% overnight, as investors took profits at the close of the S&P 500's best month since 1987. Apple's (NASDAQ:AAPL) failure to give guidance and plans from Amazon (NASDAQ:AMZN) to spend all of its $4B in profit from Q2 sparked uncertainty over the reach of the coronavirus pandemic (more on that below). The downbeat note was accentuated by another 3.8M new jobless claims and the steepest decline in monthly U.S. consumer spending tracing back to 1959. Keep an eye today on earnings from oil majors Chevron (NYSE:CVX) and Exxon Mobil (NYSE:XOM), as well as refiner Phillips 66 (NYSE:PSX), after Shell (NYSE:RDS.A) suspended its dividend following a historic crash in crude prices.

COVID-19 costs add up

Amazon (AMZN) shares slumped more than 5% in extended trading following Q1 earnings of $5.01 per share that missed analysts' estimates. The retail giant also said it would spend second-quarter profits - estimated to be $4B (under normal circumstances) - on responding to the COVID-19 pandemic. "If you're a shareowner in Amazon, you may want to take a seat, because we’re not thinking small," Jeff Bezos said in an earnings release. Positive note? AWS quarterly revenue topped $10B for the first time ever.

Withholding guidance

Apple (AAPL) shares whipsawed during AH trading on quarterly earnings that topped analyst expectations, but revenue growth that remained flat on a year-over-year basis. iPhone sales fell 7% Y/Y, though CEO Tim Cook said China sales were "headed in the right direction" as that country reopens from the novel coronavirus. Shares ended the session down 2% after the tech giant disclosed that it was "impossible to forecast overall results" for the current quarter.

Retaliation threats

Conversations are at a very preliminary stage, but the U.S. appears to be crafting retaliatory measures against China over the coronavirus outbreak. "We signed a trade deal where they're supposed to buy, and they've been buying a lot, actually. But that now becomes secondary to what took place with the virus," President Trump told reporters. The U.S. is not considering stopping debt payment obligations to Beijing - as that would hurt the "sanctity of the dollar" - but Trump said he could do the same thing, for even more money, via tariffs. A resumption of the trade war wouldn't be a good recipe for markets, but other ideas are under consideration: Sanctions, non-tariff trade restrictions and lifting China's sovereign immunity (allowing lawsuits against Beijing in U.S. courts).
Go deeper: EU chief wants probe into coronavirus origin.

DOJ opens probe into PPP loan fraud

"Whenever there's a trillion dollars out on the street that quickly, the fraudsters are going to come out of the woodwork in an attempt to get access to that money," said Assistant AG Brian Benczkowski, who runs the DOJ's criminal division. "There are unfortunately businesses that are sending in loan applications for large amounts of money that are overstating their payroll costs, overstating the number of employees they've had, overstating the nature of their business."

What will the Oracle say?

Warren Buffett will issue his annual letter tomorrow and hold a virtual meeting with Berkshire Hathaway (BRK.ABRK.B) shareholders. Aside from selling shares of airline stocks, there's been little discussion of what he plans to do with Berkshire's estimated $128B in cash, while his silence over the past two months "has been deafening," notes BTIG's Julian Emanuel. "Could it be because at 21.6x consensus 2020 earnings, and without clarity as to how the economy is likely to reopen, stocks are expensive to the Oracle of Omaha? Could he be thinking about problems down the road given the borrowing binge that both the U.S. government and Corporate America have been on since March 1?"

Vaccine leader signs deal for 1B doses

Moderna's (NASDAQ:MRNA) experimental vaccine, mRNA-1273, is currently being tested in early-stage trial by the U.S. National Institutes of Health, with mid-stage trials set for Q2. The 10-year collaboration agreement will see the companies produce up to a billion vaccine doses per year at Lonza U.S. (OTCPK:LZAGY), and would cover additional products in the future. In April, Moderna scored $483M in U.S. federal funding to accelerate development of mRNA-1273.
Go deeper: Gilead: After the data come the commercial realities.

Boeing raises $25B in fresh debt

Helping the company avoid government aid, Boeing (NYSE:BA) raised $25B in a bond offering on Thursday, a blowout result for the planemaker. The seven-part offering, which includes bonds that won’t be redeemed until 2060, was oversubscribed and attracted better pricing than might have been expected for a firm that just has its credit rating downgraded to a notch above junk status. The deal, expected to close May 4, would be one of the largest-ever corporate bond offerings.
Go deeper: Another blow to Boeing's space wing.

Some ETFs struggle to new market realities

Changes to U.S. Oil Fund's (NYSEARCA:USO) portfolio have resulted in "significant deviations from its intended investment objective which is for the daily percentage changes in the net asset value per share to reflect the daily percentage changes of the spot price of light, sweet crude oil." In the past few weeks, the largest oil-focused ETF in the country has been trying to counter potential losses from plunging crude prices by spreading its holdings through contracts expiring in July, August and September. It's led to some diverging price action: U.S. crude futures are up 11% this week, while USO is on track for a 7% loss, as the cost of rolling futures contracts wiped out gains.

Retail trouble

Clothing apparel company J. Crew is preparing for a bankruptcy filing that could come as soon as this weekend, according to multiple sources. While the company is not publicly traded (it was taken private in 2010 via leveraged buyout), it highlights broader trends in the U.S. retail industry, which was already struggling before the coronavirus pandemic. Reports suggest Neiman Marcus is in the process of a bankruptcy filing, while J.C. Penney (NYSE:JCP) has been in talks with lenders for bankruptcy financing that could total $1B.

What else is happening...

Shale producer Concho (NYSE:CXO) takes $12.6B impairment charge.

Zoom (NASDAQ:ZMclarifies '300M daily active users.'

Intel (NASDAQ:INTCclaims world's fastest gaming processor.

Three of four largest U.S. airlines now require face masks.

Lockheed (NYSE:LMTscores $6B Patriot interceptor contract.

Bed Bath & Beyond (NASDAQ:BBBY) looks to bolster turnaround.

Macy's (NYSE:M) to begin store reopenings next week.

Thursday's Key Earnings
Apple (AAPL-2.6% AH on coronavirus uncertainty.
Amazon (AMZN-5.4% AH announcing plans to spend Q2 profits.
American Airlines (NASDAQ:AAL-4.9% with load factor plunging to 73.9%.
Altria (NYSE:MO-3% giving back earlier volume-led gains.
ConocoPhillips (NYSE:COP-0.3% planning additional curtailments.
Gilead Sciences (NASDAQ:GILD-2.6% AH posting flat Q1 results.
McDonald's (NYSE:MCD-0.1% with buybacks on the back burner.
MGM Resorts (NYSE:MGM-7.7% AH cutting dividend by 98%.
Twitter (NYSE:TWTR-7.8% amid ad spending worries.
United Airlines (NASDAQ:UAL-2% AH on major cash burn.
Visa (NYSE:V-0.8% AH pulling outlook for 2020.

Today's Markets
In Asia, Japan -2.8%. Hong Kong closed. China closed. India closed.
In Europe, at midday, London -2%. Paris closed. Frankfurt closed.
Futures at 6:20, Dow -2%. S&P -2.1%. Nasdaq -2.6%. Crude -2.1% to $18.44. Gold +0.9% to $1679.70. Bitcoin +1% to $8871.
Ten-year Treasury Yield -1 bps to 0.61%

Today's Economic Calendar
9:45 PMI Manufacturing Index
10:00 ISM Manufacturing Index
10:00 Construction Spending
1:00 PM Baker-Hughes Rig Count

Known to most as Uranium Pinto Beans, Jason has more than 15 years under his belt of trading stocks, options and currencies. His expertise primarily lies in chart analysis, and he has a strong eye for undervalued stock. Because he’s got the ability to identify great risk/reward trades he usually enjoys taking the path less traveled and reaping the benefits from the adventure.

He is a co-founder of Option Millionaires, and he is best known for his weekly webinars with Scott, as well as his high level training webinars and charts found in the forums.

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