Wall Street Breakfast: Sell In May?

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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 (AAPL) failure to give guidance and plans from Amazon (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 (CVX) and Exxon Mobil (XOM), as well as refiner Phillips 66 (PSX), after Shell (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.A, BRK.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 (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 (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 (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 (JCP) has been in talks with lenders for bankruptcy financing that could total $1B.

What else is happening...

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

Zoom (ZM) clarifies '300M daily active users.'

Intel (INTC) claims world's fastest gaming processor.

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

Lockheed (LMT) scores $6B Patriot interceptor contract.

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

Macy's (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 (AAL) -4.9% with load factor plunging to 73.9%.
Altria (MO) -3% giving back earlier volume-led gains.
ConocoPhillips (COP) -0.3% planning additional curtailments.
Gilead Sciences (GILD) -2.6% AH posting flat Q1 results.
McDonald's (MCD) -0.1% with buybacks on the back burner.
MGM Resorts (MGM) -7.7% AH cutting dividend by 98%.
Twitter (TWTR) -7.8% amid ad spending worries.
United Airlines (UAL) -2% AH on major cash burn.
Visa (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

Companies reporting earnings today »

Comments

[zagman]

"Sell In May" and go away! Where are we to go when we have been sheltered in place for the entire month. We went away in April and are coming back in May. I doubt the cliché will mean as much this year!

[tbird4me]

Time to bring back the “green shoots” observations term! Anyone remember that overused jargon? 😂

[goldendragon]

The fed is starting to pull the plug with its balance sheet growing to 6.7 trillion. But “only” 81 billion more this week. That means the fed is taking its food of the gas in a big way.

[SB Pirate]

Powell said so early in his speech but worded it funny so that it was not clear. This was very predictable as Fed must at least make an effort to look responsible. Expect the market to get choppy, then if Congress drags out relief funding over non CV related programs the bear will be back.

[theConsortium]

This rally was driven by FOMO and the delusion that the credit bubble would reflate once "everything is back to normal." That is an expensive bet, at these levels. Now we're being told that "2020 has already been priced in." Nonsense. If Amazon loses earnings through Q2-Q4, would you buy and hold in Q1? Did that work in any other recession? And of course we're told, barring all else, that the Federal Reserve will create conditions for equities to sustainably diverge from the real economy. When has that ever worked? In February, investees thought the divergence was the "new normal" until March happened. Now, once again, we're being told it's the new normal.

I don't think this time is different. Hedge longs or trade regularly. It's just that kind of environment.

[Imolaavant]

It's bizarre! Q1 earnings were only affected by the pandemic for a couple weeks at best - if at all. It wasn't until March 16 that the federal government issued recommendations to prevent the spread, saying people should avoid restaurants and bars, with Trump saying we'll be celebrating bearing the virus within weeks.

The only thing priced into the recent rally is delusions.

[User 50085325]

As of yesterday, 31 Large and Mega Cap stocks had hit 52 week highs in the past 30 days. Fourteen of those were in Healthcare, Biotech, and Pharma. Then you have $WMT, $DG, $AMZN, $GIS, and the Gold Miners. What's my point? Well - IDK what it is. I look at this grouping and can not spot a Fundamental and or Technical reason to buy. All I see is Emotional reasoning based on Pandeminomics.

[Jakan]

Market is shaping up to be a SMGA type but with nowhere for Wall Streeters to go for summer, maybe not

[quackmaster]

Warren Buffett will let us know what to do tomorrow.

[deercreekvols]

Futures down about 2% across the board to wrap up the week. Crude down 2% as the roller coaster continues. Gold up almost 1%. King Midas continues to mention his "Gold Day" on twitter. Time will tell. Bitcoin up 1% to $8,871, which makes absolutely zero sense. Bitcoin must have had a rough day yesterday as it started off at $9389 and was heading to the All-Important $10,000 level. How can it be up 1% today to $8,871?

Can't end the week without more Boeing news, which is brought to you by Boeing, of course.

Elon Musk is excommunicado. The Continental and its services are closed to him. The New Amsterdam is closed to him too, according to Mr. Jones and me. No flamenco dancers.

Apple came in with an EPS beat by $029 and a revenue beat. The stock is down about 2% premarket. No forward guidance being issued, which makes sense to me. Looks like a good day to add a few shares of $AAPL. Have no fear, JP Morgan just gave $AAPL a "top pick" designation.

Nothing on Tesla to end the week? Nothing on the comments from CEO Elon Musk about freedom? Nothing about David Einhorn questioning the accounting practices of Tesla? All of these were Trending News yesterday, so I am guessing that it is time to move on. Interested to learn that the Tesla Semi, planned for a 2019 production and release date, now has a 2021 production and release date. Kick that can down the road. No word from "dozens" of companies who paid a down-payment for the Semi years ago. Looking forward to learning how Tesla can't pay the rent but it can pay Elon Musk $750 million. $TSLA down 2.5% premarket. Time to take to twitter and kick this thing up a notch!

Zoom can not get out of its own way, so it seems. The Verge "caught" Zoom Video quietly editing a prior blog post to boast 300M daily meeting participants rather than daily active users. Zoom says the wording was "a genuine oversight on our part." Wow. Lots of "oversights" on Zoom's part. Security issues are all gone?

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. Perhaps the loan application process could have been more tightly controlled? Shame on those fraudsters who came out of the woodwork.

More retail trouble as J. Crew is preparing a bankruptcy filing. All the problems in retail and not a single CEO taking to twitter to demand that everyone should be allowed to go back to work or trying to open their stores in spite of local and state government shut-downs.

Where is Jon Corzine and will MF Global look to buy some retail stocks today?

Where is Marissa Mayer and is she holding Zoom meetings for her furloughed employees?

Where is Elizabeth Holmes and what are the additional charges that were mentioned some time back?

Where is Elon Musk and is he more worried about promotion or running the company?

Have a great day and wonderful weekend everyone. Stay safe out there.

(This is my last comment on WSB. I would like to thank the editors for allowing me to comment here for years. My Blog will link to WSB each day and I invite you to check it out. Thanks team!)

[kirsh002]

That is the worst news of the day!! I will miss your updates, DeerCreekVols, as I am sure many others will as well.

[deercreekvols]

Thank you for your kind words!

Stop by my blog and comment there. I think you can find it by clicking on my name (?)

I am linking to WSB and still commenting on the events that are found here.

Cheers.

[SowingAlfalfa]

Here's a link to deercreekvols's blog for today-

seekingalpha.com/...

Like he said, just click on his name, then "blogs", & pick out which day's blog you want to see. Alternatively, save the following & go directly to his list of blogs-

seekingalpha.com/...

[BleedBluechip]

Buy shares in solid companies that are proven winners that pay dividends. Buy when prices are low and yields are high. Don’t try to time the Market. Remember tax implications with every move. Build your wealth through dividend income and wise reinvestment. It’s not rocket science, but it seems the investment world is full people that think know more about running companies than the CEOs. In most cases these “arm chair quarterbacks “ wouldn’t be able to run a lemonade stand in the desert. Fortunately, Investors that have built wealth through their portfolios, can see through and around some of the dribble that is published.

[Miwicz]

“Buy low” and “dont time the market” are irreconciliable. The key is a strategy to prevent excessive market timing. I DCA and then buy more on dips and sell a little on bull runs, but am always around 60% in equities

[SowingAlfalfa]

Miwicz re- " “Buy low” and “don't time the market” are irreconciliable. The key is a strategy to prevent *excessive* market timing. "

Bingo! Very concisely and accurately stated.

*Everyone*, including the totally hard core "buy, hold and *never* sell" contingent actually does time the market, but tries really hard to not admit it.

I've successfully lightened up *near* the top of *major* bull markets and then bought back in *near* the bottom of following major bear 2.5 times now (think that most likely we have another leg or two down before the next bull starts- appear to still be in a bear market rally right now.) (Note- for most markets, "near" means like +/- one quarter.)

As a conservative retired investor, I currently have the equivalent of only 30% in equities- sold off all dogs and non defensive holdings prior to the crash.

[64MGB]

SowingAlfalfa -

Good Job! Planned your work, worked your plan.

[Chaffey]

All the fresh new money that was created has been consumed. The reality is that a handful of businesses like consumer staples, electricity phone ..etc...are going to continue to earn. Who is dying to get out and buy a car ...or house ..maybe some home renovation? Not much. Everyone else is way overvalued. Is everyone really going to line up to buy the next I phone....don't think so. There is a flood of stuff to buy and no one wants it right now. So I see slow decline in markets. The candy has been eaten. Now I will shamelessly plug some gold miners just because what they dig out of the ground has a value of 1685$ per ounce.

[rungrandpa]

"Who is dying to get out and buy a car ...or house ..maybe some home renovation? Not much."
I'm seeing the opposite.

[New Adams]

Like 73-74, the long long downturn continues...

[Jonk]

Imagine people who just paid top dollar for that new home or auto -- and now seeing neighbors get the same for a big discount!

[newfruit]

Correction: Shell didn't suspend, they just cut their divi by 60%. They probably should have suspended it but they did not.

[scotch64]

@newfruit , Ouch ! dividends rate & flow same as the product thru the pipeline.
Long term impacts are being foretold now.

[blueline]

"companies produce up to a billion vaccine doses per year"

Lots of money is going to be made.

I will wait until the first billion vaccines are injected and see what the side effects are.

[matttrakker]

You and I and on the same page.

[New Adams]

@blueline - not really. Not much money made on vaccines when they are sold at cost. This is why pharma needs to be CONVINCED to produce vaccines.

[SowingAlfalfa]

Blue- re- "I will wait until the first billion vaccines are injected and see what the side effects are"

Requires classical risk/benefit analysis for each individual (including probabilistic assessment of unknowns).

Obviously, those on the front lines of fighting the virus (and/or at very high risk of exposure) need to get the vaccine ASAP.

My 95 year old mother in law needs to get the vaccine as soon as it's available to the general public. (Very high risk group, and has been sort of been "circling the drain" even prior to the outbreak.)

My wife and I are over 65 and have been self limiting on a whole lot of things that make life enjoyable and hence will be some of the first to get the shot.

Our daughter is in her mid 20's and probably should wait until a "reasonable" assessment of side affects has been determined.

Etc, etc, etc.

[sareader11]

I'm relieved that stocks are falling. To think of the S&P being at 3000 in our current times was just so irrational that I would have lost a little bit of faith in humanity. Prepare for the next crash in the next few months

[ajajaj1979]

Didn't you lose faith with S&P being at 2950? What's the difference? It really shouldn't be anywhere near these levels.

[blueline]

"the U.S. appears to be crafting retaliatory measures against China over the coronavirus outbreak"

Australia has asked for an international investigation into the pandemic. China's response to Australia was to say they are gum on the bottom of China's shoe.

[SowingAlfalfa]

blueline re-" Australia has asked for an international investigation into the pandemic. China's response to Australia was to say they are gum on the bottom of China's shoe. "

So this is unexpected?

(If the above is a totally accurate statement (haven't researched this yet), what else did you expect them to say?... ;^) ... )

[john boy]

sowingalfalfa
What haven't you researched the gum on the bottom of chinas shoe. thats a good one

[blueline]

This is antidotal but I was going to get some stuff at Home Depot yesterday. I got to the parking lot and it was full. People were lined up outside waiting to get in. I left.

People are just itching to get out and get going.

[Racerblue]

Do you know if they were limiting the number of people in the store? I've been seeing other retailers do that. However I do need to stop by Home Depot today! Or at least soon.

[SaaS Sniper]

In Chicago, Home Depot / Lowes has been limiting customers in their stores for at least a month now.

[hamphouse]

Did the same, saw the same.

[Main_Street]

I think the key words here are from Apple: "impossible to forecast overall results". When the people who are in the weeds tell you this, it is a warning that currently we are all speculating instead of investing. We are placing grand bets that "things will get better" (bulls) or "things will change forever for the worse" (bears).

[Leftfield]

"We are placing grand bets that 'things will get better' (bulls)"

Really, "we are placing grand bets that multi-$trillions will continue to be created so as to eliminate financial market declines."

[Felloni]

I can see your point however I can also empathise that if they do table a forecast it is subject to substantial risks/variables hence the usefulness of it is probably of limited value.

I agree with your sense of risk (that when people withhold info or point of view there is a warning sign flashing) however I also understand the 'no guidence stance' that is prevalent at the moment

[fujilomi]

Thanks for the article. Already trimmed a lot in April, just about at minimum positions and overweight cash. Dang, Trump should have waited till Monday to threaten tariffs, I was still positive for the week as of yesterday. The market will probably have to rally from the ugly futures for my positions to stay positive for the week.

[Anisotropy]

We're reopening. No wait, we're closed again. China bad. Q1 good. Q2, let's not go there yet. Bad news is bad news again. Drugs will save 3% of us, maybe.

I need another drink.

[livingonthebeach]

Yeah, every time I throw an empty liquor bottle in the trash, I start singing Queen’s “Another One Bites the Dust”, and I’ve been singing that a lot lately. I think I’m keeping my local liquor store afloat.

[itchyandscratchy9]

Good on you for supporting local businesses ;)

[john boy]

livingonthebeach
Funny you should say that about Queen's song, I've been singing we are the champions of the world. bought the movie last month.

[kamykazie]

back down we go

[Fuyuki Wataru]

And users will open more shorts, hoping this is the start of the bear market. Forgetting that we have the FED and large hedge funds working together (there was a private meeting between Trump, FED, and hedge funds about 2 months ago and since that meeting, the prices have only gone up).

Your shorts will be hunted.
We will go up.

[jadedalex]

@Fuyuki Wataru, So hedge funds are going after Jeff Gundlach aka the Bond King and Kyle Bass who both run big funds and have put on some rather large shorts because both of them know that the Fed can't fund the entire World forever and ever, amen no matter how much confetti is printed. I'm sure they are shaking in their boots...

[Juan Campos]

@fuyuki are you making it up? could you share some evidence about it?

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