Wall Street Breakfast: What Moved Markets

Jun. 25, 2022 7:57 AM ETPFE, BNTX, MRNA, SWBI, MO, BTI, NCLH, CCL, ETSY, PENN, DVN, MRO, PSX, APA, VLO23 Comments7 Likes
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The S&P 500 rallied more than 3% on Friday to wrap up a big comeback week for the stock market that followed the worst weekly decline since the start of the pandemic. Investor hopes were raised Friday by economic data that included better than expected new home sales for May and a slight improvement in inflation expectations from the latest University of Michigan survey of consumer sentiment, which was seen as potentially reducing the urgency for steeper interest rate hikes by the Federal Reserve. After all three major indexes snapped three-week losing streaks -- with the S&P rising 6.5%, the Dow Jones average gaining 5.4% and the Nasdaq Composite surging 7.5% -- the question now is whether the markets have found a bottom or starting a bear market rally off oversold conditions.

Goodbye plastic

Canada moved forward this week with a comprehensive plan to ban "harmful" single-use plastics, in a sweeping effort to fight pollution and keep them out of the environment. Most plastic bags, disposable cutlery and plastic straws would fall under the new ban, as well as stir sticks, cups and six-pack rings that hold cans together. Few exceptions have been made for medical needs and accessibility reasons, or other recognized specific cases.

Timeline: The order will phase in over the next several years, starting with a ban on the manufacture and import of single-use plastics from December 2022. Sales of the items will be prohibited the following year, while the measure will put an end to the export of Canadian plastics by the end of 2025. "Over the next 10 years, this ban will result in the estimated elimination of over 1.3 million tons of plastic waste and more than 22,000 tons of plastic pollution," tweeted Prime Minister Justin Trudeau. "That's equal to a million garbage bags full of litter."

Banning single-use plastics will be a complex task given that they are abundant, convenient and cheap. Businesses that heavily rely on the material will also need to come up with new solutions, like the restaurant sector, where plastic takeout containers, cutlery and bags are the norm. Many problems have also plagued the global supply chain since the pandemic, so tracking down plastic alternatives and procuring them can be a daunting task especially for industries where margins are not all that high.

Go deeper: Other countries which have put in place various bans on single-use plastic include Chile, the U.K. and the European Union. However, Canada's neighbor to the south, the United States, ranks as the world's leading contributor of plastic waste by generating about 287 pounds of plastics per person annually. Some piecemeal efforts have been put in place by some states like New York and California, but the most action taken at the federal level has been to increase the U.S. recycling rate to 50% by 2030 and the phasing out of single-use plastic products in national parks and other public lands by 2032. (250 comments)

Shots for tots

On Tuesday, pediatricians, children's hospitals and pharmacies across the U.S. began administering COVID-19 vaccines to kids between 6 months and 5 years old, after the FDA and CDC authorized the jabs last week under emergency approval. Only 18% of parents say they will vaccinate their kids in the age group as soon as possible, according to recent poll from the Kaiser Family Foundation, due to the lack of "enough information about the vaccines' safety and effectiveness." A similar dynamic played out after the shots opened to children aged 5 to 11 last November, with less than a third of that demographic getting vaccinated (compared to the 75% fully vaccinated U.S. population over the age of 12).

Snapshot: Parents of infants, toddlers and preschoolers will have the option of a three-dose regimen from Pfizer-BioNTech (PFE, BNTX) that spans nearly three months, or a two-shot series from Moderna (NASDAQ:MRNA) that takes four weeks. The vaccines use the same mRNA technology given to adults, but differ in their dose sizes. Roughly 18M youngsters are eligible for the jabs, which were shown to have efficacy (in preventing COVID) of between 36.8% and 50.6% for Moderna's shot. Pfizer's effectiveness was determined not to be reliable due to the low number of COVID-19 cases that occurred among study participants, though it was found to trigger a comparable immune response seen in adults.

According to the CDC, 480 children under the age of five have died from COVID-19 through May 2022, while more than 30,000 children in the U.S. have been hospitalized, making the disease more dangerous than flu for little kids. Some children can also have lasting symptoms known as "long COVID," while infections can spread within a household, or to adults that may be more vulnerable. The CDC is even advising vaccination for those who already had COVID-19 to protect against reinfection, with an estimated 75% of children showing evidence of having had the disease.

Not everyone is on board: While Florida doctors can get access through federal distribution channels, the state has been an outlier in not pre-ordering COVID vaccines for kids. Florida's Department of Health is recommending against giving coronavirus vaccines to healthy children, saying there is "very little benefit" for them and "certain risks may outweigh the benefits." Others that may be hesitant to jab their younger kids cite natural immunity, limited trial data based on small number of cases, questions about overall effectiveness and unknown long-term side effects from the vaccine. (64 comments)

Sounding the alarm

A troublesome energy crisis is escalating across the globe, as a myriad of factors continues to impact flows, output, supply and production. The latest warning bell went off as Germany announced it would move to the so-called "alert stage" of its emergency gas plan, seeing a high risk of long-term gas supply shortages. The crunch has been exacerbated by sanctions and Russia's Vladimir Putin turning off the taps, and comes amid a similar situation in the U.S. that saw President Biden release a four-point plan to lower prices at the pump (including a federal gas tax holiday).

Quote: "This will affect industrial production and become a major burden for many consumers. It's an external shock," German economy minister Robert Habeck declared. "We will defend ourselves against this, but it will be a rocky road that we as a country now have to walk. Even if you don't really feel it yet, we are in a gas crisis."

Germany announced the first phase of its emergency gas plan on March 30, when the Kremlin's demands for payment in rubles prompted Germany to prepare for a potential cutoff in supply. Local suppliers were subsequently invited to advise the government as part of a crisis team and Habeck called on consumers to reduce their consumption. While the second phase doesn't call for state intervention measures, it could trigger a change in the law that passes along price increases to industry and households.

Outlook: Over the past week, Moscow has slashed capacity to Germany via Nord Stream 1 by 60%, leading to outsized moves for gas contracts as the country attempts to refill its storage before wintertime. If Berlin ups its gas plan to the third and last "emergency" level, the government would assume control over the entire nation's distribution network. Germany has already reopened several coal-fired power stations to shore up supply, which could dent European support for climate efforts or push Ukraine into an unfavorable settlement with Russia. (293 comments)

Ready, aim, fire!

Traders pulled the trigger on Smith & Wesson (SWBI) on Thursday as shares of the firearms manufacturer went on a wild ride. The stock climbed nearly 10% following a favorable Supreme Court ruling on gun rights, but then fell back 2% AH after reporting quarterly earnings. Sales slumped 31% in FQ4 from a year ago, returning to more normalized levels of demand following the pandemic surge, though the shares pared some of the slight losses after S&W hiked its quarterly dividend by 25%.

Over in Washington: The Supreme Court struck down a restrictive century-old gun law enacted in New York, ruling that the state's system for issuing concealed-weapons permits - in which applicants must demonstrate "proper cause" and "good moral character" - violates the Second Amendment. The 6-3 decision and majority opinion authored by Justice Clarence Thomas marks the widest expansion of gun rights since 2010, when the high court applied a 2008 ruling nationwide that established individual rights of armed self-defense within the home. The latest ruling could challenge similar laws in at least eight other states and the D.C., where authorities wield significant power over issuing concealed carry permits.

"Because many people face a serious risk of lethal violence when they venture outside their homes, the Second Amendment was understood at the time of adoption to apply under those circumstances," Justice Alito wrote in a concurring opinion. "The Court's exhaustive historical survey establishes that point very clearly, and today's decision therefore holds that a State may not enforce a law, like New York's Sullivan Law, that effectively prevents its law-abiding residents from carrying a gun for this purpose." He also explicitly added that Judge Breyer's lengthy invocation of gun death statistics was irrelevant to the court's decision.

That's not all: A bipartisan package of gun safety measures passed the U.S. Senate late Thursday, weeks after mass shootings in Uvalde and Buffalo that killed more than 30 people, including 19 children. The $13B bill would toughen background checks for the youngest firearm buyers, beef up penalties on gun traffickers and close the so-called boyfriend loophole. It would also help states enact red flag laws and fund local programs related to school safety, mental health and first responder training. (95 comments)

Up in smoke

The FDA ordered JUUL products off the shelves in the U.S., dealing a major blow to the once high-flying company whose products have "played a disproportionate role in the rise in youth vaping." The official market denial order restricts the sale of its remaining Virginia tobacco and menthol-flavored pods, and only pertains to the commercial distribution, importation and retail sales of these products. That means no enforcement for individual consumer possession, or the use of JUUL and other vaping accessories.

Press release: "After reviewing the company's premarket tobacco product applications (PMTAs), the FDA determined that the applications lacked sufficient evidence regarding the toxicological profile of the products to demonstrate that marketing of the products would be appropriate for the protection of the public health. As with all manufacturers, JUUL had the opportunity to provide evidence demonstrating that the marketing of their products meets these standards. However, the company did not provide that evidence and instead left us with significant questions."

Marlboro owner Altria (MO) bought a 35% stake in Juul for $12.8B in late 2018 to diversify its portfolio and join forces with a company that was threatening its traditional cigarette business. Things didn't go so well, with the FDA banning flavored e-cigs in 2020, prompting JUUL's market share to tumble from 70% to 42%, and then to 36% as of March 2022. Earlier this year, Altria valued its JUUL stake at $1.6B, an eighth of its original investment, and that's before the FDA threatened its entire U.S. business (Altria shares are down more than 20% since the acquisition).

Commentary: Bank of America analyst Lisa Lewandowski expects the company to appeal the FDA decision since key competitors like British American Tobacco (BTI) and Japan Tobacco (OTCPK:JAPAY) have been granted U.S. market access. Additionally, Imperial Brands' (OTCQX:IMBBY) blu product is presently appealing a market denial order akin to the one reportedly facing JUUL. Even if filed, such legal action could get drawn out and will leave products off of store shelves for a long period of time. (91 comments)

U.S. Indices
Dow +5.4% to 31,501. S&P 500 +6.5% to 3,912. Nasdaq +7.5% to 11,608. Russell 2000 +6.% to 1,766. CBOE Volatility Index -12.5% to 27.23.

S&P 500 Sectors
Consumer Staples +6.6%. Utilities +7.2%. Financials +5.1%. Telecom +7.%. Healthcare +8.2%. Industrials +4.2%. Information Technology +7.3%. Materials +2.7%. Energy -1.6%. Consumer Discretionary +8.3%.

World Indices
London +2.7% to 7,209. France +3.2% to 6,073. Germany -0.1% to 13,118. Japan +2.% to 26,492. China +1.% to 3,350. Hong Kong +3.1% to 21,719. India +2.7% to 52,728.

Commodities and Bonds
Crude Oil WTI -2.3% to $107.06/bbl. Gold -0.7% to $1,828.1/oz. Natural Gas -11.1% to 6.173. Ten-Year Bond Yield -0.2 bps to 3.138.

Forex and Cryptos
EUR/USD +0.53%. USD/JPY +0.2%. GBP/USD +0.39%. Bitcoin +12.1%. Litecoin +19.1%. Ethereum +22.3%. XRP +20.%.

Top S&P 500 Gainers
Norwegian Cruise Line Holdings (NCLH) +27%. Carnival Corporation & plc (CCL) +24%. Etsy (ETSY) +21%. Penn National Gaming (PENN) +19%. Moderna (MRNA) +19%.

Top S&P 500 Losers
Devon Energy (DVN) -15%. Marathon Oil (MRO) -14%. Phillips 66 (PSX) -13%. APA (APA) -13%. Valero Energy (VLO) -12%.

Where will the markets be headed next week? Current trends and ideas? Add your thoughts to the comments section.

This article was written by

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