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Wall Street Breakfast

Author: bmotrader   |   Latest post: Fri, 7 Aug 2020, 11:21 AM

 

Wall Street Breakfast: Earnings Season Set For Kickoff

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Earnings season for Q2 gets underway this week as major U.S. banks report results from the past three months that were slammed by the coronavirus. Collective earnings of S&P 500 companies are expected to decline by a whopping 44.6% Y/Y, according to FactSet, marking the biggest decline since the final quarter of 2008, when earnings fell 70% during the financial crisis. Writeoffs and other expenses will likely be forgiven due to the extenuating circumstances, though investors will be judging what firms have to say about the current quarter or the full year after they withdrew most of their guidance. "There's a deficit of information that needs to be filled at some point," said Sebastien Leburn, senior portfolio manager at Boston Private.

Bulls gain ground

The risk-on mood spread across the globe overnight, tracking an end-of-week rally in U.S. stocks as traders look to the start of earnings season for further clues on how companies are planning for the future. The Nikkei and Shanghai climbed about 2%, the Euro Stoxx 50 is 1% higher, while U.S. stock index futures are ahead by 0.6%. Coronavirus news: While Florida reported a record 15,299 new cases on Sunday - a national record - and Houston city leaders called for a return to lockdown, a declining death rate trend was highlighted by New York City, which reported no COVID-related fatalities for the first time.

IPO process in question?

2020 has become a boom year for special purpose acquisition companies, or SPACs, as seen by the postmerger returns of Nikola Motors (NASDAQ:NKLA), Virgin Galactic (NYSE:SPCE), and DraftKings (NASDAQ:DKNG). The latest? MultiPlan is combining with Churchill Capital Corp. III (NYSE:CCXX) in an $11B deal that will take the healthcare savings provider public. What are SPACs? They're basically empty shell companies that raise a lot of money by going public - without targeting a particular industry - and later use the money to buy a company. Why are they becoming popular? At a time of great volatility, SPACs can offer liquidity, are quicker to come to market, provide better price support and are lighter on the regulatory side. CCXX +57.3% premarket.

More M&A

Expanding its offerings in sectors like autonomous vehicles and 5G, semiconductor maker Analog Devices (NASDAQ:ADI) has agreed to acquire Maxim Integrated Products (NASDAQ:MXIM) in an all-stock transaction that values the combined enterprise at over $68B. The deal is expected to be accretive to free cash flow at closing and adjusted EPS in 18 months post close. It'll also provide $275M of cost synergies by the end of year two - given the common focus of the two companies on integrated circuits - and follows years of speculation that the two rivals could combine. MXIM +10.1% premarket.

Relaxing OPEC+ production curbs

Crude futures are off nearly 2% ahead of an OPEC+ meeting on Wednesday at which the group may announce plans to start tapering historic production cuts, WSJ reports. Under discussion is a Saudi proposal to relax the group's production curbs by 2M bbl/day, amid signs that demand is returning to normal levels following COVID-led lockdowns. The renewed optimism coincides with a Friday report from the IEA showing COVID-19's worst effects on global oil demand have passed but will linger as the market slowly recovers in the second half of 2020.

Turnaround at WeWork

A big cost-cutting drive has helped WeWork (WE) shore up its finances, and the company is set to see positive cash flow and profits in 2021, a year ahead of schedule, Chairman Marcelo Claure told the FT. "Everybody thought WeWork was mission impossible. [That we had] zero chance. And now, a year from now, you are going to see WeWork to basically be a profitable venture with an incredible diversity of assets," he declared. Claure also sees the transition to remote work as appealing to companies that want satellite offices for their workers. Over the past few months, WeWork - backed by Softbank (OTCPK:SFTBY) - has cut more than 8K jobs, sold off non-core businesses and terminated leases on building space in New York and Baltimore.

Tesla drops prices as stock surges

The starting price for the Model Y crossover is now $49,990 (before taxes and incentives), marking the second significant price cut Tesla (NASDAQ:TSLA) has made to its vehicles in the last six weeks. In late May, the EV maker shaved $5,000 off the Model S and X and $2,000 off the Model 3, and ended up delivering 90,650 cars to customers in Q2, beating analyst estimates and sending shares soaring. In fact, Tesla's stock has skyrocketed 260% since the beginning of the year, and is up another 4.2% in premarket trade to over $1,600 per share.

Supersonic travel revival

Founded in 2014, Boom Supersonic has built a supersonic prototype in only six years, significantly faster than the development of the Concorde. The Denver-based startup has set Oct. 7 to publicly unveil its XB-1 - a demonstrator aircraft that'll be used for a conceptual commercial jet called Overture. It would have 55-seats onboard, reach cruising speeds of Mach 2.2, use alternative fuels and take to the skies in 2021. The company has so far raised $141M to build the XB-1 from investors like Japan Airlines (OTCPK:JAPSY) and Richard Branson's Virgin Group, which have pre-ordered a total of 30 aircraft.

Today's Markets

In Asia, Japan +2.2%. Hong Kong +0.2%. China +1.8%. India +0.3%.
In Europe, at midday, London +1%. Paris +0.9%. Frankfurt +0.9%.
Futures at 6:20, Dow +0.6%. S&P +0.5%. Nasdaq +0.6%. Crude -1.8% to $39.82. Gold +0.6% to $1812.60. Bitcoin flat at $9277.
Ten-year Treasury Yield flat at 0.64%

Today's Economic Calendar

11:30 Fed's Williams: "LIBOR: Entering the Endgame"
1:00 PM Fed's Kaplan Speech
2:00 PM Treasury Budget

 

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