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IBD STAFF

Stock Market Rally Powers Higher Despite Rising Coronavirus Cases; Tesla, Shopify, Eli Lilly Are Notable Winners

The stock market rally continued a rebound, with the major indexes all moving solidly higher during the week. Economic data pointed to a U.S. recovery after massive declines in activity during the shutdowns. Coronavirus cases trended modestly higher in the U.S., with California, Texas, Florida and many other Southern states leading the way. Apple said it was closing some stores in Arizona and Florida due to soaring Covid-19 infections in those states. Tesla rallied as it neared an incentives deal for a Cybertruck factory outside Austin, Texas. Eli Lilly jumped on a breast-cancer drug. Shopify announced a big deal with Walmart, in a strong week for software stocks.

Stock Market Rally Back On Track

The coronavirus stock market rally continued to bounce back from the June 11 sell-off, with the Dow Jones, S&P 500 and Nasdaq composite all up solidly for the week, despite a generally weak Friday.. All are holding in a recent range, with the Nasdaq near record highs and the Dow slightly below its 200-day line. Growth stocks led the way, especially software. Shopify stock surged on an e-commerce deal with Walmart. Tesla stock was a big winner amid Cybertruck and other headlines. Eli Lilly surged on breast-cancer drug news.

Retail Sales, Factory Activity Rebound

New claims for jobless benefits slipped 128,000 in the June 13 week, but remained stubbornly high at 1.43 million. Meanwhile, 18.65 million people continued to claim regular jobless benefits in the prior week. That's down only 207,000 in the past three weeks, fueling doubt about how much of a continuing jobs rebound will be evident in the June employment report based on mid-month surveys of households and businesses.

May retail sales surged a record 17.7%, more than doubling estimates, as auto sales surged 44%. Outside of autos, retail sales jumped 12.4%. From a year ago, overall sales fell 6.1% and ex auto sales dropped 6.6%. Clothing store sales rocketed 188%, but remained 63.4% below year-ago levels. Sales of nonstore retailers led by Amazon rose 9% from April and 30.8% from May 2019. The retail rebound has continued into June. J.D. Power said that auto sales in the June 14 week were just 4% below pre-Covid forecasts vs. -10% a week earlier. Meanwhile, used car sales rose 11% vs. pre-Covid expectations.

The Philadelphia Fed's June manufacturing survey index vaulted into positive territory, to 27.5 from -43.1 the prior month. Among firms surveyed, 46% reported increasing activity and 19% slower activity. The New York Fed's Empire State manufacturing index rebound to -0.2, about break-even, from -48.5 in May.

Coronavirus Treaments

On Monday, Eli Lilly said it would test rheumatoid arthritis drug Olumiant in patients hospitalized with severe Covid-19. Lilly is aiming to reduce mortality rates by cutting down on a heightened immune response in which the body attacks its own cells. On Tuesday, a University of Oxford study suggested a decades-old anti-inflammatory drug could reduce the risk of death for Covid-19 patients requiring ventilation or oxygen support. The steroid, dexamethasone, treats an array of diseases like rheumatism, arthritis, allergies and nausea stemming from chemotherapy. Chembio Diagnostics collapsed Wednesday after the FDA revoked the emergency use authorization for its coronavirus test due to accuracy issues. But Fulgent Genetics popped after gaining an EUA for its coronavirus test. Chembio's sought antibodies associated with a prior infection whereas Fulgent's at-home test detects an active infection. Also Wednesday, BioSig Technologies jumped after its subsidiary, ViralClear Pharmaceuticals, dosed the first patient in a Phase 2 test of a potential oral antiviral treatment for Covid-19.

Eli Lilly Soars On Breast Cancer Drug

Eli Lilly surged Tuesday after saying its early-stage breast cancer treatment succeeded in a Phase 3 study. The pharmaceutical giant tested its drug, Verzenio, on top of standard endocrine therapy. In comparison to endocrine therapy alone, the combination "significantly" reduced the likelihood of cancer relapse for this specific patient group. Pfizer fell on the Lilly news. The Dow drug giant's Ibrance recently failed to make a difference in the same patient population.

Tesla Jumps

Tesla is focusing on a location in Austin, Texas, as the possible site of its futuristic Cybertruck factory. The vehicle is set to hit the market in 2021 and has reportedly gathered 500,000 reservations. Tesla also announced a new long-range version of its Model S, which it says drives more than 400 miles on a single charge. Tesla used lighter-weight materials and better drive unit efficiency to achieve the increase. Reports grew of Model Y quality issues. Shares rose to just over 1,000.

Tesla Rivals

Would-be Tesla rivals made big moves. Volkswagen opened preorders for the ID.3, its first car built from the ground up to be electric. The ID.3 hatchback kicks off Volkswagen's ambitious, $50 billion plan to bring affordable electric cars to the masses and eventually ditch the internal combustion engine. But it won't come to the U.S. Instead, its larger ID.4 sibling will and that crossover is expected to challenge Tesla's Model Y. Nikola won kudos from Cowen for its lineup of electric trucks, fuel-cell trucks and hydrogen fueling stations. Bloomberg reported founder Trevor Milton exaggerated the capabilities of his debut truck, the Nikola One, years ago. Ford plans to enhance its advanced driver assistance system with hands-free highway driving for its upcoming Mustang Mach-E EV crossover. Infrared cameras will help ensure drivers are paying attention, a feature Tesla doesn't have.

Crude Oil Prices Jump On Recovery Hopes

Crude oil futures jumped 9.6% this week, with U.S. futures topping $40 intraday Friday, on economic recovery hopes. U.S. crude inventories rose by 1.2 million barrels in the latest week while gasoline stockpiles fell by 1.7 million barrels, according to the Energy Information Administration. Analysts polled by S&P Global Platts expected a decline in crude stockpiles. Domestic crude production tumbled to 10.5 million barrels per day from 11.1 million bpd the week prior. In its monthly oil market report Wednesday, OPEC kept its global oil demand outlook steady after lowering its outlook for the past four months. OPEC+ on Thursday sealed a production cut deal with Iraq, which has often cheated on production quotas. On Tuesday, the International Energy Agency forecast an 8.1 million bpd drop in global oil demand this year, the largest in history. But next year, it sees demand rebounding by a record 5.7 million bpd.

FAA Accused Of Keeping Congress 'In The Dark'

FAA chief Steve Dickson began testified before a Senate Commerce Committee Wednesday where he faced accusations of keeping Congress "in the dark "over the certification and operation of the Boeing 737 Max. Dickson said that he and Deputy FAA administrator Dan Elwell will complete new simulator training that airline pilots will go through on the Boeing 737 Max and after he will fly the 737 Max. Chairman Sen. Roger Wicker, R-Miss., and Sen. Maria Cantwell, D-Wash., introduced legislation to reform the way the FAA certifies aircraft that would give the FAA power to hire or let go of employees at aircraft manufacturers performing FAA certification tasks. The FAA would also have the authority to appoint safety advisors. Boeing shares were little changed.

McDonald's Sales Improve

McDonald's reported improving sales trends for May from April, as the economy reopens for business after the coronavirus slowdown. Overall comparable sales fell 21% in May, compared to a 39% drop in April. International sales also trended North. But temporary restaurant closures in the U.K. and France, and to a lesser degree Italy and Spain, weighed on the rebound. McDonald's plans to hire 260,000 workers this summer in the U.S.

Airlines' Mask Crackdown

Delta Air Lines, American Airlines and United Airlines all said passengers risked future flying privileges if they didn't wear a mask during flights. American already removed one such passenger on Wednesday. Meanwhile, Southwest forecast less dire sales trends for June and July, and said it would weigh whether to leave the middle seat vacant beyond September. United also reported "steady improvement in demand."

Lennar Tops Earnings Views

The homebuilder reported stronger-than-expected earnings and in-line revenue. Management said the housing market has "proven to be resilient in the current environment," and sees the trend continuing. It also reinstituted guidance for fiscal year 2020. LennarLEN now expects deliveries to be in the range of 50,500 to 51,000 homes with a net margin on home sales of about 13%.

News In Brief

On Monday, Abbott Laboratories gained FDA clearance for its Freestyle Libre 2, a next-generation body-worn glucose monitor. It will closely rival Dexcom's G6 continuous glucose monitor. Abbott crept up a fraction as Dexcom popped 7.7%.

Shopify rose sharply on an e-commerce deal with retail giant Walmart. Shopify's 1,200 merchant customers will sell their products at Walmart.com Shopify also has a partnership with social media leader Facebook.

IQiyi soared on a Reuters report that China messaging and online gaming giant Tencent wants to be the largest shareholder in the video streaming company. IQiyi was spun off by Baidu, which owns a majority of the shares.

Royalty Pharma set a record as the largest initial public offering this year, raising $2.2 billion and passing the $1.93 billion raised by Warner Music Group. The stock soared 59% on its first day of trading.

Kroger, a grocery store operator, reported first-quarter results that topped expectations — helped by a 19% increase in same-stores sales and a 92% jump in digital sales — as consumers stocked up during the coronavirus crisis. But guidance was underwhelming.

Spotify soared after announcing a deal for Kim Kardashian West to host a podcast on criminal justice. The music subscription service has been rapidly expanding its podcast focus, recently sealing a deal with Joe Rogan.

Dada Nexus blasted out of a short IPO base, then extended gains after disclosing Walmart has taken a $2 billion stake in the newly public Chinese online grocery operator.

Tempur Sealy bounced toward a buy point after the mattress maker gave a more-bullish forecast as some coronavirus lockdowns end. It now expects sales to decline by 15% in Q2, far better than the 30% it previously forecast.

Apple said Friday it was closing some stores in Arizona and Florida due to soaring Covid-19 infections in those states.

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