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Stock Market Rally Under Pressure Amid Covid Fears; Intel, China Internets In Focus: Weekly Review

The stock market rally came under pressure this week, with techs and small caps lead the declines. But the major indexes bounced back from Thursday’s intraday lows. European coronavirus shutdowns raised concerns about the global economy, while China internet stocks sold off hard. The Suez Canal is blocked, and may be so for weeks, as a massive container ship become stuck. Intel (INTC) will spend $20 billion to build two Arizona chip plants, boosting semiconductor equipment makers such as Applied Materials (AMAT). Canadian Pacific (CP) is buying Kansas City Southern (KSU).

Market Rally Under Pressure

The stock market rally moved to “uptrend under pressure” as the major indexes continued to slide and leading stocks from a variety of sectors suffered significant losses. The S&P 500 undercut its 50-day line on Thursday, but rallied back above that key level.

Jobless Claims Fall, Yellen Sees ‘Deep Pain’

New jobless claims dropped by 97,000 to 684,000 in the week through March 20, falling below 700,000 for the first time since the coronavirus lockdown a year ago. That signals an acceleration of hiring is underway, after the job progress largely stalled at the end of last year then began to recover sluggishly.

The U.S. appears due for a hiring boom as vaccinations proceed and the $1.9-trillion stimulus adds fuel. Treasury Secretary Janet Yellen told Congress this week that the economy could return to full employment in 2022, but added that there are “deep pockets of pain” for those suffering through long-term joblessness. Fed chair Jerome Powell, speaking at the same congressional hearing, said he sees little risk of a sustained rise in inflation, despite aggressive fiscal and monetary policy. “We’ve been living in a world of strong disinflationary pressures for the past quarter century. We don’t think a one-time surge in spending leading to temporary price increases would disrupt that.”

Intel Plans New Chip Factories

Intel (INTC) announced plans to spend $20 billion to build two semiconductor fabrication plants in Arizona. CEO Pat Gelsinger pledged to return Intel  to a leadership position in chip manufacturing. He also announced Intel’s intent to become a major provider of foundry capacity in the U.S. and Europe to serve customers globally. The news boosted semiconductor equipment stocks such as Applied Materials (AMAT) and ASML (ASML). Intel fell as the increased capital expenditures are seen weighing on its performance near term. Taiwan Semiconductor Manufacturing (TSM), the world’s largest chip foundry, also retreated.

Adobe Beats Fiscal Q1 Targets

Adobe (ADBE) reported a 38% EPS jump with revenue up 26% to $3.91 billion. It was the best quarterly sales and earnings growth in over two years. For the full fiscal 2021, the digital media and marketing software maker sees EPS up 17% with sales up 20% to $15.45 billion, slightly above views.

Coronavirus Vaccine News

AstraZeneca (AZN) yo-yoed last week after the saying its coronavirus vaccine was 79% effective against symptomatic Covid-19 in a Phase 3 study. The drug also prevented 100% of severe or critical cases and hospitalizations. Shares tumbled the next day after U.S. health officials questioned whether AstraZeneca included outdated data in its U.S. study.  AstraZeneca provided updated data, showing 76% effectiveness. Meanwhile, the FDA said it would allow Pfizer (PFE) and BioNTech (BNTX) to transport and store their Covid-19 vaccine at standard freezer temperatures as opposed to ultra-cold temperatures. But officials in Hong Kong paused their rollout of that vaccine after finding defective packing materials.

Suez Canal Blocked

Following a dust storm, the Ever Given, a container ship longer than the Eiffel Tower, lodged sideways in the Suez Canal Tuesday. Efforts to dislodge the ship failed and a special evacuation team was sent in. Officials warned it could take days or weeks to clear the waterway. About 12% of global trade passes through the canal, including 1 million barrels of oil a day. Shipping charges soared. Zim Integrated Shipping Services (ZIM) reported mixed Q4 results Monday. The recent IPO tumbled to start the week but slashed losses.

Tencent, TME Beat, But Stocks Crash

China-based Tencent Holdings (TCEHY) reported quarterly results that met earnings estimates and beat on revenue, helped in part by a surge in revenue from its online gaming business. Revenue jumped 26% to $20.5 billion. Online games revenue surged 29% to $6 billion. Tencent is China’s leader in online messaging, gaming and payment services. It’s also has a burgeoning business in cloud computing.

Tencent Music Entertainment (TME), majority owned by Tencent Holdings, reported quarterly results in line with estimates. Tencent Music operates four of the five most popular digital music apps in China, with market penetration of about 90%. Online music paying users reached 56 million, up 40% vs. a year earlier. It also announced an expanded multiyear strategic licensing agreement with Warner Music.

But Tencent, Tencent Music and many other Chinese internet stocks plunged. Beijing reportedly will push internet firms to share their customer data with a government joint venture. Meanwhile, the SEC adopted a new U.S. law that force Chinese firms to delist from U.S. stock exchanges unless they comply with American accounting standards.

GrowGeneration Hikes Outlook

GrowGeneration (GRWG), a retail chain that sells supplies to small and large cannabis growers, raised its full-year sales forecast and reported quarterly sales that came in above expectations. The chain also acquired Agron.io, a technology platform that helps large commercial growers manage purchases, supplies, pricing changes, fees and regulations. The moves came as more U.S. states legalize cannabis, and as GrowGeneration tries to expand its store footprint as well as its digital and private-label offerings.

Rail Merger

Canadian Pacific (CP) will merge with Kansas City Southern (KSU), creating the first freight-rail network to link Canada, the U.S. and Mexico. The $29 billion stock-and-cash deal is expected to boost earnings and deliver $780 million in synergies. Canadian Pacific CEO Keith Creel will lead the combined company, with the deal set to close by mid 2022.

Nesting Trend Strong

Luxury home goods retailer RH (RH) beat views and gave a rosy outlook. It posted Q4 EPS of $5.07 on sales of $812.4 million. Comps grew 29%, and RH core demand jumped 36%. RH sees Q1 sales growth of at least 50%, well above consensus views for 27.3%, and 2021 revenue growth of 15%-20%, above consensus for 10% growth. Meanwhile, home decor chain At Home (HOME) also beat expectations. The company earned $1.08 a share in Q4 on a 41% sales gain to $562 million. Same-store sales rose 31%.

GameStop Misses, Mulls Stock Sale

GameStop reported weaker-than-expected Q4 earnings and sales. But the video game retailer said Q1 same-store sales are surging. GameStop named former Amazon (AMZN) and Google (GOOGL) executive Jenna Owens as COO. GME stock plunged Wednesday as GameStop said it was mulling a share offering and didn’t take any questions on the conference call. But shares surged higher on Thursday. GME stock hit a record high in late January after finding itself in the middle of a short-squeeze mania brought on by the Reddit group r/wallstreetbets.

News In Brief

Peloton (PTON) confirmed it snapped up three companies late last year for $78.1 million. The companies are in wearable devices, AI-powered digital voice assistants and interactive workouts.

Volkswagen (VWAGY) started delivering its first locally made ID.4 electric crossover in China, taking aim at Tesla (TSLA) and its made-in-Shanghai Model Y. Tesla hiked made-in-China Model Y prices amid reported production issues. Nio (NIO) will suspend factory production for five days starting March 29, citing the chip shortage that is plaguing the auto industry. It now expects to deliver 19,500 vehicles in the first quarter, down from its prior target of 20,000-20,500.

VW-backed QuantumScape (QS) announced a second stock offering to fund a larger “pre-pilot line” for solid-state EV batteries, a technology that promises cheaper and longer-range electric cars but has a long ways to go.

Blink Charging (BLNK) saw losses deepen to 24 cents a share as it grows its EV charging network. But still-slim revenue jumped 250%, on demand for home chargers and public charging stations.

Arrival (ARVL) debuted on the stock market after a reverse merger with a special purpose acquisition company. The London-based EV startup already counts UPS UPS as a customer, with an order for 10,000 electric delivery vans.

Winnebago (WGO), beat fiscal Q2 expectations. The RV maker said “interest in the outdoors remains high,” marked by “elevated order backlogs” and retail sales growth, even as the economy starts to reopen following coronavirus-related shutdowns.

Nike (NKE) faced a backlash on Chinese social media after the athletic apparel giant said that it’s “concerned” about forced labor in Xinjiang and stated that it does not use cotton from the western region, home to ethnic Uighurs. Nike stock fell Thursday. Adidas (ADDYY), which faces similar issues, also sold off.

Lockheed Martin (LMT) and Northrop Grumman (NOC) beat out Boeing (BA) to win the Missile Defense Agency’s Next Generation Interceptor contract for technology development and risk reduction. Lockheed’s contract is worth $3.7 billion through August 2025, and Northrop’s is worth $3.9 billion through May 2026. The two defense giants will later compete against each other for a future procurement contract.

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