Dow climbs in early Friday action as Wall Street attempts to cap tumultuous trading week with an upswing


Stock benchmarks on Friday rose modestly higher as investors looked to close out a volatile, holiday-shortened week that has the tech-heavy Nasdaq Composite on track for its biggest weekly loss since the height of the pandemic-induced market selloff in March.

How are major benchmarks trading?

The Dow Jones Industrial Average
DJIA,
+0.19%

rose 117 points, or 0.4%, to around 27,650, while the S&P 500
SPX,
+0.07%

gained 14 points, or 0.4%, to trade at 3,353. The Nasdaq Composite Index
COMP,
-0.09%

climbed 48 points, or 0.5%, at 10,952. But all three benchmarks were trading off their intraday peak near the open, highlighting the week’s choppy action.

The Dow on Thursday fell 405.89 points, or 1.5%, to close at 27,534.58, while the S&P 500 ended with a loss of 59.77 points, or 1.8%, at 3,339.19. The Nasdaq Composite fell 221.97 points, or 2%, to finish at 10,919.59. Through Thursday, the Dow was down 2.1% for the week, while the S&P 500 was off 2.6% and the Nasdaq was 3.5% lower; markets were closed Monday for Labor Day.

What’s driving the market?

A decline in the S&P 500 index for the week would mark the benchmark’s first back-to-back weekly drop since May.

“While monetary policy is set to remain supportive for several more quarters, valuations are high across assets and volatility is resurfacing,” said Elia Lattuga, co-head of strategy research at UniCredit Bank, in a note. “The breadth of the rally is still limited and the recovery uneven—hence developments in the economic outlook and political risks represent significant threats to risk appetite.”

Stocks were unable to follow through Thursday on a Wednesday bounce that saw equities recover somewhat from a three-day, tech-led rout that pushed the Nasdaq into correction territory, falling more than 10% from its record close set last week.

Weakness on Thursday was partly tied to the inability of U.S. politicians to agree on a new coronavirus rescue package after Democrats blocked a Republican bill on the Senate floor, leaving the way forward unclear, analysts said.

Meanwhile, investors have fretted that the sharp rally that took stocks from their March pandemic lows to new all-time highs had left valuations significantly stretched for the large-cap, tech-related stocks that had led the rally this year. Among those highfliers, shares of Apple Inc.
AAPL,
-0.85%

 and Netflix Inc.
NFLX,
+1.22%

 were on track for weekly declines of more than 6%, while Facebook Inc.
FB,
-0.57%

 is off more than 5%.

In U.S. economic news, the consumer-price index for August rose 0.4% last month, beating average economists’ estimates for a rise of 0.3% but falling below the past two months at 0.6%. On a year-over-year basis, the CPI increased 1.3% after gaining 1.0% in July, the Labor Department said on Friday

Looking ahead, Federal budget figures for August are due at 2 p.m. Eastern.

Which companies are in focus?
What are other markets doing?

The yield on the 10-year Treasury note
TMUBMUSD10Y,
0.675%

 rose 0.4 basis point to 0.687%. Bond prices move inversely to yields.

The ICE U.S. Dollar Index
DXY,
-0.12%
,
which tracks the performance of the greenback against its major rivals, fell 0.1%.

Gold futures
GCZ20,
-0.08%

were off 0.3% at $1,958 an ounce, threatening to snap a three-day winning streak. The U.S. crude oil benchmark
CL.1,
-0.10%

 fell 16 cents, or 0.5%, to $37.13 a barrel.

The Stoxx Europe 600 index
SXXP,
-0.11%

 was edging 0.1% lower, while the U.K.’s benchmark FTSE
UKX,
-0.26%

rose 0.2%. In Asia, Hong Kong’s Hang Seng Index
HSI,
+0.78%

and the Shanghai Composite Index
SHCOMP,
+0.78%

 both rose 0.8%, while Japan’s Nikkei
NIK,
+0.73%

rose 0.7%.



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SandRidge Energy: Steep Production Declines In 2020 As It Attempts To Manage Its Debt (NYSE:SD)


SandRidge Energy (SD) is at risk of continuing to shrink as its assets require much higher oil prices to deliver decent economics. The company has reduced its 2020 capex to minimum levels and also reached an agreement to sell its headquarters building. This should allow it to keep its credit facility borrowings below its greatly reduced borrowing base.

SandRidge may have some upside with $50s oil, but otherwise it will continue to see its production decline and have its cash flow go towards paying off its credit facility debt.

Updated 2020 Outlook

SandRidge has reduced its 2020 capex budget to minimal levels and has also shut in wells (both temporarily and permanently) due to low commodity prices.

At current strip of roughly $35 WTI oil and $2.05 NYMEX natural gas, SandRidge is now projected to end up with $103 million in revenues after hedges. There may be some upside from NGL prices, as some components (propane, butane, ethane) have improved significantly in recent weeks, although the natural gasoline component remains pretty weak.

Type Barrels/Mcf $ Per Unit $ Million
Oil 1,900,000 $30.75 $58
NGLs 2,200,000 $7.50 $17
Natural Gas 21,500,000 $0.80 $17
Hedge Value $11
Total Revenue $103

SandRidge’s 2020 capital expenditure budget may end up at around only $7 million as it is only planning on spending on projects required to maintain safety or mechanical integrity, or on minor workovers.

The company has also worked to cut costs, reducing both its G&A and its lease operating expenses by around 30% compared to its previous guidance. The shut-in of unprofitable wells is contributing to the reduced costs. Thus, it may end up with $80 million in cash expenditures in 2020.

$ Million
Lease Operating Expenses $51
Production Taxes $7
Cash General & Administrative $13
Interest Expense $2
Capital Expenditures $7
Total $80

SandRidge would then have $23 million in positive cash flow in 2020 before working capital changes. This does not include plugging and abandonment costs though.

Projected Debt

SandRidge had $57.5 million in credit facility debt at the end of 2019. It also had a nearly $50 million working capital deficit at that time. This working capital deficit included $22.1 million in asset retirement obligations, although when the company filed its annual report in February 2020, it anticipated only incurring $4.5 million in actual plugging and abandonment costs in 2020.

I am now assuming that the company will incur $22.1 million in plugging and abandonment costs in 2020 as it shuts in a large number of wells due to the commodity price outlook.

$ Million
Year-End 2019 Credit Facility Debt $57.5
Plus: Working Capital Deficit $49.8
Less: Positive 2020 Cash Flow -$23.0
Less: Sale of Corporate Headquarters -$35.5
Year-End 2020 Credit Facility Debt $48.8

The $23 million in positive cash flow and $35.5 million sale of its corporate headquarters may reduce its credit facility debt to around $49 million at the end of 2020, with no working capital deficit remaining.

SandRidge’s credit facility borrowing base was reduced to $75 million (down from $225 million) and its credit facility matures in April 2021. The sale of its corporate headquarters should reduce its debt enough to keep its debt under its borrowing base limit. However, there is a risk that the borrowing base gets reduced further as SandRidge’s PDP reserves diminish.

Beyond 2020

SandRidge’s production is declining rapidly in 2020 due to its minimal capex spend plus shut-in wells (some of which are permanently shut in). This may result in its total production ending up at around 18,250 BOEPD (23% oil) exiting 2020.

At that level of production, the company would generate roughly $100 million in revenue at current 2021 strip prices (such as $37 to $38 WTI oil and $2.70 NYMEX natural gas).

Type Barrels/Mcf $ Per Unit $ Million
Oil 1,500,000 $33.00 $50
NGLs 2,000,000 $11.00 $22
Natural Gas 19,000,000 $1.45 $28
Total Revenue $100

I estimate that SandRidge could maintain its (value-weighted) production with around $75 million in capital expenditures. This would result in the company burning $40 million in cash in 2021 at current strip if it wanted to maintain production.

$ Million
Lease Operating Expenses $45
Production Taxes $7
Cash General & Administrative $11
Interest Expense $2
Capital Expenditures $75
Total $140

SandRidge appears to need upper-$50s WTI oil to be able to maintain production without cash burn. It is hampered by lacking top-tier assets. The company’s Mississippian Lime and NW Stack assets could not compete for capital at mid-$50s WTI oil. Its North Park Basin XRL type curves showed decent returns at $55 WTI oil, but there were questions about how oil production from those wells held up over time.

Conclusion

While SandRidge Energy doesn’t have that much debt, at below $55 WTI oil it appears likely to end up with continued declines in production. Its assets struggle to generate decent returns at below $55 WTI oil, and its credit facility borrowing base has been reduced by 67%.

SandRidge’s credit facility matures in April 2021, although given the company’s lack of other debt, it may be able to get that extended. Its credit facility lenders will likely want the company to keep its borrowings low though. For SandRidge to have significant upside probably requires a fairly quick return to $50s oil.

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Is the Dow staging a genuine rebound? Here’s what experts think as the stock market attempts to shake the bearish grip of the coronavirus pandemic


Investors are seeing light at the end of the tunnel after a brutal period. But is it an oncoming train?

It’s a question many investors are weighing as the market attempts a powerful rebound from its late-March lows on the back of signs that the spread of the coronavirus-borne disease COVID-19 could be slowing here and elsewhere in the world.

Some of the hardest-hit places in the U.S., where a quarter of all confirmed global cases have now been reported, are starting to show welcome signs of a reduction in infections, including New York state, which has emerged as the epicenter of the viral outbreak that began in Wuhan, China in December.

New York Gov. Andrew Cuomo, speaking during a news conference on Tuesday, said that the rate of hospitalizations is plateauing, even as he reported the biggest one-day rise in deaths.

Italy and Spain also have reported a slowdown in the outbreak following strict social-distancing and lockdown measures, and Austria and Denmark are setting the stage for a return to some semblance of normalcy. Wuhan, China, where the disease was first identified, reported no new deaths for the first time since January.

See:Vodka, saunas and resisting lockdown — the countries taking a different approach to the coronavirus

“We are finally seeing U.S. COVID-19 new case numbers responding to social distancing — certainly in New York state but also elsewhere,” wrote analysts at BofA Global Research in a note.

On top of that, central banks and governments across the globe are throwing out what amounts to trillions of dollars to help stanch the economic damage resulting from efforts to mitigate infections and treat those sickened by the illness derived from the novel strain of coronavirus.

Those factors have given a major boost to equities and momentarily deflated some of the rabid appetite for assets considered havens like the 10-year Treasury notes
TMUBMUSD10Y,
0.711%
.
The 10-year yields about 0.78%, compared with 0.587% on Friday. Bond prices fall as yields rise.

And stocks, attempted strong gains Tuesday before ending lower, with the Dow Jones Industrial Average
DJIA,
-0.11%

giving up a more than 930-point rally, after a dramatic surge on Monday saw the blue-chip index, along with the S&P 500 index
SPX,
-0.16%

and the Nasdaq Composite Index
COMP,
-0.32%
,
close more than 7% higher.

See:Why skeptics believe a V-shaped Dow rebound remains unlikely to materialize

As of Tuesday, the Dow is already up 7.6% on the week (which is set to be abbreviated by a Good Friday market pause), the S&P 500 is 6.9% higher, and the Nasdaq is on pace for a gain of 7%. From recent lows on March 23, the Dow has risen about 19.4%, the S&P 500 is up roughly 17% and the Nasdaq has gained nearly 14.3%.

It has been an extraordinary move higher, and the rate of infections and the latest death tolls appear set to continue catalyzing market moves in the near term. Why? Because those data will signal when the economy, which has been mostly in shutdown mode since the pandemic took hold, could possibly resume.

The swing higher for stocks has created a degree of discord among experts about how this movement will ultimately play out for markets in the near term as investors process likely poor economic data and weak corporate earnings in the days ahead.

Some argue that the bottom has been put in, but others are worried that the market could retest its March lows.

The team at Wolfe Research, including chief investment strategist Chris Senyek, says it has remained bearish on the market, given the weak data outlook. The disease’s path, the team wrote in a Tuesday report, is an uncertain one, “and our sense [is] that incoming economic data [and first-quarter] earnings season will be very disappointing.”

“We don’t believe that the global COVID-19 crisis is out of the woods just yet,” wrote the Wolfe Research team, with its analysts adding that they worry about infections remaining “very high” and the possibility of re-acceleration in places including Louisiana and New Jersey.

“How bad will it ultimately get and when will overall new infection rates peak? We do not know — but, from an investment perspective, that’s the key point,” the team wrote. “We don’t believe that U.S. equity markets will find a sustainable bottom until the U.S. new infection rate definitively rolls over.”

Indeed, perceived improvements in the public health situation and in risk appetite may not justify current stock-market valuations for some bears, especially as corporate quarterly results are expected to provide an ugly reminder of the impact of the virus.

J.P.Morgan Chase & Co.
JPM,
+1.31%

CEO Jamie Dimon warned on Monday said that earnings for the nation’s largest bank by assets will decline “meaningfully” in 2020 from last year’s $36.4 billion, citing the impact from coronavirus.

Read: Wall Street star money manager says S&P 500 could plunge to 1,500 in worst case, with coronavirus fallout lingering for year

David Kostin, chief equity strategist at Goldman Sachs, estimated that dividends will be down 25% and buybacks, one of the key supports for the market over the past decade, will be off 50%. He told CNBC during a Tuesday interview that dividends are “becoming more prized.”

Also read:Goldman analyst who predicted the coronavirus would kill the bull market says ‘risk to the downside is greater’ despite Dow’s recent rally

“From a sentiment angle, recent exceptional bounces suggest that investor sentiment is still in the denial phase, rather than in the phase of capitulation that paves the way for a new bull market,” wrote Peter van der Welle, multiasset strategist at Robeco.

Albert Edwards, global strategist at Société Générale, on Tuesday said that investor hopes may be tied to monetary and fiscal relief measures, but that their hopes could be misplaced: “This optimism is the legacy of a long bull market. Investors can’t conceive that the Fed will ‘allow’ the stock market to collapse,” the analysts tweeted on Tuesday, adding: “Think again.”

That said, Michael Wilson, Morgan Stanley’s chief equity strategist, said in a recent note that he believes the recent stock-market lows won’t be retested, even as he said he’s forecasting earnings to decline 20%. He said there will be value opportunities for investors.



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Dow attempts to bounce back a day after coronavirus fears fueled a 3,000-point plunge


U.S. stock futures rose Tuesday morning in choppy trade, with markets attempting to stage a modest rebound a day after the Dow Jones Industrial Average logged a 3,000-point loss amid fears that the coronavirus pandemic could last longer than expected in the U.S.

How did stocks perform?

Dow Jones Industrial Average futures

YMH20, +0.71%

were last up about 462 points, or 2.2%, to 20,759, while S&P 500 index futures

ESH20, +0.73%

 climbed 55.45 points, or 2.3%, to 2,460.75. Nasdaq-100

NQH20, +1.40%

 futures rose 7,233.75 points, or 2.7%, to 7,232.75.

On Monday, the Dow Jones Industrial Average

DJIA, -12.93%

 plunged 2,997.10 points, or 12.9%, to settle at 20,188.52, while the S&P 500 index

SPX, -11.98%

declined 324.89 points, or 12%, to end at 2,386.13, and the Nasdaq Composite Index

COMP, -12.32%

 shed 970.28 points, or 12.3%, to finish at 6,904.59, marking the worst day in the history for the technology-heavy index.

For the third time in the month on Monday, initial circuit breakers temporarily halted trading for 15 minutes at one point.

The Dow is off 32% from its Feb 12 record closing high, the S&P 500 and Nasdaq are off by about 30% from their Feb. 19 peaks.

What’s driving the market?

The U.S. has been shutting down cities and investors have been overwhelmed by rapid-fire updates on coronavirus, including a warning by President Donald Trump of a possible recession due to the outbreak and the possibility that the viral outbreak could last deep into the summer.

Deepening anxieties have come even after the Federal Reserve’s emergency Sunday interest-rate cut, which has done little to spark any buying on Wall Street.

The mostly downtrodden mood on Wall Street has been attributed to investors’ unfulfilled desire for more relief for individuals and small businesses and even some major cooperations that have been pummeled by the epidemic.

The Wall Street Journal reported that U.S. airlines are seeking $50 billion in financial assistance from the government, which would be three times the size of the industry’s bailout after the Sept. 11 attacks, according to the business publication.

Details are still under discussion with Trump administration officials and congressional leaders, according to the report.

Those reported efforts come as governments and central banks around the world attempt to curtail the negative effects from travel disruptions and business closures that have occurred due strategies in place to mitigate the spread of the deadly disease.

“Hence, governments around the world are seeking other measures to calm down the markets’ nerves. The U.K. promised extra help for businesses battling the virus-led slowdown, and temporary business shutdowns. France pledged to allocate 300 billion euros of bank loans to companies hit by the pandemic. Spain banned short selling for a month to contain the heavy volatility that may cause additional damage to the financial system,” said Ipek Ozkardeskaya, senior analyst at Swissquote Bank, in a note to clients.

See: Romney, other lawmakers call for sending $1,000 checks to Americans as part of coronavirus response

Read: Senate seen passing coronavirus bill around midweek, as lawmakers also work more aid

On the U.S. economic front, Tuesday will see the release of several data points, including February retail sales at 8:30 a.m. Eastern Time, a report on industrial production at 9:15 a.m., one on business inventories and separate housing market index reading, both at 10 a.m., as well as a report on job openings at the same time.

Which companies were in focus?

The coronavirus has hammered shares of United Airlines Holdings Inc.

UAL, -14.82%

and American Airlines Group Inc.

AAL, +11.25%

as well as Delta Air Lines Inc.

DAL, -6.65%.

Boeing Co. 

BA, -23.85%

 was downgraded by S&P Ratings late Monday cut the aeronautics company’s credit rating to one rung above junk, or noninvestment grade, citing halts due to COVID-19 and the grounded of the airline maker’s 737 MAX fleet.

How are other markets trading?

On Monday, the rate on the benchmark 10-year Treasury note

TMUBMUSD10Y, +5.45%

 was up 8.4 basis points at 0.81%, after notching its largest single-day yield decline since March 18, 2009, according to Dow Jones Market Data.

West Texas Intermediate crude, the U.S. gauge of crude prices

CLK20, +1.52%

was trading up 2.3% at $29.34 a barrel on the New York Mercantile Exchange, following its lowest finish since 2016. In gold futures for April

GCJ20, -1.16%

futures were down 1.1% to trade at $1,470.30 an ounce on Comex./

In currencies, the ICE U.S. dollar index

DXY, +1.37%

which tracks the greenback’s performance against a basket of its major rivals, was up 1.1% after falling 0.6% on Monday.

Global equities tumbled on Monday. China’s CSI 300

000300, -0.49%

closed 0.4% lower, while Japan’s Nikkei index

NIK, +0.06%

advance less than 0.1%. The Stoxx Europe 600 index

SXXP, -1.28%

slumped 1.4% after falling nearly 5% a day ago.



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