Wall Street Gains as Crude Price Surge, Strong Economic Data Prompt Broad Rally

All three major U.S. stock indexes gathered strength as the session progressed, with economically sensitive cyclicals, smallcaps and transportation stocks leading the charge.

While value stocks initially held the advantage, the risk-on sentiment gained momentum through the afternoon, broadening to include growth stocks.

“Today is the first time in a while when both growth and value stocks are doing pretty well. It’s been either or for much of the last few weeks and today it’s both,” said Chuck Carlson, chief executive of Horizon Investment Services in Hammond, Indiana. “Breadth matters, and that’s something investors like to see.”

A host of economic data showed hints of waning inflation and an ongoing return to economic normalcy, even as supply constraints, complicated by hurricane Ida, hindered factory output.

Import prices posted their first monthly decline since October 2020, in the latest sign that the wave of price spikes has crested, further supporting the Federal Reserve’s position that current inflationary pressures are transitory.

Next week, the Federal Open Markets Committee’s two-day monetary policy meeting will be closely parsed for signals as to when the central bank will begin to taper its asset purchases.

The graphic below shows major indicators against the Fed’s average annual 2% inflation target.

The Dow Jones Industrial Average rose 236.82 points, or 0.68%, to 34,814.39; the S&P 500 gained 37.65 points, or 0.85%, at 4,480.7; and the Nasdaq Composite added 123.77 points, or 0.82%, at 15,161.53.

Among the 11 major sectors in the S&P 500, all but utilities gained ground. Energy was by far the biggest gainer, benefiting from a jump in crude prices driven by a drawdown in U.S. stocks.

U.S.-listed Chinese stocks extended recent losses, as weak retail sales data pointed to a possible economic slowdown in the mainland, while Beijing’s regulatory overhaul of Macau’s casino industry further dampened appetite for Chinese stocks.

This follows a series of regulatory moves by China against major technology firms, which has wiped out billions in market value this year.

“It would be tough to buy any Chinese stocks,” Carlson said. “From an investor standpoint you don’t know what sector is next.”

“I don’t think the situation is going to get better any time soon and it’s probably going to spread,” he added.

U.S.-based casino operators Las Vegas Sands Corp, Wynn Resorts Ltd and MGM Resorts International slid between 1.7% and 6.3%.

Apple Inc snapped a decline over recent sessions following an adverse court ruling on its business practices, and a lukewarm response to its event on Tuesday where it unveiled updates to its iPhone and other gadgets. Its shares gained 0.6%.

Lending platform GreenSky Inc shot up 53.2% after Goldman Sachs Group Inc said it would buy the company in an all-stock deal valued at $2.24 billion.

Advancing issues outnumbered declining ones on the NYSE by a 2.15-to-1 ratio; on Nasdaq, a 1.70-to-1 ratio favored advancers.

The S&P 500 posted seven new 52-week highs and three new lows; the Nasdaq Composite recorded 55 new highs and 106 new lows.

(Reporting by Stephen Culp; additional reporting by Ambar Warrick and Sruthi Shankar in Bengaluru; Editing by Richard Chang)

Slide in Coronavirus-Sensitive Stocks Suggests Growing Worries over Delta Variant

Declines in the shares of companies tied to the reopening trade have broadly outpaced those of other so-called value stocks, which have been battered on worries that economic growth will be slower than expected in coming months.

Shares of cruise stocks Carnival Cruise Lines and Norwegian Cruise Line Holdings have slumped 10% and 9%, respectively, in July, while American Airlines Group dropped 4% and United Airlines Holdings was off 5%. MGM Resorts International has fallen 5.5%, while Expedia Group has dropped 1.3%.

The Russell 1000 value index, which includes economically sensitive stocks, has fallen by 0.9% in the same time frame, while the S&P 500 has risen 0.5% in July.

“There is a lot of uncertainty and I think the market is trying to add up how much risk this poses to global supply chains and activity down the road,” said Steve Englander, head of North America macro strategy at Standard Chartered.

Since July 1, a basket of coronavirus-sensitive stocks tracked by Standard Chartered is down 7.3%, and off 9.4% relative to a group of tech and other stocks that outperformed during the pandemic last year.

The yield on the benchmark 10-year Treasury note has dropped about 20 basis points to 1.29% this month and was falling for an eighth straight session, marking the longest streak since a nine-session drop that ended on March 3, 2020, as the COVID-19 pandemic in the United States was gaining speed.

The availability of vaccines – including their apparent ability to keep even those infected from developing serious complications – suggests that the extent of the shutdown measures last year to control the virus will not be required.

Still, some regions, including those without as much access to vaccines, are grappling with rising cases or putting restrictions in place. Cases are rising in places such as Spain and England, although the British government plans to reopen the economy later this month.

In Australia, Sydney has had a strict stay-at-home order in force since late last month, while Japan on Thursday declared a state of emergency in Tokyo, putting restrictions in place through Aug. 22. The pullback in coronavirus-sensitive stocks likely stems in part from concerns the variant spread could restrict travel and slow growth, said Walter Todd, chief investment officer at Greenwood Capital in South Carolina. But those stocks may have been due for a decline after such a sharp run, he said. “A lot of these stocks moved quite significantly off the vaccine news,” Todd said. “Part of this is concern about the re-emergence of this variant, but also just the fact … you are giving some back.”

For a look at all of today’s economic events, check out our economic calendar.

(Reporting by Lewis Krauskopf; Editing by Ira Iosebashvili, Dan Grebler and Peter Cooney)

 

MGM Resorts Acting Well Despite Pandemic Headwinds

MGM Resorts International Inc. (MGM) has been hit hard by the COVID-19 pandemic, which temporarily shut down casino and hotel operations in Las Vegas and Macao. Those venues have since reopened but customers are staying away, worried about air travel and closed ventilation systems. Plunging revenue just forced to company to idle 18,000 workers, or about one-quarter of the total workforce. Wall Street took the bearish news in stride, lifting the stock to a 6-month high.

MGM Resorts Revenue Destruction

Macao just reported that August gross revenue fell more than 90% year-over-year, showing no improvement from July. The Nevada Gaming Board reported a 26.2% year-over-year decline in July ‘winnings’ at the same time, highlighting continued headwinds that are likely to persist well into 2021. Even so, Interactive Corp (IAC) took a 12% stake in MGM Resorts in August, viewing the depressed stock price as a buying opportunity.

MGM Chairman Paul Salem commented on the investment, noting “IAC’s family of brands and digital expertise are a great complement to the direction MGM Resorts has been taking both in leveraging our digital assets to enhance our guests’ experience and building a leading iGaming and sports betting business in BetMGM. We welcome IAC as a long-term strategic partner and intend to invite them to join our Board of Directors.”

Wall Street And Technical Outlook

Wall Street consensus has deteriorated since the layoff news last week, with a ‘Hold’ rating based upon 3 ‘Buy’, 5 ‘Hold’, and 2 ‘Sell’ recommendations. Price targets currently range from a low of $13 to a street-high $27 while the stock is trading less than $4 under the high target in Thursday’s U.S. session. This is a dangerous placement that suggests the casino operator is now fully-valued, potentially triggering further downgrades.

MGM Resorts topped out in the upper 30s in 2018 and sold off into the lower 20s. It broke support in the first quarter of 2020 and bounced strongly, reversing near new resistance in June. The stock is still testing that level three-months later, carving a small cup and handle pattern on top of the 200-day moving average. Strong support pushing against strong resistance establishes a ‘rock and a hard place’ trade set-up, with equal odds for a breakout and breakdown.

MGM Surges Over 13% Amid IAC’s $1 Billion Stake

MGM Resorts International (MGM) shares rose 13.77% Monday after IAC/InterActiveCorp. (IAC) announced that it has taken a 12% stake in the  Las Vegas-based casino and resort operator worth about $1 billion.

IAC, an internet media company with over 150 brands, sees the investment in MGM as a “once in a decade opportunity” to grow its online gaming business with a preeminent brand. “What initially attracted us to MGM, besides its leadership in leisure, hospitality, and gaming, was an area that currently comprises a tiny portion of its revenue – online gaming,” IAC Chairman Barry Diller said in a statement, per MarketWatch.

Online gaming has increased in popularity in recent years due to the easing of state regulations and the takeup of E-Sports betting. According to IAC, the online gaming market represents a $450 billion global opportunity, with less than 10% penetration.

As of Aug. 11, 2020, MGM stock has a market value of $10.68 billion, yields 0.05%, and trades 34.47% lower on the year. However, the shares have recovered over 30% in the past three months as leisure travel began to slowly recommence.

Second-Quarter Earnings Beat Estimates

Although the owner of MGM Grand and Mandalay Bay reported a second-quarter loss of $1.52 per share, it was narrow than the $1.65 analysts had expected. Moreover, the company said that demand across its properties had been better than expected since they started reopening from early June.

Wall Street View

Analysts have taken the “wait and see” approach to MGM, especially after a second wave of COVID-19 infections swept across many states throughout late June and early July. The stock receives 13 ‘Hold’ ratings, 5 ‘Buy’ ratings, and 1 ‘Sell’ rating. Wall Street has a 12-month median price target on the shares at $18. This implies a 17% downside from Monday’s $21.65 close.

Technical Outlook and Trading Tactics

MGM shares gapped above the top trendline of a broad symmetrical triangle on heavy trading volume yesterday, indicating institutional buying interest behind the move. However, the stock may consolidate before attempting further gains, given the relative strength index (RSI) sits in overbought territory. If the stock closes above the 200-day simple moving average (SMA) and June peak in subsequent trading sessions, look for a possible test of the 2020 high at $34.38. Conversely, a reversal at these levels may see price revisit crucial support at $12.50.