27 March 2020

Intel is Surging Even After Suspending Buyback

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What’s happening: Intel’s shares jumped more than 8% to close Thursday’s trading at $55.54 even after the company announced the suspension of its share buyback plan.

What happened: Intel has recently been plagued with several issues, including manufacturing problems, margin pressure and loss of market share.

The company had a share buyback authorisation of $20 billion, approved last year, of which it had already purchased $7.6 billion worth of shares. Earlier this month, management announced that all future buybacks had been suspended due to the coronavirus pandemic. Although Intel reassured investors that its dividend remained unaffected, concerns stemmed from the sudden suspension of the buyback authorisation.

Yet, investor sentiment for Intel turned positive this week for a number of reasons.

Details: Given the coronavirus-led lockdowns across the world, a spike in online schooling and people working from home has resulted in a surge in the demand for laptops. Intel is poised to benefit from this trend.

Rival memory chip manufacturer Micron Technology said it was witnessing strong demand from enterprise and cloud customers when it reported its fiscal second-quarter results on Wednesday. In fact, Micron also announced a stronger-than-expected revenue outlook, with data center operating building capacity to support the exponential growth of people working from home.

Intel faces stiff competition from Advanced Micro Devices (AMD), which has significantly improved its CPUs for PCs and servers over the past few years. On the other hand, Intel is much better positioned than AMD to weather the coronavirus challenges, given its strong balance sheet.

What to watch: Any benefit that Intel has from the recent trends is also a tailwind for AMD. Investors will be looking out for AMD’s move to capture a larger share of the rapidly expanding pie. Estimates for Intel’s performance in the second half of 2020 are already very low, increasing the chances of the company beating expectation. A better-than-expected report almost always triggers some buying activity among investors.

The Markets Today

     

Investors will be focusing on US markets today, while waiting for the House's approval of a massive coronavirus relief bill.

Context: US stocks closed sharply higher yesterday, gaining for the third straight session. The upturn came despite exceptionally concerning data from the Labor Department showing a record increase in jobless claims last week.

Details: The Senate passed the $2 trillion economic stimulus bill late Wednesday, with the House expected to approve the bill today.

The US is now leading in terms of the number of confirmed coronavirus cases globally. The country has reported more than 85,900 cases so far, surpassing China’s 81,800 figure. The virus has claimed around 1,290 lives in the US.

Factory and store closures due to coronavirus fears have led to massive layoffs. Initial jobless claims surged to a whopping 3.28 million last week, from 282,000 in the previous week.

Despite the rising coronavirus cases and jobless claims data, markets responded to the Senate’s passing of the relief package. The Dow jumped 1,352 points to close at 22,552, while the S&P 500 rose 6.24% to 2,630. The Nasdaq 100 closed 5.6% higher at 7,798.

Although the Dow has climbed 21.3% over the past three days, it is still down 21% year to date.

In other news, the yield on the 10-year Treasury note declined 2 basis points to 0.82%, while WTI crude declined $1.89 to $22.60 per barrel on Thursday.

Why it matters: The House is expected to vote on the $2 trillion coronavirus relief bill today. US markets could take a U-turn today, if the bill is not passed. US stock futures are pointing towards a lower open on Wall Street, possibly due to some profit taking following the three-day gains.

Investors await a basket of economic reports from the US. Personal income, which increased by 0.6% in January, is expected to rise 0.4% in February. Personal spending is expected to remain unchanged at 0.2% in February. Core personal consumption expenditures, which rose 0.1% in January, is projected to increase 0.2% in February. The University of Michigan's consumer sentiment index is likely to decline to 90 in March, versus a reading of 101 in the previous month.

Other Markets: Most European indices were trading lower at 9:00am GMT on Friday, with the FTSE 100, German 30 and French 40 down by 3.8%, 1.9%, and 2.7%, respectively.

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What else to watch today

     

India’s deposit growth, foreign exchange reserves and bank loan growth, Mexico’s balance of trade, Brazil’s loan growth and net payrolls, Canada’s average weekly earnings and government budget value, Russia’s corporate profits and business confidence and Saudi Arabia’s bank lending growth.

 

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