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  • The worries of the COVID-19 news that culminated in a rollback of some reopening measures this week had its expected impact on a variety of reopening trades.

Energy, the underperformer of the 11 S&P sectors this week, seemed to reflect the most pessimistic outlook for the economy as whole. 

The SPDR Energy ETF (NYSEARCA:XLE) sank about 6.5% over the last five trading sessions, with crude futures (CL1:COM) falling about 4% on the week.

Oil prices are factoring broad global demand, but a prime driver of their rally from negative prices in April has seen U.S. economic data (especially in nonfarm payrolls) suggest the idea that a V-shaped recovery is achievable.

Spikes in COVID are putting those numbers in perspective. Moving from a completely locked-down economy was bound to see a sharp reversal as things opened. But what if those things close again? What if interstate quarantine rules become more prevalent? 

Oil refiners are still running at just 75% capacity, according to the latest government data. Inputs edged up last week and there is a long way to go to reach 90% use usually seen this time of year. Summer driving season is already a writeoff.

Putting even more pressure on these stocks is the strange channel that crude prices are in right now. As prices have leveled off they’ve entered an area where every move could bring unwanted consequences.

WTI August futures stand at $38.20/bbl now. That’s close to the $40-$45 range that analysts say would see oil fairly valued in a normally-functioning market.

At the start of the week, Deloitte spooked the sector, saying that U.S. shale producers may have to write down $300B in assets in the second quarter. It added that 30% of shale producers are technically insolvent at $35/bbl.

But it doesn’t take much of a move put shale producers into play. Prices consistently above $40 are likely to see increased U.S. production. OPEC and Russia are meeting their production-cut goals now, but with more U.S. crude hitting the market those producers will be looking to ease off.

Info Tech Shows the Only Gain

Tech did its share of heavy lifting this past week. The SPDR Technology Sector ETF edged down 0.7% in the past five sessions.

Of the Big 5 megacaps, everyone saw the Facebook move. But Microsoft managed a gain of 0.6% for the week and Apple was flat amid the enthusiasm for its switch from Intel chips and concern at it reclosing some of its stores.

But apart from the big stocks, two moves on Friday stand out.

Cisco (NASDAQ:CSCO) rallied late in the session, away from the broader market. Shares had already been bucking the market trend most of the day. The idea of the government giving some kind of incentive to Cisco (although probably not making it buy low-margin companies) to win the 5G war against China may have its appeal.

Contrasting that move was AMD (NASDAQ:AMD), which collapsed at the very end of trading to end down 3.5%. It joined Nvidia, which also dropped 3.5%, but had looked to finish only 1% off with 15 minutes of trading left. That guarantees an interesting open Monday.

Under the Radar

  • Rite Aid (NYSE:RAD) topped quarterly expectations handily on Thursday, with its loss of 4 cents per share more than 30 cents narrower than what the Street was forecasting.
  • The 16% rise in front-end same-store sales, excluding tobacco, stood out, not just for its size, but its mix. The drugstore chain said the rise was “driven by increases in general cleaning products, sanitizers, wipes, paper products, liquor, over-the-counter products and summer seasonal items.”
  • That sounds like a COVID-related boost. A retreat some reopening measure and prolonging of pandemic-related buying could keep this spending going, with would benefit other retailers.
  • Dollar General (NYSE:DG) and Dollar Tree (NASDAQ:DLTR) could see a particular boost when stimulus checks run out and federal unemployment supplements end at the end of next month.