[Market Madness] Edition 0085
Mixed Messages
Swings in earnings
Well folks, mixed feelings emerged today as we officially move into earnings season. The Dow opened up, separating itself from the other indices who all opened down. (by the mid morning, the S&P turned green on the day)
Wells Fargo posted a major loss in Q2 and has further slashed their dividend. Other banks, Citi and JP Morgan, are posting better than expected quarterly profits from strong trading profits. Tech is still feeling the burn after yesterday’s selloff, lagging behind the broader market. By the afternoon, both the Dow and S&P maintained some gains on the day, with big tech in the NASDAQ straggling behind until late into the afternoon when trading turned green. At the close, all the major indices pumped their little engines and held onto considerably decent gains on the day.
Elsewhere, crude is up over $40 per barrel again and volatility ticked down slightly. Overseas, the indices were seeing red, mainly as a reaction to retractions seen in the U.S. with California closing many businesses as a means to help curb the virus’ spread.
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Fundamentals
Tuesday Close:
Dow Jones Industrial Avg: +2.13%
S&P 500: +1.34%
NASDAQ: +0.94%
US 10 YR: 0.630%
Crude OIL: $40.28
Market Madness Portfolio: +1.13%
COVID 19 Global Cases: 13,177,855
Indices Overseas:
FTSE 100: -0.18%
Nikkei 225: -0.87%
Hang Seng: -1.14%
TEDRATE: 0.13
LIBOR (3 month): 0.27500%
Loan losses linger
JP Morgan takes headline news this morning for a few reasons. One, they have now set aside more than $10 billion to cover loan losses incurred during the COVID 19 pandemic. Two, they posted a Q2 profit of $4.7 billion, a 51% drop compared to one year ago. Three, revenue rose 15%, with large sector gains seen in their investment and corporate banking teams and their trading teams.
The loan losses are expected by the sector, and they are taking the necessary precautions. It is better for them to set more aside then is necessary, than be stuck holding the bag. The expectation is, however, for defaults to surge and be worse than was originally expected in months prior. We’re not seeing the reality of this yet, only the cautious models. Always better to be safe than sorry, particularly when many eyes are watching the stability of the financial sector.
The revenue bump in investment and corporate banking is good to see, as times of financial distress are also great times to conduct large scale purchases, recapitalizations, and other B2B transactions. Often times, if a company is looking to acquire another company, times of financial distress will allow that purchase to occur at a cheaper cost, yielding greater future profits if the purchase fundamentals are solid and the outlined synergies are realized down the road. The continued increase in appetite by firms looking to conduct stock and bond offerings will help generate IB business for JPM and competitors alike as well. We’ve seen a noticeable increase in market activities in the past few months, even though the year is really weak for these activities on the whole.
It will be interesting to see the picture the whole financial sector paints once the majority of the firms have posted their Q2 results. Right now it looks pretty mixed, with JPM and Citi looking okay and Wells Fargo looking like it had a real rough night. More on the earnings front to come as the days progress.
Flying and furlough
Delta announced this morning that they’re going to cut back on their summer flying schedule amid weak demand. Their earnings for Q2 were brutal, as expected, with the company posting a $5.7 billion loss. Weak demand appears to be largely driven by the resurgence in COVID 19 cases.
“The Atlanta-based airline planned to add 1,000 flights a day in August but will now add just 500. Demand has softened as new cases of coronavirus surge and states like New York tell arriving travelers to quarantine in an effort to stop the disease from spreading.” (excerpted from article)
Along with these major losses, Delta and friends are trying to get some employees to take buyouts or early retirement in an effort to cut back on their payroll obligations. Under the federal aid agreement they are now subject to, layoffs cannot happen before October 1, but the firm has warned, like its competitors, that furloughs and layoffs are likely to occur if conditions continue like this or worsen; a fate not all too unfamiliar.
It is a sad fate, but should not come as a surprise given the trajectory that the U.S. is currently following. A lot of mistakes made on the political and administrative fronts are being faced by the American worker/taxpayer and those are the ones who will truly suffer the most. Jobless claims come out later in the week, and the next couple releases of this indicator will be really telling of what this second surge is doing. California’s closings posed no joke, as we saw in the market selloff yesterday. Some experts are suggesting other major local economies across the U.S. will likely have to follow the same path, forcing the nation as a whole into a very questionable recovery track.
Quick Takes
U.K. set to ban Huawei from 5G network expansion amid rising U.S. - Chinese tensions. (via WSJ)
Wells Fargo posts loss of $0.66 per share ($2.4 billion net loss) in Q2, slashes dividend to $0.10/share. (via CNBC)
Many look to mask mandates to help solve spike in new COVID 19 cases. (via CNBC)
Oil market worries continue. (via WSJ)
Technology is the longest long trade ever. (via CNBC)
Oil to gold ratio? (via CNBC)
Boeing reports more MAX aircraft cancellations. (via WSJ)
Ford swings again, unveiling new Bronco line up to rival Jeep. Save your OJ Simpson jokes, please. (via CNBC)
Where the potential for more fiscal stimulus stands. (via CNBC)
Supreme Court allows for federal executions to resume. (via CNBC and via WSJ)
Reader’s Corner
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