Covid Surge and Dismal Earnings Make for Wall Street Bloodbath

Wall Street caught its breath on Tuesday after Monday’s sell off, but the brief reprieve did nothing to stunt a bigger wave of losses come Wednesday. 

People walk by outdoor plastic dining bubbles on Fulton Market in Chicago on Oct. 18. (AP Photo/Nam Y. Huh, File)

MANHATTAN (CN) — Two days after one of the worst routs in months, markets again tanked as coronavirus cases skyrocket and several states report hospitals nearing or over capacity.

At the opening bell, the Dow Jones Industrial Average shed about 800 points, a steep climb for investors to spend the day climbing out of. But by the closing bell the pit deepened with the Dow losing 939 points, a 3.4% decrease. The S&P 500 and Nasdaq fell even farther, by 3.5% and 3.7%, respectively.

Earlier on Wednesday, European stocks were once again pummeled. Germany’s DAX lost nearly 4%% by the close, while markets in France and England both saw losses north of 3%. The pan-European Stoxx 600 fell 2.95%. 

The drops were presaged by Germany and France announcing a second round of lockdowns to combat the spike in Covid-19 cases: more than 450,000 people reportedly became infected over the past week. 

“Hospitalizations in many of the region’s biggest members are starting to hit levels not seen since the peak of the crisis in April and governments are clearly becoming concerned that they have lost control of the pandemic response and fearful that it could swamp the medical system if the spread is not halted,” wrote Boris Schlossberg of BK Asset Management.

Despite a recent boast by the White House that it is “ending the Covid-19 pandemic,” and persistent comments by administration officials that “we’re rounding the corner,” cases of Covid have risen precipitously in a number of states, leading to staffing shortageshospitals bursting at the seams, and renewed restrictions to indoor service at restaurants and bars. 

“As the nation did after Memorial Day, we are at another critical point in the pandemic response,” Admiral Brett Giroir, assistant secretary of health and director of U.S. coronavirus diagnostic testing, told NBC this morning. 

While Giroir said that hospitalizations are still “tens of thousands” below the previous spike in July, he conceded they continue to rise. “And we are starting to see the increase in deaths,” he added.

In total about 44 million have contracted Covid-19 worldwide, according to data compiled by Johns Hopkins University. In the United States alone, 8.8 million have been confirmed infected while nearly 227,000 have died. More than 1.1 million people have died worldwide from the virus.

Some analysts say the bleak health care and financial situation does not mean the overall economic outlook is dire.

“Until the numbers actually start showing a slowdown, it has to be assumed that the fourth quarter will also be very good, but very good in traditional terms: let’s say over 4% growth,” wrote economic consultant Joel Naroff, pointing to good data recently in durable good and the anticipated positive GDP report on Thursday.

“The wild cards remain the surging virus and the uncertainty about a vaccine,” he wrote. “That makes economic forecasting not much more than throwing darts. I’ve decided to switch to my left hand, since my right hand has not done particularly well lately.”

Investors tired of throwing darts likely honed in Wednesday on earnings reports, finding little there to encourage positivity.  

The worst of them came from Boeing, which stated it would slash its employees base to 130,000 by the end of next year. The plane manufacturer already has planned a 10% reduction in its 160,000 workforce and has lost 381 orders for new planes this year so far.

While Boeing’s results were slightly better than expected by analysts, nobody could characterize the company’s earnings as good. For the third quarter, it took a $466 million loss, compared with a profit of $1.2 billion a year ago. Its sales revenue stood at $14.1 billion last quarter compared with $20 billion in Q3 2019.

Things likely won’t get much better for the company in the near term. Boeing states it does not expect passenger traffic to return to 2019 levels until about 2023. 

General Electric also posted middling results for the third quarter, though it showed a better-than-anticipated $19.4 billion in revenue. The company lost $1.2 billion last quarter due to decreases in all of the company’s segments, from health care to renewable energy.

In the financial realm, Mastercard’s net revenue shrunk 14% year over year, from $4.5 billion in Q3 2019 to $3.8 billion last quarter. The company’s earnings per share have dropped by 25% year over year, from just over $2 in the third quarter of 2019 to $1.51 last quarter.

“We are seeing encouraging progress in the trajectory of domestic spending, while travel spending remains a challenge,” CEO Ajay Banga said in a statement. 

Credit card competitor Visa will release its earnings later tonight after U.S. markets are closed. Big Tech companies like Apple and Microsoft are scheduled to release earnings later in the week. 

Third quarter earnings have been a bloodbath for many industries in the third quarter. According to an analysis of the S&P 500 by FactSet, listed companies in the fossil fuel, airlines, and hotels, restaurants, and leisure segments have reported their largest-dollar level declines.

All told, those three segments accounted for two thirds of the net $58.3 billion decline in S&P 500 earnings among the index’s 63 industries.

However, things will likely look up next year for those three beleaguered industries, wrote John Butters, Fact Set’s senior earnings analyst. He projects the fossil fuel industry to show about a $27 billion year-over-year increase in earnings in 2021, while airlines could see a $26.1 billion increase in that period and hotels, restaurants, and leisure may see a $16.3 billion increase. 

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