Dow Sees a Drop to Close Out Week Dominated by Spread of Virus

The spike in Covid-19 cases has come home to roost on Wall Street, as markets fizzled out on Friday. 

A ventilator helps a Covid-19 patient breath inside the Coronavirus Unit at United Memorial Medical Center in Houston on Monday. (AP Photo/David J. Phillip)

MANHATTAN (CN) — Wall Street ended a volatile week with a mixed outing on Friday, following several days of investors showing increased worries about the spread of coronavirus. 

At the closing bell, the Dow Jones Industrial Average dropped 62 points, while the S&P 500 and Nasdaq both were able to barely remain in positive territory, netting a 0.3% increase each. 

Despite optimism that the U.S. economy was rebounding, consumers are growing wary. The mid-month consumer sentiment survey published by the University of Michigan showed a drop midway through July, from 78 points in June to 73 points so far this month. The survey’s poll of current economic conditions and consumer expectations also both dropped noticeably.

“Consumer sentiment retreated in the first half of July due to the widespread resurgence of the coronavirus,” wrote Richard Curtin, the survey’s chief economist. “Unfortunately, declines are more likely in the months ahead as the coronavirus spreads and causes continued economic harm, social disruptions, and permanent scarring.”

Voters also are souring on the economic prospects under the current administration. A poll earlier in the week by Quinnipiac University found that only 44% of voters approve of Trump’s handling of the economy compared with 53% disapproving, a stark contrast to June when 52% approved and 45% disapproved.

“Reopening risk will continue to weigh on market sentiment. People want to return to social norms, which is good for the economy in the short run,” said Lamont Black, a finance professor at DePaul University. “But this will also add to the resurgence of health cases over time.”

Over the past month, cases of coronavirus have been steadily rising in the United States, even if deaths have — so far — plateaued. On Thursday, more than 77,000 new cases were reported, a new daily record, according to the data compiled by Johns Hopkins University. Most of the new cases are due to reported increases out of Texas, California and Florida.

In total, more than 13.8 million people have been infected by Covid-19 worldwide, while 592,000 have died, according to data compiled by Johns Hopkins University. In the United States, more than 3.6 million people have contracted Covid-19, while nearly 139,000 have died.

Investors have had a few bright spots during this earnings season, during which about 10% of listed companies — led by many leaders in the financial sector — have so far released their Q2 numbers. 

State Street reported a 18% year-over-year increase in net income, with its foreign currency trading service fees rocketing up 26%. BlackRock also saw a significant increase in its income in the second quarter, posting 21% increase in net income year over year. 

“Clients are turning to BlackRock more than ever before as they face increasing uncertainty about the future,” said CEO Laurence Fink in a statement, adding that “we’re seeing clients entrust BlackRock with a greater share of their assets.”

Banks have so far had a mixed outing during the second quarter, with those relying on investment banking doing far better. Goldman Sachs surprised investors with a 41% year-over-year increase in net revenues, while Morgan Stanley saw a $3.2 billion increase in net revenues compared with a year ago. JPMorgan Chase also posted a record-high increase in revenue.

Wells Fargo — which has been under the regulators’ thumb due to its consumer-account scandal — reported a $2.4 billion loss last quarter. Charles Schwab also saw a sizeable drop in net income, while Bank of America reported a 3% decrease in revenue.

Strangely, Q2 earnings reports so far for S&P 500 companies have been better than analyst expectations. “In aggregate, companies are reporting earnings that are 6.3% above the estimates, which is also above the five-year average,” wrote John Butters, a senior earnings analyst at FactSet.

Marking the largest year-over-year decline in earnings since the end of 2008, however, earnings declined 44% across the board for companies in that index, however.

“I think that investors will largely ignore the standard GAAP earnings per share and focus on top-line revenue and non-GAAP numbers,” noted Peter Ricchiuti, a finance professor at Tulane University. “Management will have written off a lot of items during this pandemic and these terrible quarters.”

Next week earnings reports are expected from big names in the airline, hospitality and tech sectors, including United Airlines, Royal Caribbean and Twitter. A number of other industry leaders, including Microsoft and Coca-Cola, are expected to release earnings reports next week.

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