Gold Glows as Q2 Outings Give Wall Street Little Momentum

Markets sputtered on Tuesday as mixed earnings reports sent many U.S. investors running to gold and other safe havens.

Store manager Donny Price restocks cans of Coke on the shelves at Gerrity’s in Hanover Township, Pa., Tuesday, July 14, 2020. Area shoppers are encountering challenges getting certain soda and beer brands because of a national aluminum can shortage. Coca-Cola, for example, isn’t producing 12-packs of cans of its Minute Maid Light Lemonade so it can meet the high demand of its more popular brands like Coca-Cola and Sprite as more people have been buying canned beverages during the COVID-19 pandemic. (Mark Moran/The Citizens’ Voice via AP)

MANHATTAN (CN) — Mixed earnings reports from several recognizable companies led to another mixed day on Wall Street.

By the closing bell, the Dow Jones Industrial Average gained only 159 points, a 0.6% increase, while the S&P 500 remained essentially where it started at the opening bell. The Nasdaq lost 0.8% for the day.

In contrast to Wall Street’s rocky outing, the price of gold continues to climb, today hitting $1,842 an ounce, a 1.3% increase. Gold — which often rises in value as equities and currencies flounder — had previously hit its highest point since 2011 earlier this month as investors began to flee equities. 

“Fortunately for gold bulls, we’re in a U.S. election year, where no one in Congress outside of most ardent fiscal hawks wants to wear the scarlet letter and be seen branded as frugal, especially when it comes to covering Main Street banks,” wrote Stephen Innes, chief global market strategist at AXI Trader. “From that perspective alone, gold has room to float.”

Investors also soured on several earnings reports. On Monday evening, IBM reported a 5.4% decrease in revenue year over year but a 30% increase in its cloud business, which made $6.3 billion in revenue last quarter.

IBM several years ago began shifting its business more into the cloud space, and that trend is not going anywhere. CEO Arvind Krishna said during the company’s earnings call that he wants to tie more of IBM business to cloud.

Among other industry leaders reporting dismal results, Coca-Cola saw its net revenues drop 28% during the second quarter of 2020, and earnings per share fell 32% year over year.

This was a better outing than some analysts had expected, meanwhile, leading investors to snap up some of Coca-Cola stock in early trading.

“We believe the second quarter will prove to be the most challenging of the year,” said CEO James Quincey in a statement. “However, we still have work to do as we drive our pursuit of ‘Beverages for Life’ and meet evolving consumer needs.”

One company that improved in the second quarter is Lockheed Martin, which saw its net sales jump from $14.4 billion in Q2 2019 to $16.2 billion last quarter. The aerospace company’s net earnings saw a similar jump year over year.

United Airlines is scheduled to report after markets close, and should be a good barometer for how poorly the airline industry has fared during the second quarter.

Last week, earnings reports from big names in the financial world were mixed. Firms that had heavy investment banking divisions did very well, though some banks — such as Wells Fargo — showed year-over-year losses.

In Europe, investors received some welcome good news, as European Union officials agreed upon a new stimulus package worth about $857 billion, split evenly between grants and loans. The deal was reached after austere countries like Germany buckled and agreed to a split of loans and grants to harder-hit countries in the union.

While some countries initially pushed for a 50-50 split of loans and grants, the final deal tilted more toward loans, with grants accounting for just over half of the 750 billion euro package. 

“Our agreement is proof that the magic of the European project is working,” European Council President Charles Michel tweeted, according to a translation. “This is a signal sent to Europeans and to the rest of the world.” Michel had previously called a deal “essential” to member countries.

Markets on the continent saw mild gains after the announcement, with Germany and France increasing about 1% and 0.2%, respectively. The pan-European Stoxx 600 increased about 0.3%. 

In the United States, however, another stimulus deal may be farther off. While Congress has returned this week to hammer out a deal on fourth stimulus package — which would almost certainly run a price tag of more than $1 trillion — lawmakers have reportedly stalled on negotiations on certain key aspects.

Several Trump administration officials began meeting today with members of both parties to try to cobble some kind of common ground.

A $3 trillion package passed by House Democrats two months ago has languished, as Senate Republicans and President Trump have called the bill a liberal pipe dream. Senate Majority Leader Mitch McConnell said on Tuesday that the $3 trillion package was tantamount to “wasting the American people’s time.”

Time is of the essence. Additional unemployment benefits run their course at the end of this month, while the deadline for small businesses to apply for Paycheck Protection Program loans will also soon expire. Both programs have been cited as crucial lifelines for Americans during the Covid-19 pandemic.

In total, more than 14.7 million people have been infected by Covid-19 worldwide, while 611,000 have died, according to data compiled by Johns Hopkins University. In the United States, more than 3.8 million people have contracted Covid-19, while more than 141,000 have died.

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