Investors Find Silver Lining in Bad but Improving Job-Loss Numbers

U.S. markets opened to moderate gains Thursday after another weekly decrease in new unemployment claims.

Like many retail stores, the Livingston Mall in Livingston, N.J., sits closed due to Covid-19 pandemic. (Courthouse News photo/Nick Rummell)

MANHATTAN (CN) — Unemployment continues to rise, but another weekly decrease in new claims has Wall Street exhaling as it focuses on earnings reports.

At the opening bell on Thursday, the Dow Jones Industrial Average gained 230 points, less than a percentage point increase. The S&P 500 and Nasdaq leapt further ahead with immediate 1.2% increases. 

On the heels of a historically bad ADP unemployment report, the Labor Department’s unemployment report showed 3.1 million new claims were filed the week ending May 2. 

Americans have filed nearly 34 million claims since mid-March, but this week’s claims were on par with what many analysts had expected and marked another weekly decrease. 

Several states that had seen spikes in unemployment in the last two weeks have now begun to report fewer new claims. Florida, which had jumped to 433,000 new claims during the week ending April 25, reported only 173,000 new claims last week.  

Earnings reports from many industry leaders have continued to roll in, highlighting that once-rock solid companies have felt the pinch during the pandemic. 

“The Covid crisis has turned many blue-chip stocks and even entire sectors into ‘stub’ equities,” DataTrek co-founder Nicholas Colas wrote in a Thursday morning note. “Stubs are basically special situations — stocks that require intense analysis before investing, could possibly lose most of their value, but hold out the promise for outside upside.”

The entire energy sector and many retailers listed on the S&P 500 are stub equity groups, Colas wrote, and even larger companies may soon fall into the category. “One might even argue that storied names like Disney ($101 now, $150 6 months ago) are inching towards a stub classification,” he wrote.

The most notable earnings release, posted after markets closed on Wednesday, was Fox. The news and entertainment behemoth posted a 25% increase in quarterly revenues, from 2.7 billion to $3.4 billion, propped up mostly by the massive 44% increase in advertising revenues due to Super Bowl LIV.

Fox’s net income fell, however, to $90 million from $539 million in the first quarter of 2019. In a statement, CEO Lachlan Murdoch said live and event programming “will be even more in-demand by advertisers and audiences alike” once the pandemic subsides. 

Fox’s competitor, Viacom CBS, reported a decrease in revenue year over year, from $7.1 billion in the first quarter of 2019 to $6.6 billion during Q1 2020. The company also lost about half its operating income year over year, from $1.8 billion in 2019 to 917 million this year. Most of that drop was due to losses in domestic advertising, which fell 20%. 

Wall Street also has been eagerly awaiting results from Lyft, which posted a 23% increase in revenue, from $776 million in the first quarter of 2019 to $955 million to the this year’s first quarter.

The ride-share company still took a loss, of $398 million, during the first three months of this year, but that is a far cry from the $1.1 billion it lost during the first quarter last year.

CFO Brian Roberts said the ride-share company will reduce expenses by $300 million in the coming months, noting that first-quarter results “underscore the remarkable progress” the company has had since its initial public offering last spring. Competitor Uber will post its earnings report after markets close on Thursday.

Companies that cater to the stay-at-home crowd meanwhile have shown mixed results amid nationwide lockdown orders.

Online banking has shrunk since last year, with PayPal posting a 12% increase in net revenues but a whopping 87% decrease in net income year over year. The company made only $84 million during the first quarter of 2020 versus the $667 million it made in Q1 2019.

The company noted that its net new active accounts, net revenue and payment transactions— none of which are included in the Q1 2020 numbers — all leaped up in April, hinting at possibly a better Q2 earnings report. 

State lockdowns have not helped meal-delivery companies much. In its release, GrubHub posted a slight uptick in revenues — $362 million during Q1 2020 compared with $323 million in Q1 2019 — but a $45 million loss in income year over year due to higher expenses.

“Ee believe the absolute best use of our cash is to support our restaurants, their employees, our drivers, and the entire takeout ecosystem through this crisis, by generating as many orders as possible while funding extra safety measures for restaurants, drivers, and diners,” GrubHub CFO Adam DeWitt said.

Peloton, which markets expensive stationary bikes, saw an appreciable increase in its revenue, from $316 million to $524 million, year over year, but also a drop in income. In Q1 2020 the company lost $55 million, while during last year’s first quarter it lost only $38 million.

The company is selling more bikes, and its subscription services have gone up marginally, but its operating costs also have increased.

Nearly 3.8 million people worldwide have been confirmed infected by Covid-19, according to data from researchers at Johns Hopkins University, and 264,000 have died. In the United States, more than 1.2 million people have contracted the novel coronavirus and 73,000 have died.

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