Markets Claw Out Paltry Gains to Close Week of Tumult

Investors capped off a wobbly week with meager gains, as promising consumer data were able to completely put high unemployment and spiking Covid cases out of sight and out of mind. 

MANHATTAN (CN) — Despite four straight days of losses, markets were able to close out the week with some winnings, even if they were small, as investors prepare for a potentially gruesome November. 

By the closing bell, the Dow Jones Industrial Average gained 112 points, a 0.4% increase. Meanwhile, the S&P 500 remained flat while the Nasdaq lost 0.3%. Each of the three major U.S. indices had lost value each previous day this week.

On Friday, consumer spending helped buoy investors. According to a report by the U.S. Census Bureau, retail sales increased 1.9% last month, much higher than the 0.7% some analysts had expected and more than three times the 0.6% they rose in August. Sales are now 4.2% higher than they were prior to the Covid-19 shutdowns. 

Consumer sentiment also rose in early October, according to the University of Michigan, gaining about 1 point over its previous 80-point reading last month.

The index still remains 20 points lower than the pre-pandemic levels and 15% lower year over year, however. The index for “current conditions” also dropped, from 87.8 points last month to 84.9 points currently. Michigan analysts chalked up the fall to “slowing employment growth, the resurgence in Covid infections, and the absence of additional federal relief payments.”

Analysts say the economic boons seen during the summer could soon peter out. “With the prospects of an immediate fiscal relief package dimming, the risk is growing that declining income and reduced savings buffers will constrain household spending in coming months, especially among the most vulnerable tranches of the population,” analysts at Oxford Economics wrote.

A study by the Federal Reserve Bank of New York also found that consumer expectations have grown less optimistic about the economic consequences of the Covid-19 pandemic. A growing number of respondents in August said they expect to it to take longer to return to their previous work location, compared with a similar survey in June.

Additional bad news came on Thursday, as new unemployment claims remain high at just under 900,000 weekly claims, the highest number of new claims since August. The increase in unemployment “underscores the strains that continue in the jobs market,” wrote James Knightley, chief international economist at ING. “This suggests we are likely to see only a limited rise in October payrolls with some forecasters foreseeing the possibility of an outright fall.”

Prior to Friday, investors received little succor from the usual suspects of economic data, with even surprisingly good earnings results from financial services firms failing to push markets far into positive territory.

At the top of the heap of this week’s earnings reports was Goldman Sachs, which reported net revenues of nearly $11 billion during the third quarter, driven by a 10% year-over-year increase in equities revenue.

The investment bank’s equity underwriting segment saw its second-best quarter ever, with a 134% increase in revenue due to the spike in initial public offerings throughout the year. A few other segments saw huge year-over-year increases, including asset management’s 71% increase, though corporate lending saw an 86% year-over-year drop. 

“As our clients begin to emerge from the tough economy brought on by the pandemic, we are well positioned to help them recover and grow, particularly given market share gains we’ve achieved this year,” said CEO David Solomon in a statement, noting that the company has built off a strong first half of the year.  

Morgan Stanley also posted an impressive increase, seeing its net revenues increase from $10 billion during the third quarter of 2019 to $11.6 billion last quarter, beating most analysts’ estimates. Morgan was able to boast $1.9 billion in fixed income revenue last quarter, its highest 3Q numbers in 10 years.

Earlier in the week, JPMorgan Chase also beat expectations, posting net earnings last quarter of $9.4 billion, about $400 million higher than Q3 2019. Like many of its banking brethren, JPMorgan Chase pared back its quarterly loan-loss reserves. Accomplishing this much more aggressively, however, it actually reduced them by about $570 million.

The resilience of banking institutions is not universal across the financial services sector, however.

“While banks so far have been resilient to the shock from the COVID event, the same cannot be said for important parts of the system of nonbank financial intermediation,” Randal Quarles, vice chair for supervision at the Federal Reserve, told the Hoover Institution earlier in the week. 

Prime money market funds and some mutual funds have needed help from the central bank, Quarles said, adding that the Fed plans to provide a more general review of nonbank institutions at the G20 Summit next month.

Earnings among the airline industry were, once again, predictably bad. United Airlines saw a 78% drop in revenue, deeper losses than expected. United CEO Scott Kirby called the current economic atmosphere “the worst financial crisis in aviation history,” saying the company was “ready to turn the page” on the past seven months.

Despite nearly $7 billion in losses, a 79% year-over-year decrease, Delta Air Lines was more chipper in its outlook. “While our September quarter results demonstrate the magnitude of the pandemic on our business, we have been encouraged as more customers travel and we are seeing a path of progressive improvement in our revenues, financial results, and daily cash burn,” CEO Ed Bastian said in a statement.

While earnings historically have held an important place in investors’ hearts, these days that importance has waned. Analysts at Goldman Sachs recently said that “a vaccine is more important than the election, which is more important than 3Q results.”

On the vaccine and therapeutics front, investors received mixed news this week, causing slides and bumps to the market in near equal turn.

Johnson & Johnson told investors Tursday that its Covid-19 vaccine had caused an illness in one of the participants, forcing the pharmaceutical company to put the study on hold. Later that day, Eli Lilly said its late-stage trial for antibody treatment had to be put on hold after safety concerns emerged.

More mixed news came on Friday when the World Health Organization noted that remdesivir, hydrochloroquine, and two other drugs had “little or no effect” on the death rates among 2,750 patients in a randomized study.

Markets were helped somewhat, however, by news that next month Pfizer would apply for emergency use of its Covid vaccine candidate. “We may know whether or not our vaccine is effective by the end of November,” CEO Albert Bourla wrote in an open letter.

While the news may have been bad politically for President Trump — who has repeatedly said a vaccine would be ready by Election Day —it showed some light at the end of coronavirus tunnel. Pfizer is considered the frontrunner among all pharmaceutical companies for a coronavirus vaccine. 

To date, more than 39 million have contracted Covid-19 worldwide, according to data compiled by Johns Hopkins University. In the United States alone, just shy of 8 million have been confirmed infected while about 218,000 have died. More than 1.1 million people have died from the virus.

Follow @NickRummell

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