High unemployment numbers were offset by mildly positive tech company earnings, as Wall Street still struggles to accurately price the effects of the Covid-19 pandemic.
MANHATTAN (CN) — As more than 30 million Americans have sought unemployment benefits in six weeks, Wall Street began Thursday on a low note.
The Labor Department’s weekly unemployment numbers show 18 million, more than half of those who applied, were granted benefits. New claims have steadily decreased each week, and the latest data, representing the week ending April 25, registered just 3.8 million new claims. New claims peaked the week ending March 28 at nearly 7 million.
Investors for weeks had been largely ignoring the unemployment reports, focusing instead on company earnings and actions by the Federal Reserve. But Wall Street may see the staggeringly high total unemployment — and dour language Wednesday by Federal Reserve Chairman Jerome Powell — as a predictor of things to come.
In comments following the central bank’s open markets committee meeting, Powell said he expected unemployment to “go up to a high number” during this quarter. “We are going to see economic data for the second quarter that is worse than any data we have ever seen for the economy,” he said.
The number of new claims is only slightly higher than what many analysts had expected, and markets reflected on the numbers with relative calm.
The Dow Jones Industrial Average dropped 300 points at the opening bell, with similar but smaller losses in the S&P 500 and Nasdaq.
Investors will be highly focused today on a huge number of earnings reports, many of which haven’t yet reflected the true hurt in the economy.
McDonald’s reported a 5% drop year over year in revenues and a 17% drop in net income. All of the fast-food company’s restaurants are operating only via drive-thru, delivery and pick-up. “McDonald’s has seen a lot over our 65 years, and I’m confident the actions we’re taking will enable us to emerge from this crisis in a position of competitive strength,” CEO Chris Kempczinski said in a statement.
For tech companies, however, business is booming.
Once markets closed Wednesday, Microsoft released its earnings report, which showed the tech giant reported $2 billion more in net income and $5 billion more in total revenue. Most of the increases were driven by the company’s Office suite of software, its LinkedIn segment, and cloud services.
In its earnings report, Facebook showed a 17% increase in total revenue and a whopping 102% increase in net income from the first quarter of 2019. The company also reported its effective tax rate dropped to 19% in early 2020 from 30% this time last year, and it repurchased nearly double the amount of its Class A stock compared with Q1 2019.
Similarly, Twitter reported a huge decrease in taxes, from paying $94 million during last year’s first quarter to only $7.7 million in the last three months. While the company has better revenue — $808 million during Q1 2020 versus $786 million during Q1 2019 — it posted a net loss of $8.3 million.
Another company in the positive column, Tesla, reported that the first quarter of 2020 was “the first time in our history that we achieved a positive [accounting] net income in the seasonally weak first quarter.” While the company’s total revenues increased 32% year-over-year from Q1 2019, it dropped 19% from the fourth quarter of 2019.
Tesla CEO Elon Musk has been very vocal about his desire to reopen businesses despite the Covid-19 pandemic, calling stay-at-home orders “fascist” during his company’s earnings call. In a pinned tweet posted on Wednesday, he wrote: “FREE AMERICA NOW.”
Further good news could be gleaned from continuing corporate earnings reports, as Apple and Amazon release their earnings reports later Thursday.
Pharmaceutical company Gilead, whose revdesivir drug has shown promise in treating coronavirus, will also release its Q1 earnings after U.S. markets close.
Preliminary results released Wednesday by the company showed at least half of patients treated with a five-day dose of the drug improved. Leaked results from a previous study indicated the drug had little to no effect on treating coronavirus.
Dr. Anthony Fauci, the infectious disease expert on the White House’s coronavirus task force, said the drug “will be the standard of care,” and the Food and Drug Administration reportedly wants to get the drug to infected patients as soon as possible, with potential news coming next week on an emergency use authorization for the drug.
About 3.2 million people worldwide have been confirmed infected by Covid-19, according to data from researchers at Johns Hopkins University, and more than 228,000 have died. In the United States, more than 1 million people have contracted the novel coronavirus and 61,000 have died.