Positive Bank Reports Fail to Dull Sting of Jobless Claims for Wall Street

Even with some better-than-expected bank earnings, Wall Street has remained sour on still-high unemployment claims. 

Job seekers exercise social distancing as they wait to be called into the Heartland Workforce Solutions office in Omaha, Neb., on Wednesday. (AP Photo/Nati Harnik)

MANHATTAN (CN) — Investors were not able to ignore the steady flow of new and continuing unemployment claims Thursday as Wall Street indices all turned south. 

The Dow Jones Industrial Average lost 135 points, a 0.5% decrease, while the S&P 500 and Nasdaq posted comparative losses.

At the opening bell, markets dropped after another round of disappointing jobs data from the Labor Department. The data show unemployment has stabilized and remains high. More than 1.3 million Americans filed new unemployment claims the week ending July 11, only 10,000 claims fewer than new claims filed the previous week and the smallest decrease since late March. 

Continuing unemployment claims, which are a week behind new claims, show 17.3 million workers collecting unemployment insurance during the week ending July 4 compared with 17.7 million during the prior week. In total, more than 51 million claims have been filed since the week ending March 21, after lockdowns were instituted.

Most of the continuing claims are due to spikes in California and Florida, where the Covid-19 pandemic has surged.

Federal unemployment claims — a special program during the coronavirus pandemic for independent contractors and those workers not typically eligible for state unemployment — also has remained stuck at about 1 million claims. About 930,000 claims were filed under the Pandemic Unemployment Assistance (PUA) program the week ending July 11, compared with more than 1 million the previous week.

Many analysts interpret the sticky claims as an indicator of a pause in rehiring. “If we use the cumulative initial claims data as a proxy for continued PUA claims, we get a total of 27.5 million individuals receiving benefits as of June 27, a record high,” Nancy Vanden Houten, lead economist at Oxford Economics, wrote in an investor’s note.

Others see the see it as justification for Congress to extend the $600 in additional weekly unemployment benefits, which expires next week.

“Cutting the $600 cannot incentivize people to get jobs that aren’t there,” wrote Heidi Shierholz, senior economist at the Economic Policy Institute. “The millions who will remain jobless after the extra $600 is cut off will have no choice but to drastically cut their spending, causing a sharp decline in their living standards, an increase in poverty, and completely unnecessary suffering.”

Despite declarations by administration officials that the U.S. economy is now on a speedy V-shaped recovery, the public views President Trump poorly when it comes to the economy. 

A poll on Wednesday 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. 

Meanwhile, earnings season for most of the financial industry is wrapping up.

Bank of America reported a 3% decrease in revenue and a drop in net income of $7.3 billion to $3.5 billion from Q2 2019 to Q2 2020.

The bank’s report Thursday is a far cry from the positive numbers reported by JPMorgan Chase and Goldman Sachs earlier in the week. Like its competitors, Bank of America’s consumer banking segment suffered during the lockdown, posting a huge drop in net income from almost $3.3 billion in 2019’s second quarter to just $71 million last quarter.

Unlike those firms, however, Bank of America was not able to lean on its investment banking arm, which lost almost $400 million in net income year over year. 

CFO Paul Donofrio said the firm added another $4 billion in reserves to prepare for further economic hardships later this year, and noted it serviced about $25 billion in Paycheck Protection Program loans for small businesses.

Investment banking has become a crucial lifeline for banks during the lockdown, as evidenced by Morgan Stanley, which reported a $3.2 billion increase in net revenues compared with a year ago. The investment bank also reported a $1 billion increase in net income during that same period.

“Our decade-long business transformation was intended to provide stability during times of serious stress,” CEO James Gorman said in a statement. “The second quarter tested the model and we performed exceedingly well, delivering record results.”

In its earnings release, Charles Schwab announced a sizeable drop in net income, from $937 million in the second quarter of 2019 to $671 million during Q2 2020. As a result, the investment company suffered a 21% decrease in its earnings per share.

CEO Walt Bettinger said in a statement that the firm saw “some encouraging signs as the quarter progressed, including domestic equity markets recovering to pre-pandemic levels.” The firm has also seen 230 million more client interactions via web, mobile, chat and messaging versus a year ago.

Earlier in the week, Goldman Sachs surprised investors by reporting a 41% year-over-year increase in net revenues, owed largely to the firm’s investment banking division. 

JPMorgan Chase had reported a record-high increase in revenue, showing $33.8 billion in managed revenue during its second quarter due to a 44% increase in its investment and corporate banking. But Wells Fargo — which has been under the regulators’ thumb due to its consumer-account scandal — reported a $2.4 billion loss last quarter. 

On Friday, State Street, BlackRock and Citizens Financial are scheduled to release their earnings.

In another key industry watched by investors, Johnson & Johnson reported a 35% decline in net earnings for the second quarter of 2020 year over year, as well as a similar reduction in its earnings per share. 

Most of the drop was due to plummeting sales of medical devices, though the company’s pharmaceutical division increased its sales nearly 4% from Q2 2019 to Q2 2020.

Johnson & Johnson had announced last month it will begin late-stage human trials for a potential Covid-19 vaccine ahead of schedule, beginning later this month instead of in September. 

Earlier in the week, pharmaceutical company Moderna released a Phase 1 study showing that 45 patients who received its potential vaccine showed strong immune responses against Covid-19 without many side effects. Markets were buoyed by the news, and Moderna’s stock rose nearly 7% on Wednesday following the announcement.

In total, more than 13.6 million people have been infected by Covid-19 worldwide, while 586,000 have died, according to data compiled by Johns Hopkins University. In the United States, m3.5 million people have contracted Covid-19, while about 138,000 have died. 

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