With Gloomy Reports on Horizon, Wall Street Rallies to Close Out Week

Last-minute good news on Covid-19 treatments boosted markets on Friday, though investors are preparing for a down week as corporate earnings start to roll in. 

A vial of the investigational drug remdesivir is inspected at a Gilead manufacturing site in the United States. Given through an IV, the medication is designed to interfere with an enzyme that reproduces viral genetic material. (Gilead Sciences via AP)

MANHATTAN (CN) — Markets hovered slightly above zero for most of the day, but investors’ hopes found lift by the closing bell with promising news about remdesivir, the Gilead Sciences anti-viral drug being touted as a treatment for Covid-19.

The Dow Jones Industrial Average gained 1.4% on the day, while the S&P 500 increased 1% and the Nasdaq hit a new high of 10,617 points with a 0.66% increase.  

Despite the positive finish, many analysts expect a bit of a downswing next week as earnings reports for the second quarter start to roll in — which may also portend another round of layoffs in certain industries.

In particular, investors are girding themselves for a bloodbath among the travel and banking industries.

Banks were able to partially weather the Covid-19 storm during the first quarter and seem to have adequate reserves in place.

Because coronavirus-related shutdowns began only at that quarter’s end, however, it is feared that the second quarter will reveal the worst earnings reports since the Great Recession.

But it won’t be all doom and gloom for the banking industry. Banks may report an increase in fees due to servicing hundreds of billions of dollars in loans to small businesses through the Paycheck Protection Program.

Second quarter earnings at major banks will fall nearly 70% year over year due to a drop in interest rates and higher capital reserves, according to an investor’s note by Goldman Sachs analysts. Most large banks will remain profitable for the second quarter, however, due to increased investment banking fees, the analysts wrote.

Banks that typically relied on financing mergers and acquisitions for income may also take a hit, the note suggests, quoting a Morgan Stanley executive as saying, “The M&A market is basically dead for the second half of this year.”

Some of the carnage in the banking sector is already splattered on the walls. This week Wells Fargo announced job cuts, while HSBC reportedly is moving ahead with its plan to slash 35,000 jobs.

Investors weren’t scared away from earnings on Friday afternoon, however, as bank stocks rose across the board. Shares of Goldman Sachs increased by 4.4%, Citigroup 6.5%, J.P. Morgan Chase 5.4%, Bank of America 5.5%, and even Wells Fargo gained 5.9%.

Even worse hit have been the airlines, which have already begun to drastically cut employees. United Airlines announced on Thursday it will furlough up to 36,000 of its workers without pay. The move is due to expectations that capacity will drop 75% this month compared to July 2019, the airline said.

The Association of Flight Attendants-CWA, which represents 50,000 flight attendants at 19 airlines, blamed the decision on “surging Covid-19 cases across the country” during the last week. “The United Airlines projected furlough numbers are a gut punch, but they are also the most honest assessment we’ve seen on the state of the industry,” union president Sara Nelson said in a statement. 

Delta Air Lines, which is operating at 30% of its normal capacity, also may soon lay off employees. Delta CEO Ed Bastian reportedly told employees in a memo on Thursday that he hopes they reconsider the company’s early-retirement and buy-out programs, noting the company could furlough or lay off workers due to surging Covid-19 cases.

American Airlines also said last week it anticipates it could cut 20,000 front-line workers later this year.

According to the U.S. Travel Association, which represents 1,200 hotels, museums and other attractions, international and domestic travel spending is projected to drop 44% this year and will still not return to 2019 levels until after 2023.

Empty United Airlines ticket machines are shown at the Tampa International Airport on April 24, 2020. (AP Photo/Chris O’Meara, File)

Many blue-chip companies — including General Electric and Walgreens — also have recently said they could downsize their workforce. 

Public employees are also starting to feel the pinch. More than 13,000 employees at U.S. Citizenship and Immigration Services have been placed on administrative furlough starting next month for at least 30 days.

The drop in tax revenue to states and municipalities also will likely lead to budget cuts — and job losses.

Those losses are expected to hit women and Black workers the hardest, according to David Cooper and Julia Wolfe, analysts at the Economic Policy Institute. 

“Failing to provide aid to state and local governments would be not only an act of needless self-sabotage, it would also exacerbate racial and gender disparities,” they wrote in a blog post on Thursday.

The share of females employed in state and local public sector jobs has risen from 56% in 1990 to more than 60% in 2020, compared with a rise of 45.7% to 46.7% in the private sector, according to their research. While the percentage of Black Americans in the public sector has dropped somewhat during that period, they still represent 13.5% of the public sector jobs compared with 11.5% of the private sector. 

“At a time of reckoning for the deep racial divides and tremendous injustices perpetrated against Black Americans — often at the hands of government — it would be especially cruel for Congress to effectively gut one of the most meaningful sources of good jobs for Black workers in America,” they wrote.

Abroad, workers will likely face a hard road ahead in the coming months, as well.

Airbus, the largest airplane manufacturer in the world, has announced it will cut 15,000 jobs or about 10% of its workforce in the next year. The company has already furloughed at least 6,000 workers in Europe.

On Wednesday, more than 7,000 Airbus workers at Toulouse airport in France staged a walkout to protest the planned job cuts. The walkout was the first strike Airbus has faced since 2008. 

A survey of manufacturers in the United Kingdom released last week by manufacturing association Make UK found that 40% of manufacturers in the country plan to lay off employees by the year’s end, while another 33% said job redundancies are possible.

The uptick in coronavirus cases likewise does not bode well for jobs. Due to the increase in cases of Covid-19 in California and across the Sun Belt, many states are once again tightening social distancing measures, which may worsen the employment landscape the hospitality and leisure industry.

According to data compiled by the Federal Reserve of St. Louis from federal jobs reports, the leisure/hospitality industry suffered job losses in all 50 states from May 2019 to May 2020.

More than 12.3 million people have been infected by Covid-19 worldwide, while about 556,000 have died, according to data compiled by Johns Hopkins University. In the United States, more than 3.1 million people have contracted Covid-19, while nearly 134,000 have died.

%d bloggers like this: