Daily Market Report | Oct. 14, 2020

US FINANCIAL MARKET

U.S. Stocks Edge Higher as Bank Earnings Reports Roll In – Wall Street Journal, 10/14/20

  • U.S. stocks edged higher Wednesday, recouping some lost ground from the previous session as investors parsed earnings reports and the latest developments on lawmakers haggling on coronavirus aid.
  • Wednesday’s gains helped make up for losses across the major indexes a day earlier on some mixed earnings reports and ongoing uncertainty around the coronavirus and whether lawmakers will ever reach a deal on fresh aid.
  • Within the financial sector, shares of Goldman Sachs rose 0.3% after the bank reported sharply higher profits for the third quarter. JPMorgan Chase was still getting a boost from its better-than-expected report on Tuesday, rising 0.9% on Wednesday.
  • But some banks stumbled after reporting mixed earnings. Bank of America slid 2.7% after it reported profit that fell 16% in the third quarter, though it indicated that it is well prepared to weather the coronavirus recession.
  • Wells Fargo declined 3% after it said profit in the last quarter fell 56%
  •  U.S. hospitalizations are at their highest level since Aug. 29, according to data from the Covid Tracking Project. Investors remain concerned that a continued uptick will result in fresh local restrictions, placing pressure on businesses and economic recovery.
  • Markets are also broadly reflecting an expectation that lawmakers will pass a new stimulus package after the election, which would aid the economic recovery by bolstering consumer spending, and support corporate earnings and U.S. stocks.

U.S. Daily Coronavirus-Case Count Climbs Back Above 50,000 – Wall Street Journal, 10/14/20

  • Daily new U.S. coronavirus infections increased from a day earlier, as did the number of people hospitalized.
  • The U.S. reported more than 52,000 new Covid-19 cases on Tuesday, up from 41,653 on Monday, according to data compiled by Johns Hopkins University.
  • The number of people hospitalized for Covid-19 in the U.S. as of Tuesday was 36,034, the highest since Aug. 29, according to the Covid Tracking Project—though still lower than July’s peaks of more than 59,000.
  • U.K.: The country recorded its largest jump in new infections since June, reporting 17,234 new cases on Tuesday.
  • Localized lockdown restrictions take effect in badly affected areas of northern England on Wednesday, while Northern Ireland’s leaders told lawmakers they plan to shut all dine-in restaurants for four weeks and extend the fall school holidays to two weeks from one.
  • In London, the leader of the opposition Labour Party, Keir Starmer, called for a two-to-three-week national lockdown to stem the spread of the virus.
  • Iran: Iran reported another new daily high for fatalities Wednesday, recording 279 deaths as the outbreak there continued to gain speed. Health authorities recorded 4,830 new infections, compared with 4,108 on Tuesday.
  • India: The country with the second-highest number of reported infections after the U.S. added 63,509 new cases in the past day, taking its total to about 7.24 million, according to data from the health ministry Wednesday.

Bank of America Profit Falls 16% – Wall Street Journal, 10/14/20

  • Bank of America’s profit fell 16% in the third quarter, though the bank indicated that it is well prepared to weather the coronavirus recession.
  • The bank posted revenue of $20.34 billion in the third quarter, down 11% from last year.
  • Analysts polled by FactSet had expected $20.8 billion.
  • Adjusted trading revenue of $3.34 billion was up 4% from $3.22 billion a year ago.
  • Last quarter, the division posted revenue of $4.41 billion.
  • Bank of America’s interest income fell 17% from a year ago to $10.13 billion, while its noninterest income fell 4% to $10.21 billion.
  • In the third quarter, Bank of America set aside $1.39 billion.
  • That was far smaller than its earlier provision of $5.12 billion in the second quarter and $4.76 billion in the first quarter.
  • Notably, the bank released $269 million of its reserves for consumer loan losses, saying credit-card balances are lower and the economy is improving.
  • The Charlotte, N.C., lender said Wednesday that it earned $4.88 billion in the July-to-September period, compared with $5.78 billion a year ago and $3.53 billion in the prior quarter.

Wells Fargo Earnings Drop 56% Despite Pandemic Hit Subsiding – Wall Street Journal, 10/14/20

  • Wells Fargo said that its third-quarter profit fell 56%, though the bank signaled it was prepared for a wave of soured loans.
  • In the third quarter, the bank reported revenue of $18.86 billion, down 14% from $22.01 billion a year earlier.
  • Analysts had expected revenue of $17.99 billion.
  • Wells Fargo’s interest income fell 19% from a year ago to $9.37 billion, while its noninterest income fell 9% to $9.49 billion.
  • Wells Fargo put aside an additional $751 million in the third quarter for sour loans, largely in its consumer bank.
  • That is significantly smaller than the $9.57 billion it set aside in the second quarter and $3.83 billion in the first quarter.
  • Noninterest expenses in the third quarter totaled $15.23 billion, roughly flat from a year earlier.
  • That included $718 million of restructuring charges, which it said were largely tied to severance payments for employees.
  • The San Francisco-based lender said it made $2.04 billion in the third quarter, down from a profit of $4.61 billion a year earlier.

Goldman Sachs’s Third-Quarter Profit Soars – Wall Street Journal, 10/14/20

  • Goldman Sachs’s third-quarter profit nearly doubled, the latest confirmation that, even in a pandemic and a recession, Wall Street can still make money.
  • Goldman reported a quarterly profit of $3.62 billion, or $9.68 a share, on revenue of $10.78 billion.
  • Both measures were better than the expectations of stock analysts, who forecast $1.94 billion in profit, or $5.54 a share, on revenue of $9.38 billion.
  • Trading revenue rose 29% from a year ago to $4.55 billion. The firm’s investment bankers brought in $1.43 billion in underwriting fees, up 60% from a year ago thanks to a surge in companies going public, which compensated for a drop in merger fees.
  • Goldman set aside $278 million for loan losses, in part on higher expected charge-offs in its new credit-card business. But that was less than one-fifth of what it set aside in the second quarter.
  • The firm has $3.15 billion set aside to cover all its expected litigation and regulatory matters, a number it didn’t meaningfully add to in the third quarter.

UnitedHealth raises 2020 profit forecast as Optum unit drives growth – Reuters, 10/14/20

  • UnitedHealth on Wednesday raised its annual profit forecast after its quarterly profit beat estimates, helped by growth in its Optum unit that manages drug benefits, and a slower-than-expected rebound in demand for deferred care.
  • UnitedHealth’s largest health insurance business brought in $50.4 billion in sales for the quarter, a near 5% rise from a year earlier. Revenue from its Optum unit rose 21.4% to $34.92 billion in the quarter ended Sept. 30.
  • UnitedHealth reported a medical loss ratio (MLR) – the percentage of premiums paid out for medical services – of 81.9%, lower than last year’s 82.4% and analysts’ estimate of 83.55%, according to IBES data from Refinitiv.
  • The company reported adjusted earnings of $3.51 per share for the quarter, beating estimates of $3.09 per share.
  • UnitedHealth raised its annual 2020 adjusted profit forecast to between $16.50 per share and $16.75 per share, from its previous range of $16.25 per share to $16.55 per share.

Restaurant Brands expects Burger King third-quarter sales to drop, Popeyes to shine – Reuters, 10/14/20

  • Restaurant Brands International on Wednesday forecast Burger King’s quarterly comparable sales to decline due to the COVID-19 pandemic, even though demand for its chicken sandwiches was likely to boost growth for Popeyes.
  • Revenue is likely to range between $1.32 billion and $1.34 billion, compared with Wall Street estimates of $1.34 billion, according to IBES data from Refinitiv.
  • The company reported preliminary comparable sales drop of 7% for the three months ended Sept. 30 at its flagship Burger King operation globally.
  • At Tim Hortons, its breakfast chain that has struggled this year as offices and colleges shift online, comparable sales are expected to fall 12.5%.
  • Popeyes is expected to lift sales for another quarter, with sales expected to rise 17.4%.

Alaska Air says drop in September revenue less than expected – Reuters, 10/13/20

  • Alaska Air said on Tuesday that its revenue fell less than expected in the last month of the third quarter on improving demand for air travel.
  • The U.S. carrier, which forecast September revenue to fall between 70% and 75%, said the decline slowed to 66% from 72% in August. The company expected October revenue to be down about 65%.

Apple enters 5G race with new iPhone 12 range – Reuters, 10/13/20

  • Apple on Tuesday launched its next-generation iPhone 12, with faster 5G connectivity that the California company hopes will spur consumers to trade in their old phones and keep its sales booming through the end of the year.
  • The core of the line-up, the iPhone 12 with a 6.1-inch display, will sell for $799, while a ‘Mini’ version with a 5.4-inch screen will be slightly cheaper at $699.
  • A ‘Pro’ version with three cameras and a new 3-D ‘lidar’ sensor starts at $999, with the largest ‘Pro Max’ starting at $1,099 and going up to $1,399.
  • Apple said all iPhone 12 models in the United States will support millimeter wave 5G, the fastest variant of the technology, as well as lower-frequency bands.
  • Outside of the United States, however, iPhones will lack millimeter wave compatibility, even in countries like Australia and South Korea where carriers are planning to roll out versions of the millimeter wave technology.
  • Apple also announced a HomePod Mini smart speaker that will cost $99 and be shipped from Nov. 16.

Theater Chain AMC Says It Could Run Out of Cash by Year-End – Wall Street Journal, 10/13/20

  • The world’s largest movie-theater company may run out of cash by year’s end if it doesn’t raise additional funds or get more people back to theaters following pandemic shutdowns that have disrupted businesses dependent on consumers gathering in public spaces.
  • AMC Entertainment Holdings said Tuesday that it has reopened 83% of its U.S. theaters, but that attendance is down about 85% at those theaters from the year before.
  • In a recent regulatory filing, AMC disclosed that it burned through more than $230.4 million of its cash in July and August. Its cash balance stood at just over $500 million at the end of August.

Oil Recovery Expected to Falter Though Supply Glut Shrinks – Wall Street Journal, 10/14/20

  • The world is burning through the oil supply glut that threatened to cripple the energy industry a few months ago, but spiraling coronavirus infection numbers are putting the recovery in jeopardy, the International Energy Agency said Wednesday.
  • The agency slashed its demand forecast for the third quarter of 2020 by 200,000 barrels a day, but left its annual forecasts unchanged for this year and next.
  • The agency said it expects Libyan supply to rise to 700,000 barrels a day by the end of 2020 from 300,000 barrels a day at its current rate.

US ECONOMY & POLITICS

U.S. producer prices increase broadly in September – Reuters, 10/14/20

  • U.S. producer prices increased more than expected in September amid a surge in the cost of hotel and motel accommodation, leading to the first year-on-year gain since March.
  • The producer price index for final demand rose 0.4% last month after advancing 0.3% in August.
  • In the 12 months through September, the PPI increased 0.4% after falling 0.2% in August.
  • Excluding the volatile food, energy and trade services components, producer prices increased 0.4% in September.
  • In the 12 months through September, the core PPI climbed 0.7%. The core PPI rose 0.3% on a year-on-year basis in August.

Senate to Vote on New Funding for Small Businesses Next Week, McConnell Says – Wall Street Journal, 10/13/20

  • Senate Majority Leader Mitch McConnell (R., Ky.) said the Senate would vote on a narrow coronavirus relief bill next week, setting up a potential showdown with Democrats who have pushed for an agreement on a broader aid package.
  • Mr. McConnell said in a statement that the legislation would include new funding for the Paycheck Protection Program, a $670 billion federal initiative that provides forgivable government-backed loans to small businesses grappling with the economic fallout of the pandemic.
  • Authorization for PPP expired in August with roughly $130 billion of the funds left over.
  • He said at an event in Kentucky that the bill would cost about $500 billion and address several other GOP priorities, including school funding and expanded liability protections for lawsuits related to the coronavirus.

Trump to Campaign in Iowa as Polls Show Tight Race – Wall Street Journal, 10/14/20

  • Facing tightening polls and some anxiety in his party, President Trump is spending time in the closing weeks of the campaign in Iowa, a state he won easily in 2016 that has become an unexpected battleground.
  • The recent Quinnipiac University poll of Iowa showed likely voters backing Mr. Biden over Mr. Trump, 50% to 45%, outside the survey’s 2.8 percentage point margin of error. The Real Clear Politics average of polls for the state shows Mr. Biden leading by 1.2 percentage points.
  • Mr. Biden led among women in the Quinnipiac survey, 61% to 35%, while Mr. Trump had the advantage among men, 55% to 39%. Among those 65 or older, Mr. Biden was ahead, 61% to 36%.
  • The president captured Iowa by 9.4 percentage points four years ago, though it was long considered a swing state.

EUROPE & WORLD

Europe Overtakes U.S. in New Cases of Covid-19 as Restrictions Tighten – Wall Street Journal, 10/14/20

  • This week, Europe overtook the U.S. in a key metric that tracks the virus’s spread while accounting for differences in population size.
  • The 27 countries of the European Union and the U.K. recorded 78,000 cases a day on average over a seven-day period ending on Oct. 12, or 152 cases for every million residents.
  • The U.S. recorded 49,000 a day on average over the same period, about 150 for every million residents.
  • Countries including France, Spain, the Netherlands, Belgium and the U.K. reported new daily infections in excess of 250 per million people a day—higher than the U.S. reported during its July peak.
  • The rise in cases has begun to show up in increased hospital admissions.
  • The ECDC said in its latest surveillance report that in 19 European countries, including France, Spain and the U.K., the number of people hospitalized with Covid-19 in early October was around a quarter or more of the level it reached during the pandemic’s April peak.

China Growth Limits Global Economic Damage from Pandemic, IMF Says – Wall Street Journal, 10/14/20

  • The global economic collapse caused by the coronavirus won’t be as severe as estimated earlier, the International Monetary Fund predicted Tuesday, thanks to strong government intervention world-wide and a swift recovery in China.
  • The world’s gross domestic product is forecast to decline by 4.4% this year, not as sharp as the 5.2% drop the IMF projected in June but still the most severe downturn since the Great Depression.
  • World output will grow 5.2% in 2021, down from an earlier estimate of 5.4%.
  • China, where the pandemic originated, will be the only major economy to grow this year, the IMF predicted.
  • The world’s No. 2 economy is forecast to expand 1.9% in 2020, compared with growth of 6.1% last year. China’s growth will accelerate to 8.2% next year, the IMF said.
  • In the U.S., growth next year is projected at 3.1% after a 4.3% decline this year. The eurozone will expand 5.2% after shrinking 8.3%. Japan is likely to see 2.3% growth, following a 5.3% drop.
  • World trade volumes are likely to rise by 8.3% in 2021 after falling 10.4% this year, the IMF said.
  • The IMF said the outcome would have been “much weaker if it weren’t for sizable, swift and unprecedented fiscal, monetary, and regulatory responses.”

Factmonster – TODAY in HISTORY

  • Nazi Germany withdrew from the Geneva disarmament conference and the League of Nations. (1933)
  • Martin Luther King, Jr., was awarded the Nobel Peace Prize for his work in civil rights. (1964)

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