Plus, the program to provide emergency loans to small businesses amid the coronavirus crisis has run out of money, the Trump administration is expected to unveil its plan to reopen state economies, earnings season marched on with Morgan Stanley and Abbott Laboratories, and Mastercard got a downgrade.
Stocks were mixed to start Thursday with the Dow dropping 240 points, or 1%. The S&P 500 added 0.3%, while the Nasdaq traded 1.29% higher.
Another week, another scary jobs report. The Labor Department said 5.245 million Americans applied for state unemployment benefits last week, bringing the total in the month since the coronavirus pandemic hit the U.S. economy to 22 million – effectively erasing a decade’s worth of job creation. The latest figures suggest the unemployment rate is now around at least 17%, far higher than the 10% unemployment rate reached at the peak of the last recession. “While today’s jobless numbers are down on last week, they still mean that all the job gains since the financial crisis have been erased. What’s more, with many workers, including those in the gig economy, not included in these numbers, labor market pains may be even worse than these numbers suggest,” said Seema Shah, chief strategist at Principal Global Investors. “Concerns for the second half of the year may be underestimated. Although governments are looking to lift lockdowns, the re-opening of economies will be only gradual, compounding financial strains for businesses and households, surpassing demand and suggesting a slower economic recovery.”
Making matters worse, the program set up to provide emergency loans to keep small businesses afloat amid the coronavirus crisis has hit its $350 billion allocation cap. The Small Business Administration’s website reads that it is “unable to accept new applications for the Paycheck Protection Program based on available appropriations funding. Similarly, we are unable to enroll new PPP lenders at this time.” While Congress is debating additional funding and the Senate coming into session this afternoon to discuss, a swift deal on additional funding is unlikely.
As cases of the coronavirus in the U.S. rise to more than 639,600, and deaths climb to at least 31,000, the Trump administration is today expected to unveil guidelines to relax stay-at-home rules, citing signs that the outbreak is plateauing in parts of the country, though it isn’t clear that states, or their residents, will follow a federal move to ease guidelines. “The battle continues, but the data suggests that nationwide we have passed the peak on new cases,” President Donald Trump said yesterday at a press conference. “These encouraging developments have put us in a very strong position to finalize guidelines for states on reopening the country, which we’ll be announcing.” Business executives from many corners of the U.S. economy have called for more widespread testing for the virus before people will be comfortable returning to work. “Regular testing on a global scale, across all industries, would both help keep people safe and help get the economy back up and running,” said Amazon CEO Jeff Bezos. “For this to work, we as a society would need vastly more testing capacity than is currently available.”
In earnings news, Morgan Stanley became the latest big bank to report weaker earnings due to the coronavirus. The bank said earnings dropped 30% to $1.7 billion, with its wealth management division posting an 8% decline in revenue to $4.04 billion, and with its investment management division posting a 14% decline in revenue to $692 million. “Over the past two months, we have witnessed more market volatility, uncertainty and anxiety as a result of the devastating COVID-19 than at any time since the financial crisis,” said Morgan Stanley CEO James Gorman. Abbott Laboratories also reported this morning, posting a 16% drop in quarterly profit partly due to a tax expense. The medical device company also suspended its full-year forecast, citing uncertainty surrounding the coronavirus pandemic. Abbott, which sells two COVID-19 tests and one COVID-19 antibodies test, said global sales in its diagnostics division with $1.8 billion in the quarter, while sales in its pharmaceuticals and medical device divisions were up 5.2% and 1.4%, respectively, in the quarter.
And Mastercard shares are down -3% this morning after Guggenheim analyst Jeff Cantwell downgraded the stock to Neutral. “We think COVID-19 is a ‘paradigm changing event’ for payments,” Cantwell wrote in a note, “particularly for cross-border” travel. According to Cantwell noted that travel-related revenue comprised a third of Mastercard’s top line last year, which does not bode well for the payments company as travel spending has all but disappeared amid the coronavirus pandemic. The Guggenheim analyst also said Mastercard could be hurt by a contraction in domestic spending as well as consumers rein in their discretionary spending, putting a dent in the revenue Mastercard gets from consumer credit.
Stocks We’re Watching
LSI Industries (NASDAQ: LYTS): LSI Industries shares jumped nearly 26% yesterday after the company announced it had secured $100 million in new business through 2022 from one of its long-standing quick service restaurant customers. “Our recent QSR program award highlights LSI’s strategy to anticipate changing requirements in key vertical markets and lead in the development of new, differentiated solutions that are valued by our customers,” said Jim Clark, President and CEO of LSI Industries. “The award reflects the quality of our products, as well as our broad program management capabilities. This customer recognizes the benefits of partnering with one company to manage the diverse set of requirements for a critical, multi-year program. We value the trust and confidence they have in LSI to deliver a superior solution.”