S&P 500 Roars Back: Oil Stocks Up, Bank Stocks Down, Will COVID-19 Shutdowns End the Rally?

After ending things in an ugly manner yesterday and finishing down nearly 1%, the S&P 500 (SNPINDEX: ^GSPC) closed in a flourish on July 14, gaining 42 points, or 1.34%, on the day. The S&P is still down about 1% for the year, but on a total returns basis that includes dividends paid, the index is back to breakeven -- for now at least. 

Today's biggest news came out of the banking sector, with CitiGroup (NYSE: C)JPMorgan Chase (NYSE: JPM), and Wells Fargo (NYSE: WFC) all reporting their second quarter results and announcing a combined $28 billion in loan loss provisions that sent investors selling. On the other side of the ledger, the biggest-gaining sector today was the oil and gas industry, with oil stocks including Noble Energy (NASDAQ: NBL), Apache Corp (NASDAQ: APA), Diamondback Energy (NASDAQ: FANG), and Halliburton (NYSE: HAL) all up between 5.7% and 10.4% on the day. 

Man in suit grabs line on chart and makes it go up.

Image source: Getty Images.

Other stocks leading the charge with big gains today are HanesBrands (NYSE: HBI), up 9.4%, and Align Technology (NASDAQ: ALGN), up 11%. But with COVID-19 cases surging again, and California rolling out more restrictions, will other states follow and bring the market's rally to a screeching halt?

Banks building up reserves against expected loan losses

Citi, JPMorgan and Wells Fargo reported second quarter results today, with only JPMorgan doing better than expected with record revenue and $4.7 billion in profits. Citi's earnings fell 74% in the quarter, while Wells Fargo reported its first quarterly loss in over a decade and slashed its dividend by 80%. 

Combined, the three banking giants took $28 billion in loss-loss provisions in the second quarter, essentially setting aside capital to prepare for future losses they expect to incur later this year. As a result, JPMorgan managed to shrug off the bad day for many other banks, closing up about 0.3%, while Citi and Wells shares fell 4% and 5%, respectively. 

It's worth noting that even with these massive loan provisions, the banking sector doesn't face the same threats it did during the Global Financial Crisis. All three of these megabanks are far better capitalized today than they were a decade ago, with the reserves to ride out the ongoing economic downturn in fine shape. With their shares down between 30% and 55% year to date, patient investors may want to consider buying on the prospects for a full recovery in years to come. 

C Chart

C data by YCharts.

Oil stocks gushing higher on OPEC projections

Crude oil prices held pretty firm at around $40 per barrel today, but oil stocks surged higher following a report from OPEC that the group of oil-producing nations expects global demand to rebound and recover by 2021. 

Independent oil producers including Noble Energy, Apache, Diamondback Energy, Pioneer Natural Resources (NYSE: PXD), and EOG Resources (NYSE: EOG) saw their stocks gain between 5% and 17% on the day, while oilfield services companies including Halliburton and Schlumberger (NYSE: SLB) closed up 5.7% and 5.9%, respectively. 

Unlike the banking sector, the oil patch isn't on quite as solid a footing. With crude prices still close to $40 per barrel and demand still off by double digits, independent producers and the companies they contract to do the work still have a painful road ahead. That's particularly true with the OPEC+ deal to limit production set to expire soon, and unlikely to be continued at current levels. In other words, the world's oil giants are likely to start clawing back lost production as demand grows in the second half of the year. Investors should remain cautious when considering oil stocks

Upgrade for Hanesbrands, optimism for Align Technology

Along with Noble Energy, Align Technology (up 11%) and Hanesbrands (up 9.5%) were the best-performing S&P 500 stocks today.

Hanes shares got a lift today following not one, but two analyst upgrades, from Credit Suisse and Wells Fargo analysts, lifting price targets and naming the stock "outperform" due to the company's strong distribution network and status as a staple product for consumers that should prove relatively stable during the economic downturn. 

Align's big surge didn't have any specific news attached to it, but with its earnings set to come out next week, it's looking like investors are feeling optimistic that the worst may be over for the orthodontics company. There's continued risk that fewer people will be willing -- or able -- to pay for teeth straightening in the midst of a major recession and global pandemic, but more dental and orthodontist offices have reopened, and the outlook has improved from the low point. 

Will COVID-19 shutdowns end the rally?

The stock market has largely regained its losses over the past several months, but a surge in cases of COVID-19, and rising deaths as hospitals and ICUs start to fill up has states looking hard at locking things down. California governor Gavin Newsom ordered many business that conduct indoor activities, including restaurants and theaters, to cease indoor activities, and for all bars in the state to close. Will other states follow suit, and if so, what are the potential economic implications?

Taken to the next step, what are the implications for stocks to end the incredible rally that has the S&P within reach of fully recovering its losses since the start of the year? As things stand today, government leaders face an unenviable position of balancing the economic recovery with protecting human lives from a highly contagious and potentially deadly disease. 

Stay tuned for more earnings this week, and a closer look at the financial and economic implications of the ongoing coronavirus outbreak. 

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Jason Hall owns shares of Wells Fargo. The Motley Fool owns shares of and recommends Align Technology. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


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