Earnings season has officially begun, and investors can expect the stock market to see increased volatility as companies start to tell the tale of how the second quarter of 2020 went for them. Monday's big late-day sell-off left many market participants feeling a bit gun-shy about the future for stocks, but strength in areas like the energy sector helped to provide a lift in some indexes. Just before 11 a.m. EDT, the Dow Jones Industrial Average (DJINDICES: ^DJI) was up 173 points to 26,259. However, the S&P 500 (SNPINDEX: ^GSPC) was down a point to 3,154, and the Nasdaq Composite (NASDAQINDEX: ^IXIC) had dropped a more substantial 76 points to 10,315.
Big banks are among the first companies to report their results each quarter, and the news from the financial industry was mixed Tuesday morning. Meanwhile, airline giant Delta Air Lines (NYSE: DAL) also weighed in with its latest figures. Investors watched the news with anticipation, trying to figure out what it all means for the overall economy's direction in the remainder of 2020 and beyond.
How banks fared
Just like the broader market, the bank stocks that reported their earnings Tuesday morning had mixed performances. JPMorgan Chase (NYSE: JPM) saw its stock inch higher following its report, but Wells Fargo (NYSE: WFC) and Citigroup (NYSE: C) suffered declines.
For JPMorgan, there was a considerable disconnect between the backward-looking results and the forward outlook. Financial performance for the second quarter showed a significant turnaround for the bank, as net income came in at $4.7 billion. Admittedly, that's down by more than half from year-ago levels, but it's a huge improvement from three months ago, and revenue was the bank's highest ever. However, JPMorgan added a whopping $10.5 billion to its loan loss provisions, and CEO Jamie Dimon said that the bank's operations "still face much uncertainty regarding the future path of the economy."
Citigroup's results sent its stock down more than 2%. Net income, at $1.3 billion, was down around 70% year over year, but revenue had risen 5% on strength in its market and investment banking operations. Citi added $5.6 billion to its loan loss reserves, verifying a negative outlook based on poor economic conditions.
For Wells Fargo the news was worse, and the stock dropped 7%. Wells actually lost $2.4 billion in the quarter, the loss driven largely by an $8.4 billion boost to its credit loss reserves. As a result of that loss and its past financial performance, Wells Fargo had to take a step that its peers didn't: It cut its dividend. In the third quarter, investors can expect to receive just $0.10 per share, down from the $0.51 per share it paid in recent quarters. That will slash the dividend yield from 8% to less than 2%, and with losses that were worse than expected, Wells clearly looks like the odd bank out in the industry.
Delta deals with massive losses
Shares of Delta Air Lines were off 4% Tuesday morning. The decline followed the airline's second-quarter report, which included staggering losses and plenty of uncertainty about the future of the industry.
The numbers were predictably ugly, given the impact of the COVID-19 pandemic. Delta's revenue had plunged by more than $11 billion, or 91%, to just $1.2 billion. Capacity had dropped 85%, and passenger counts were down 93% year over year. Despite some reductions in expenses, Delta lost $2.8 billion on a non-GAAP (adjusted) basis, which works out to $4.43 per share.
Delta emphasized that it has strengthened its balance sheet to try to weather the impact of the pandemic, reporting $15.7 billion in liquidity at the end of June. Daily cash burn rates have fallen 70% to $27 million during June, but that even that reduced rate gives Delta less than two years of breathing room.
Unfortunately, rising COVID-19 case counts in the U.S. have hurt what had been an uptick in passenger interest. CEO Ed Bastian is now warning that it could take two full years for a recovery to take place. That's bad news for airline stocks overall, and especially for Delta in its leadership role in the industry.
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