After finishing things ugly yesterday and finishing almost 1%, the S&P 500 (SNPINDEX: ^ SPX) it closed at a bloom on July 14, earning 42 points, or 1.34%, on the day. The S&P has still fallen around 1% during the year, but on a total return basis that includes dividends paid, the index has returned to break even, at least for now.
Today’s biggest news came from the banking sector, with CitiGroup (NYSE: C), JPMorgan Chase (NYSE: JPM)and Wells Fargo (NYSE: WFC) all reported their second-quarter results and announced a combination of $ 28 billion in loan loss provisions that they sent investors to sell. On the other side of the ledger, the sector that gained the most today was the oil and gas industry, with oil stocks including Noble energy (NASDAQ: NBL), Apache Corp (NASDAQ: APA), Diamondback Power (NASDAQ: FANG)and Halliburton (NYSE: HAL) all between 5.7% and 10.4% on the day.
Image source: Getty Images.
Other actions leading the charge with big gains today are HanesBrands (NYSE: HBI), 9.4% more, and Align technology (NASDAQ: ALGN), up to 11%. But with COVID-19 cases re-emerging, and California implementing more restrictions, will other states continue and halt the rebound in the market?
Banks build reserves against expected credit losses
Citi, JPMorgan and Wells Fargo reported second-quarter results today, with only JPMorgan performing better than expected with record revenue and $ 4.7 billion in profit. Citi’s earnings fell 74% in the quarter, while Wells Fargo reported its first quarterly loss in more than a decade and cut its dividend by 80%.
Combined, the three bank giants took $ 28 billion in provisions for losses in the second quarter, essentially reserving capital to prepare for future losses they hope to incur later this year. As a result, JPMorgan managed to ignore the bad day for many other banks, closing around 0.3%, while Citi and Wells shares fell 4% and 5%, respectively.
It is worth noting that even with these massive loan provisions, the banking sector does not face the same threats as it did during the Global Financial Crisis. All three of these megabanks are much better capitalized today than they were a decade ago, with the reserves to weather the current economic downturn in good shape. With their shares reduced by 30% to 55% to date, patient investors may consider buying in the prospect of a full recovery for years to come.
C data by YCharts.
Oil reserves rise sharply on OPEC projections
Crude oil prices held fairly firm at around $ 40 a barrel today, but oil stocks rose higher following an OPEC report that the group of oil-producing nations expects global demand to rebound and recovers by 2021.
Independent oil producers, including Noble Energy, Apache, Diamondback Energy, Pioneering natural resources (NYSE: PXD)and EOG Resources (NYSE: EOG) saw their shares gain between 5% and 17% on the day, while oil field service companies including Halliburton and Schlumberger (NYSE: SLB) closed 5.7% and 5.9%, respectively.
Unlike the banking sector, the oil patch does not have such a solid foundation. With crude prices still close to $ 40 a barrel and demand still dropping in double digits, independent producers and the companies they hire to do the job still have a painful road ahead. That is particularly true with the OPEC + agreement to limit production to expire soon, and it is unlikely to continue at current levels. In other words, the world’s oil giants are likely to start making up for lost production as demand grows in the second half of the year. Investors must be cautious when considering oil reserves.
Update 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’s actions gained momentum today, not by following one, but two updates from analysts, Credit Suisse and Wells Fargo analysts, raising price targets and naming stocks “outperformed” due to the company’s strong distribution network and status as a staple for consumers who should be relatively stable during the economic downturn.
Align’s big jump had no specific news, but with its earnings slated for next week, investors seem optimistic that the worst may have happened for the orthodontic company. There is an ongoing risk that fewer people will be willing, or able, to pay for teeth straightening amid a major recession and global pandemic, but more dental and orthodontist offices have reopened, and the outlook has improved since lowest point.
Will COVID-19 closings end the rally?
The stock market has largely recovered its losses in recent months, but an increase in COVID-19 cases and the increase in deaths as hospitals and ICUs begin to fill up has caused states to try to lock things. California Governor Gavin Newsom has ordered many companies that do indoor activities, including restaurants and theaters, to suspend their indoor activities and close all bars in the state. Will other states follow, and if so, what are the possible economic implications?
Taking the next step, what are the implications for the actions to end the incredible rebound that the S&P has within the reach of the full recovery of its losses from the beginning of the year? As things stand today, government leaders face an unenviable position of balancing economic recovery with protecting human lives from a highly contagious and life-threatening disease.
Stay tuned for more profit this week and a closer look at the financial and economic implications of the ongoing coronavirus outbreak.
