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Earlier in the week companies began releasing their 2Q 2020 earnings, beginning with the banks. Although JPMorgan Chase and Citigroup beat analyst estimates, the firms’ results highlighted the economic uncertainty ahead, and each indicated they set aside billions of dollars for rising loan losses as they prepare for a wave of defaults.
Investors are expecting corporate earnings among companies in the S&P 500 to have fallen 45%…while financial companies are expected to take an even bigger hit- a roughly 57% drop.
Goldman Sachs stood to benefit enormously from companies taking advantage of historically-low rates, helping them with refinancings and raking in underwriting fees in the process. Revenue from underwriting stocks and bonds more than doubled to $2.05 billion, well beyond analysts’ average estimate of $1.3 billion.
Meanwhile shares of Netflix plunged 7.8% as their third quarter subscriber growth forecast came in at 2.5 million- about half of Wall Street estimates. They added 10 million subscribers in the second quarter, boosting revenue by 25% to $6.15 billion and EPS by 163% as demand surged for in-home entertainment during the pandemic. Netflix co-CEOs Reed Hastings and Ted Sarandos anticipated a year-over-year slowdown “because the pandemic pulled forward demand and new seasons of ‘Stranger Things’ and ‘Money Heist’ inflated 3Q 2019 subscriber growth.”
Initial Jobless Claims
It appears initial jobless claims are plateauing, as the number for the week ended July 11 fell 10,000 from the week prior to 1.3 million. In relative terms, it barely budged, while ongoing claims fell by 422,000 to 17.3 million, which is still over 10 times its pre-pandemic levels.
Retail Sales
The Commerce Department on Thursday reported that retail sales increased 7.5% in June month-over-month, fueled by sales in autos, furniture, clothing and electronics as more businesses reopened.
Mortgage Rates
The 30-year rate reached 2.98%, its lowest level in Freddie Mac’s 50 years of tracking this measure. This is a far cry from the +18% levels reached in the early 80s when the Fed stepped in and raised rates to fight inflation.
The spread between the yield on the 10-year Treasury and rate on the 30-year mortgage has narrowed in recent weeks, largely because lenders had spare capacity to process applications after clearing a backlog of refinancings. Still, the larger-than-usual gap means there is room for rates to fall even further.
Although many who are out of work may not be able to take advantage of the low rates, there are many who are- mortgage purchase applications rose about 17% in June from a year earlier.
On the other side of the housing coin- those who are already renting or paying off their homes, the clock is ticking, as the federal eviction moratorium expires in July, along with enhanced jobless benefits.
Nearly 12 million adults live in households that missed their last rent payment, and 23 million have little or no confidence in their ability to make the next one.
Those living in properties covered by federally-insured mortgages are covered by the moratorium set to expire July 25, and many of these folks are jobless and therefore dependent on the expanded unemployment benefits set to expire July 31. Negotiations between the White House and Congress are currently underway for a new stimulus deal, which may be reached by the end of the month.
Federal Trade Commission
The federal agency in charge of enforcing antitrust laws and and promoting consumer protection on Friday announced it was considering deposing current Facebook executives Mark Zuckerberg and Sheryl Sandberg to determine whether the company “has engaged in unlawful monopolistic practices.” Although it will probably be a while before anything actually comes of this, it does serve as a step toward the potential breakup of one of the largest and well-known companies in the modern era (much like Standard Oil in the early 20th century) and will set precedents on how other tech companies will be treated as well, namely Google and Amazon.