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Stock Market Wrap-Up: Berkshire Eyes Delta; Fed Sinks Bank of America

By Dan Caplinger - Mar 3, 2020 at 4:30PM

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The market gave back many of its gains from yesterday.

Tuesday was a down day for the stock market, as investors weren't satisfied with the Federal Reserve's decision to cut interest rates by half a percentage point in response to the economic threat from the coronavirus. The Dow Jones Industrial Average (^DJI 1.05%), S&P 500 (^GSPC 1.05%), and Nasdaq Composite (^IXIC 0.90%) all fell nearly 3% on the day.

Today's stock market

Index

Percentage Change

Point Change

Dow

(2.94%)

(786)

S&P 500

(2.81%)

(87)

Nasdaq Composite

(2.99%)

(268)

Data source: Yahoo! Finance.

Getting more attention than the average company, Delta Air Lines (DAL 1.90%) suffered smaller declines than most of its airline peers on news that the stock got some attention from a popular investor. Meanwhile, Bank of America (BAC 1.38%) took an especially large hit as financial stocks sagged under the weight of the Fed rate cut.

An airline buy

Shares of Delta Air Lines fell 2%, but that was less than most of its fellow airlines on a bad day for the transportation sector. Buoying the Atlanta-based company was news that Berkshire Hathaway (BRK.A 1.69%) (BRK.B 1.64%) bought more shares of Delta during the market's swoon last week.

Delta aircraft in flight against a blue sky with patchy cirrostratus clouds.

Image source: Delta Air Lines.

Berkshire added almost 1 million shares of Delta stock, according to a filing with the U.S. Securities and Exchange Commission late Monday. The Warren Buffett -led company took advantage of Delta stock prices that were down about 20% from where they started last week, as investors reacted negatively to the travel implications for the coronavirus outbreak.

The purchase didn't really dramatically increase Berkshire's stake in Delta. The roughly $45 million that the insurance company invested last week pales in comparison to the overall $3.3 billion value of its holdings in Delta, representing about 11% of the outstanding shares of the airline.

Some investors speculate that Berkshire might seek to acquire an airline company outright, but so far, Buffett has taken a diversified approach toward investing in the sector by holding several different stocks. Nevertheless, the move came as a vote of confidence in the longer-term prospects for an industry that's facing big short-term headwinds.

A tough day for Bank of America

Shares of Bank of America were down 5.5%, which was significantly worse than most of the other big banks in the U.S. financial sector. Even though much of the stock market seemed more ambivalent about the Fed's rate cut, the news came as an unqualified negative for B of A.

Banks have been under pressure for a long time as interest rates have started to come down. The decline in long-term rates has put pressure on net interest margins for banks, and Bank of America in particular relies a lot on having healthy levels of net interest income to supplement the fee-based income it generates. With yields on 10-year Treasuries falling to around 1%, there's not much room for B of A and its fellow financial institutions to make money by lending out deposits.

One silver lining for Bank of America could come from the mortgage arena, because low rates could also spur a wave of mortgage refinancing activity. Moreover, cheaper home equity loans could support greater origination volume on that side of the business as well.

Nevertheless, with the interest rate environment looking hostile for the foreseeable future, Bank of America could have a hard time mounting a big rebound. Valuations in the banking sector are pretty cheap, but it might be a while before value investors hunting for bargains get rewarded.

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Stocks Mentioned

Bank of America Corporation Stock Quote
Bank of America Corporation
BAC
$31.56 (1.38%) $0.43
Berkshire Hathaway Inc. Stock Quote
Berkshire Hathaway Inc.
BRK.A
$415,850.00 (1.69%) $6,900.00
Berkshire Hathaway Inc. Stock Quote
Berkshire Hathaway Inc.
BRK.B
$277.50 (1.64%) $4.48
Delta Air Lines, Inc. Stock Quote
Delta Air Lines, Inc.
DAL
$29.52 (1.90%) $0.55
Dow Jones Industrial Average (Price Return) Stock Quote
Dow Jones Industrial Average (Price Return)
^DJI
$31,097.26 (1.05%) $321.83
S&P 500 Index - Price Return (USD) Stock Quote
S&P 500 Index - Price Return (USD)
^GSPC
$3,825.33 (1.05%) $39.95
NASDAQ Composite Index (Price Return) Stock Quote
NASDAQ Composite Index (Price Return)
^IXIC
$11,127.85 (0.90%) $99.11

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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