The S&P 500 Index (SNPINDEX:^GSPC) fell 22 points, or 0.63%, on Tuesday. Earnings season got underway, with banking and airline giants JPMorgan Chase (NYSE:JPM) and Delta Air Lines (NYSE:DAL) reporting today. Delta had a massive $7 billion loss, while JPMorgan reported a $9.4 billion profit, but both stocks fell as worries about continued economic weakness casts a long shadow over investors.
Today's worst S&P 500 stocks were cruise line operators Royal Caribbean (NYSE:RCL), Norwegian Cruise Line Holdings (NYSE:NCLH), and Carnival (NYSE:CCL), down between 8% and 13% after Royal Caribbean announced it was trying to raise another $1 billion to stay afloat.
JPMorgan may need another $20 billion in loss reserves
JPMorgan, the biggest U.S. bank by total assets, posted third-quarter results that were solid by just about every measure, including a strong $9.4 billion in net income, and a tiny (in context of its massive size) $611 million in loss provisions. Moreover, CEO Jamie Dimon said that the $34 billion the bank has already set aside this year in loan loss reserves could prove as much as $10 billion more than is needed, as long as the economy continues to improve.
But Dimon also reminded investors that there's a lot of uncertainty, including the risk of a double-dip recession that could result in JPMorgan having to increase loss provisions by another $20 billion to almost $55 billion. Management pointed out that much of the economy's resilience was due to the federal government providing trillions of dollars in financial stimulus. Barring another stimulus bill, the economy faces a lot of uncertainty as the coronavirus pandemic continues.
Cruise stocks sink on Carnival cash burn; Airlines fall on Delta's giant loss
Royal Caribbean's announcement that it was raising another $1 billion via stock and convertible-debt sales rattled investors in the cruise ship industry today, sending all three major lines down hard. It wasn't just that Royal Caribbean was raising the money that shook investors; it was the fact that the struggling cruise line continues to burn through its capital.
Even with 2021 bookings improving, the company is still burning $250 million to $290 million every month, meaning the $1 billion it's raising will cover less than four months of operations. And it's not planning any cruises before Dec. 1, and potentially much later than that. The good news is that Royal Caribbean does still have a lot of cash to work with, some $3 billion in cash and equivalents before raising that $1 billion. Today's reaction seems like a good reminder that the industry isn't out of the woods (or, more accurately, ports) just yet.
While the airline industry doesn't have it quite as bad as the cruise lines, things are still pretty rough. Delta was the first major carrier to report earnings, announcing a whopper of a $6.9 billion loss in the third quarter. Adjusted operating revenue came in at $2.6 billion, 79% lower than last year, with passenger revenue down 83%. Moreover, the company thinks it could be two years, or even more, before the operating environment returns to normal.
Delta also continued to burn cash at a prodigious rate, $24 million per day in the quarter, though part of that includes payroll costs that were covered by cash provided to the airline industry in the last round of economic stimulus. Barring any future stimulus that allows airlines to keep employees on the job, Delta and its peers will furlough thousands of employees as part of cost-cutting efforts.
Delta is sitting on $21.6 billion in liquidity, in cash and equivalents and available credit. But unlike the cruise industry, which remains largely shuttered, airline activity has picked up some, though it's still down more than 70% from last year.