Wall Street returned from the weekend on a downbeat note, with investors finding renewed worries about macroeconomic and geopolitical issues around the world. News that China might not yet be through its latest wave of COVID-19 cases threw cold water on the idea of a quick economic recovery there, adding fuel to the idea that a global recession could be coming. As of 7 a.m. ET, futures on the Dow Jones Industrial Average (^DJI 0.36%) were down 129 points to 31,181. Futures on the S&P 500 (^GSPC 0.41%) fell 22 points to 3,879, and Nasdaq Composite (^IXIC 0.45%) futures dropped 94 points to 12,058.
Second-quarter earnings season officially kicks off this week, with a host of companies looking to give their latest assessment of how they're faring in a difficult economic environment. In particular, investors should watch for what JPMorgan Chase (JPM 1.10%) and Delta Air Lines (DAL 0.03%) say about how the latest quarter went. Depending on whether the news there is good or bad, what JPMorgan and Delta say could easily move the entire stock market. Here's a look at what to expect.
Is the hurricane coming?
JPMorgan Chase has seen its shares hit hard so far in 2022. After having traded for nearly $170 per share at the beginning of the year, the banking giant has seen its stock sink below $115 per share recently.
A host of factors are conspiring against JPMorgan Chase and much of the rest of the banking industry. Rising interest rates were supposed to be good for retail banks, but the problem is that the spreads between short-term and long-term rates haven't expanded. That could crimp net interest income, a key element of the bank's overall earnings.
Meanwhile, macroeconomic pressures are hurting other elements of JPMorgan's business. Privately held companies are in no hurry to come public when the stock market is weak, and that has crimped JPMorgan's investment banking segment. Trading in stocks and bonds has also been challenging, with both markets suffering substantial losses in the first half of 2022. Banks are getting stingier about making loans, and rising rates have hurt demand, particularly in the mortgage loan market.
It was exactly these factors that led JPMorgan CEO Jamie Dimon to warn of a potential economic "hurricane" recently. Most shareholders expect the bank's earnings to fall substantially from year-ago levels. Investors will need to scour JPMorgan's report to see whether that storm is already upon us -- or whether it's right around the corner. The company is scheduled to report earnings Thursday before the market opens.
Can Delta gain altitude?
Meanwhile, shares of Delta Air Lines have also been under pressure. After having bounced sharply in late 2020 from its pandemic-inspired plunge earlier that year, Delta's stock has lost 40% of its value and is now trading near its worst levels in two years.
Like many airlines, Delta has found itself in a bind. On one hand, travelers have never been more eager to get back into the sky, and even big increases in air fares haven't kept many of them away. Yet Delta and its peers had to scale back their aircraft fleets during the early part of the pandemic, and the airline isn't close to matching its pre-pandemic capacity.
That has created some bottlenecks at airports that have many air travelers frustrated. The return of high demand is exactly the worst time for Delta to cancel flights, yet ongoing disruptions have persisted. Moreover, the threat of a pilot shortage and other potential labor issues could combine with soaring fuel costs to put a lot more pressure on Delta's margins.
Yet even with pressures, investors expect Delta to have turned a sizable profit in the second quarter as it ramped back up. If things aren't as good as expected, then the travel sector could see another leg downward, but good news could provide a much-needed lift across the airline industry. Delta is scheduled to report earnings Wednesday at 10 a.m.