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Westlake Legal Group > Posts tagged "Company Reports"

Dismal Earnings, Bullish Stock Investors and the Fed’s Invisible Hand

Westlake Legal Group defaultPromoCrop Dismal Earnings, Bullish Stock Investors and the Fed’s Invisible Hand United States Economy Stocks and Bonds Standard&Poor's 500-Stock Index Federal Reserve System Credit and Debt Corporations Coronavirus (2019-nCoV) Company Reports Banking and Financial Institutions

Wall Street analysts have grown increasingly pessimistic in recent weeks about the outlook for corporate profits, even as investors have pushed markets steadily higher, breaking the link between analyst forecasts and the direction of stock prices.

Most companies in the S&P 500 stock index have reported their first-quarter earnings, and the impact of the coronavirus pandemic on profits is becoming clear, at least for January through March. On a per-share basis, profits of S&P 500 companies fell by 13 percent, making it the worst slump since 2009.

Analysts think things will get worse before they get better. At the end of March, the consensus among analysts was that profits at companies that make up the index would sink a modest 1.8 percent in 2020. But after digesting the financial reports of companies from Agilent Technologies to Zions Bancorp, they now think 2020 profits will tumble more than 20 percent.

Any finance textbook’s section on equity prices holds that the direction of the stock market is determined, to a large extent, by the profits and dividends that shareholders expect companies to produce in the future. And academic research has repeatedly shown that when Wall Street analysts revise their forecasts for a company’s profits, it can move share prices.

Traders and investors routinely take note of when analysts erase earlier expectations, using those revisions as a real-time gauge of how the fundamental business prospects of corporate America are looking.

Going by the conventional wisdom, the current collapse in profit expectations — and analysts’ woeful prognoses for future earnings — should be clobbering share prices. But investors don’t appear to be taking their cues from analysts. The S&P 500 has soared more than 30 percent over the last two months.

To be sure, investors priced in some downturn in profits when stocks suffered a 34 percent collapse in February and March. They were right, and the pain, reflected in earnings reports, was widespread.

Bank earnings were fairly awful. Quarterly profits at JPMorgan Chase, Wells Fargo and Bank of America all undershot Wall Street expectations, thanks to the costs of setting aside large amounts of cash to cover an expected surge in borrowers who can’t make loan payments because they’re suddenly unemployed. Numbers from credit card issuers like Capital One and Discover were also ugly.

Firms that rely on discretionary consumer spending were, unsurprisingly, hammered. The casino operator Las Vegas Sands posted a first-quarter loss of $51 million, compared with a profit of $744 million during the same period last year. Profits fell 92 percent for the hotel company Marriott International. The cruise line Carnival lost $781 million during the first quarter. Even Amazon.com, ideally positioned for a world reliant on home deliveries, saw profits fall 29 percent as the costs of keeping open during the crisis increased.

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Over the last few weeks, disappointing earnings announcements sent share prices down 1 percent on average. (That’s far less than the nearly 3 percent drop stocks suffered on average after falling short of expectations in recent years, according to research from the data provider FactSet.)

Close observers of stocks won’t be surprised. After all, market sentiment has grown increasingly detached from the abysmal outlook for economic growth, another supposedly fundamental building block of market prices. Instead, stocks have climbed even as the consensus expectation among Wall Street economists forecasts a 30 percent annualized rate of decline for gross domestic product this quarter, according to FactSet.

Plenty of explanations have been offered to help explain the market’s blasé approach to a bleak reality facing corporate America. Some say the bad economic news was already priced in during the March collapse. Others argue that markets are simply “discounting” — that is basically betting — that the U.S. will enjoy a V-shaped, or robust, economic recovery. Another argument is that investors, who tend to be forward-looking, are simply setting their sights on a future where the pandemic is a distant memory.


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  • Frequently Asked Questions and Advice

    Updated May 27, 2020

    • What are the symptoms of coronavirus?

      Common symptoms include fever, a dry cough, fatigue and difficulty breathing or shortness of breath. Some of these symptoms overlap with those of the flu, making detection difficult, but runny noses and stuffy sinuses are less common. The C.D.C. has also added chills, muscle pain, sore throat, headache and a new loss of the sense of taste or smell as symptoms to look out for. Most people fall ill five to seven days after exposure, but symptoms may appear in as few as two days or as many as 14 days.

    • How can I protect myself while flying?

      If air travel is unavoidable, there are some steps you can take to protect yourself. Most important: Wash your hands often, and stop touching your face. If possible, choose a window seat. A study from Emory University found that during flu season, the safest place to sit on a plane is by a window, as people sitting in window seats had less contact with potentially sick people. Disinfect hard surfaces. When you get to your seat and your hands are clean, use disinfecting wipes to clean the hard surfaces at your seat like the head and arm rest, the seatbelt buckle, the remote, screen, seat back pocket and the tray table. If the seat is hard and nonporous or leather or pleather, you can wipe that down, too. (Using wipes on upholstered seats could lead to a wet seat and spreading of germs rather than killing them.)

    • How many people have lost their jobs due to coronavirus in the U.S.?

      Over 38 million people have filed for unemployment since March. One in five who were working in February reported losing a job or being furloughed in March or the beginning of April, data from a Federal Reserve survey released on May 14 showed, and that pain was highly concentrated among low earners. Fully 39 percent of former workers living in a household earning $40,000 or less lost work, compared with 13 percent in those making more than $100,000, a Fed official said.

    • Is ‘Covid toe’ a symptom of the disease?

      There is an uptick in people reporting symptoms of chilblains, which are painful red or purple lesions that typically appear in the winter on fingers or toes. The lesions are emerging as yet another symptom of infection with the new coronavirus. Chilblains are caused by inflammation in small blood vessels in reaction to cold or damp conditions, but they are usually common in the coldest winter months. Federal health officials do not include toe lesions in the list of coronavirus symptoms, but some dermatologists are pushing for a change, saying so-called Covid toe should be sufficient grounds for testing.

    • Should I wear a mask?

      The C.D.C. has recommended that all Americans wear cloth masks if they go out in public. This is a shift in federal guidance reflecting new concerns that the coronavirus is being spread by infected people who have no symptoms. Until now, the C.D.C., like the W.H.O., has advised that ordinary people don’t need to wear masks unless they are sick and coughing. Part of the reason was to preserve medical-grade masks for health care workers who desperately need them at a time when they are in continuously short supply. Masks don’t replace hand washing and social distancing.

    • What should I do if I feel sick?

      If you’ve been exposed to the coronavirus or think you have, and have a fever or symptoms like a cough or difficulty breathing, call a doctor. They should give you advice on whether you should be tested, how to get tested, and how to seek medical treatment without potentially infecting or exposing others.

    • How can I help?

      Charity Navigator, which evaluates charities using a numbers-based system, has a running list of nonprofits working in communities affected by the outbreak. You can give blood through the American Red Cross, and World Central Kitchen has stepped in to distribute meals in major cities.


The most powerful reason is simpler: It’s the actions of the Federal Reserve.

Since March 23 — the day the stock market rally began — the Fed has done its best to ensure that the returns on bonds are quite low by signaling its willingness to buy unlimited quantities of Treasury and government-backed mortgage bonds. It has also ventured into buying corporate bonds, which helped push yields on such bonds lower too. The goal, in part, is to push investors away from the safety of the bond markets and into riskier assets, like stocks.

In a recent note, analysts at JPMorgan argued that these programs by the Fed “likely has a bigger positive impact on equity valuation, compared with the negative impact of the temporary earnings loss.”

Translation: The Fed’s efforts to keep interest rates and bond yields low has more than offset the collapse in profits for S&P 500 companies, helping to keep the market aloft even though corporate profitability and the economy look like they will be gloomy for a while.

A similar thing happened during the last financial crisis. Interest rates and bond yields fell to low levels that would have been unthinkable previously, which many partly attributed to central bank actions. And for the years that followed prices of assets such as stocks, bonds and real estate all rallied to levels that looked high relative to the sluggish level of economic activity after the crisis.

So while corporate profits are supposed to be the fuel that revs the stock market’s engine, in the short term, Federal Reserve policy remains in the driver’s seat. That explains why investors are willing to ignore what analysts have to say, at least for the moment.

Real Estate, and Personal Injury Lawyers. Contact us at: https://westlakelegal.com 

WeWork Wants a Rent Break. Its Customers Do, Too.

WeWork, the office space giant that was struggling even before the coronavirus shut down much of the economy, is asking landlords for a break on its huge rent bill as it tries to survive the pandemic.

Some of the company’s small-business customers are also seeking relief on the rent they owe. But they say WeWork has been unwilling to cut them much slack as they grapple with plunging revenues and stay-at-home orders that prevent them from using the company’s sleek spaces.

Klint Briney, who runs a marketing company in Los Angeles, was disappointed that WeWork only offered to defer one month’s rent. Because much of his business comes from live events, his revenue is a fraction of what it was a year ago.

“Something that was a legitimate offer, I certainly would have entertained,” he said. “What they offered was a slap in the face.”

So, Mr. Briney is doing to WeWork what the company is doing to some of its landlords: He is not paying rent for April and May.

The tension between WeWork, its landlords and its customers highlights the problems gripping the market for office space, a huge part of the economies of big cities. In the coming months, many tenants will be unable or unwilling to pay their rent. And landlords will have to decide whether to grant them relief, wait for them to make good on their arrears or seek to evict them. Banks and investors who lent money to property owners will face similar choices.

WeWork is a huge tenant — the largest private renter of New York office space — and has thousands of its own tenants. The company rents space to freelancers, start-ups, small businesses and large companies like Amazon. If it provided significant relief to its customers, it could help a crucial segment of the economy bear the costs of the pandemic and lockdowns.

But WeWork may not be in a position to be generous.

The company nearly collapsed last year after investors balked at buying its shares in an initial public offering — and it is still burning through cash.

SoftBank, the Japanese conglomerate that had fueled WeWork’s rapid growth, rescued the company and promised to keep plowing new money into the company. But SoftBank, which on Monday reported a $12.7 billion loss in the fiscal year that ended March 31, may no longer have the appetite to be WeWork’s financial savior. It has walked away from an offer to buy up to $3 billion of stock from existing shareholders, including Adam Neumann, WeWork’s co-founder. That move that allows SoftBank to withhold $1.1 billion of debt financing from the company.

Masayoshi Son, SoftBank’s chief executive, seemed to take a dim view of WeWork’s prospects on a call with analysts and investors on Monday. Speaking through an interpreter, Mr. Son said some companies in which SoftBank had invested had a good chance of “going through” the coronavirus crisis but said WeWork was an “exception.” He suggested that businesses might be reluctant to sign long-term office leases after the pandemic and might instead opt for shorter-term agreements at WeWork locations.

But a SoftBank executive who serves as WeWork’s executive chairman, Marcelo Claure, said later on Twitter that SoftBank and Mr. Son were confident of the company’s ability to weather the pandemic.

WeWork may have advantages, including leverage to get better deals from property owners. The company occupies so much space that some building owners would be hard pressed to find other renters if WeWork left, especially in the next several months.

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“We’ve paid our rent in over 80 percent of our locations in April and May,” Mr. Mathrani told CNBC. “We’re in discussions with our landlords in a friendly way and we intend to make whole on our entire obligation.”

WeWork has said it is overhauling its spaces in response to the pandemic. It is spacing out customers more. And Mr. Mathrani told CNBC that demand for WeWork’s office space could increase if more companies decide they need room to spread out their employees.

But WeWork’s reputation could suffer if many customers think it did not live up to its ideals. Mr. Neumann and other executives have long argued that WeWork is far more than a provider of office space. Its locations, so the pitch went, offer customers a place to form supportive communities that will promote entrepreneurship and give work meaning. That’s why some customers expected WeWork to cut or waive rents while they have been forbidden by local officials to go to offices.

ImageWestlake Legal Group merlin_172522293_705abc26-8f81-4ce5-a5c0-85222f2488b8-articleLarge WeWork Wants a Rent Break. Its Customers Do, Too. WeWork Companies Inc Stocks and Bonds SOFTBANK Corporation Shutdowns (Institutional) Renting and Leasing (Real Estate) Real Estate (Commercial) Neumann, Adam Landlords Coronavirus (2019-nCoV) Company Reports Co-Working
Credit…Kholood Eid for The New York Times

Stacey Brook helps advise high school students on writing essays for college admissions. She ran her business, which is not considered an essential service, out of a small office at a WeWork in Manhattan when New York told people to stay at home. The uncertainty over college attendance has reduced demand for her service. In addition, her partner takes medicine that suppresses his immune system, making him particularly vulnerable to the coronavirus.

As a result, Ms. Brook wanted to end her rental agreement. WeWork offered to defer one month’s rent, but told her that if she broke the contract, she’d owe nearly $19,000 for the remaining 12 months.

“We understand the contract breakage fee is substantial and doesn’t help ease the stress of the global pandemic — please bear with us during this time as we work to come up with the best solutions for our members,” a WeWork employee wrote to Ms. Brook.

Ms. Brook said she felt that WeWork had fallen short of its values, particularly its claim that it helps small businesses. “We are operating with much less room for error than the company that houses us,” she said. “It’s infuriating.”

Mr. Mathrani, speaking to CNBC, said WeWork had collected “over 70 percent” of April rents. WeWork declined to say how many customers had been granted a deferral or some other relief.

“WeWork has been working closely with individual member businesses to offer mutually beneficial solutions, and ultimately has been able to provide concessions to an overwhelming majority of those that have requested one,” the company said in a statement.

But a lawyer representing 80 WeWork customers, including Ms. Brook, says the pandemic and the lockdowns provide legal grounds for freeing customers from their contracts. The lawyer, Jim Walden, a managing partner of Walden Macht & Haran, is pressing WeWork to stop charging members monthly fees. He has asserted that WeWork’s customers can get out of their agreements under a provision of New York state law that says an event that is “virtually cataclysmic” and “wholly unforeseeable” renders the contract void.

Mr. Briney, the owner of the marketing company in Los Angeles, said he hadn’t made recent payments because he was hoping that WeWork might offer more than a deferral of one month’s rent. “It is widely known that WeWork is skipping rent payments on its buildings,” he said, “They are a global company and using that leverage. Why not pass that down to the fabric of who rents from you?”

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The Results Are In for the Sharing Economy. They Are Ugly.

OAKLAND, Calif. — The coronavirus pandemic has gutted the so-called sharing economy. Its most valuable companies, which started the year by promising that they would soon become profitable, now say consumer demand has all but vanished.

It is not likely to return anytime soon.

In earnings reports this week, Uber and Lyft disclosed the depth of the pandemic’s financial damage. The companies said their ride-hailing businesses all but collapsed in March, the last month of the first quarter, as shelter-in-place orders spread through Europe and the United States.

The red ink extends beyond ride hailing. The home-sharing company Airbnb, which investors valued at $31 billion, had planned to go public this year. Instead, its business has been battered by the virus. The company has slashed costs, raised emergency funding, and on Tuesday, it laid off 1,900 employees, about 25 percent of its staff. It also reduced its revenue forecast for this year to half of what it brought in last year.

“While we know Airbnb’s business will fully recover, the changes it will undergo are not temporary or short-lived,” Brian Chesky, Airbnb’s chief executive, wrote in a memo to employees.

The companies, founded on the notion that they should become as big as possible as quickly as possible and worry about making a profit somewhere down the line, now face an uncertain future. And their timelines for turning a profit appear — for now — to have been tossed aside.

Even when people return to the office and start traveling, the pandemic could change how they behave for years to come. Thirty percent of gig economy revenue could disappear over the next one to two years, with a portion of it unlikely to return, said Daniel Ives, managing director of equity research at Wedbush Securities.

“Based on our analysis of the gig economy and the overall pie of consumers, unfortunately, there’s a slice that — until there’s a vaccine — will not get in a ride-sharing vehicle or use an Airbnb,” Mr. Ives said.

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On Tuesday, there was another threat to Uber and Lyft: California’s attorney general sued the companies, claiming that they misclassified their drivers as independent contractors. If the lawsuit is successful, the companies could face hundreds of millions of dollars in civil penalties and back wages for drivers.

Airbnb faces a different challenge. How will hosts — most of them offering rentals as a side business — deal with virus safety? In an effort to bolster confidence in its listings, the company announced a set of new cleaning standards for its rentals in April. Guests can also opt for a 72- or 24-hour vacancy period before they enter.

There is not much to look forward to in the current quarter for the companies, according to financial analysts. Mr. Ives said he expected Uber’s revenue to contract 69 percent and Lyft’s 66 percent during the period, which covers April through June.

Lyft said rides on its service fell nearly 80 percent in late March and remained down 75 percent in mid-April. In May, passengers began to return cautiously to Lyft, but rides were still down 70 percent, Lyft executives said on a Wednesday earnings call with financial analysts.

If passengers continued to stay away from the service at similar rates, Lyft predicted it would lose nearly $360 million on an adjusted basis, which excludes stock-based compensation and other expenses, during the current quarter. Its adjusted loss in the first quarter was $97.4 million.

“These are the hard truths we’re facing,” Logan Green, Lyft’s chief executive, said on Wednesday. In late April, Lyft laid off 17 percent of its employees. Executives took a 30 percent pay cut and employee pay was trimmed 10 percent.

On Thursday, Uber said revenue in the first quarter grew 14 percent compared to the same quarter last year, but the company’s losses ballooned 190 percent. That deficit was largely driven by a $2.1 billion loss caused by its investments in international ride-hailing businesses like Grab and Didi that are also experiencing low demand because of the virus.

“We have taken quick action to preserve the strength of our balance sheet, focus additional resources on Uber Eats, and prepare us for any recovery scenario,” said Dara Khosrowshahi, Uber’s chief executive. “Along with the surge in food delivery, we are encouraged by the early signs we are seeing in markets that are beginning to open back up.”

Uber laid off 14 percent of its employees on Wednesday as it cut 3,700 people from its recruiting and customer service organizations.

Mr. Khosrowshahi will not take a salary for the rest of the year. He said in an email to remaining employees, seen by The New York Times, that the company continued to look for ways to cut costs and may eliminate more jobs over the next two weeks.

ImageWestlake Legal Group 07virus-share2-articleLarge The Results Are In for the Sharing Economy. They Are Ugly. Uber Technologies Inc Uber Eats Lyft Inc limebike Layoffs and Job Reductions Khosrowshahi, Dara Green, Logan Coronavirus (2019-nCoV) Company Reports Chesky, Brian airbnb
Credit…Tomohiro Ohsumi/Getty Images

While Uber Eats, its food delivery service, has experienced increased demand and restaurant sign-ups in some markets, the company also shut down Uber Eats in several international markets where it had been burning cash and laid off 50 employees from that division.

Its bike and scooter business is another weak point, and Uber invested $85 million in a competing service, Lime, that would allow it to offload its bikes and scooters while still offering Lime’s fleet in its app.

About 500 employees who work on Uber’s bike and scooter offerings could lose their jobs.

“Lime has indicated that they plan to offer interview opportunities to a few members of our team, while others will receive severance packages,” Dennis Cinelli, the head of Uber’s micromobility team, said in an email to employees that was seen by The New York Times.

Financial analysts expect the companies to begin to recover as consumers return to work. They are still sitting on a lot of money. Uber has $9 billion and Lyft has more than $2 billion. Before the virus, Airbnb had $3 billion in cash on its balance sheet; since then, it has raised $1 billion in funding and secured a $1 billion term loan.

Despite the downturn in business, Lyft’s stock was up more than 20 percent on Thursday as it exceeded investors’ expectations for revenue in the first quarter and reassured them with its layoffs last month that it would cut costs.

But investors still question the companies’ claims that they would become profitable as they tapped the $1.2 trillion Americans spend each year on transportation costs like car ownership and maintenance.

Although Uber and Lyft said they provided a preferable transportation option over public transit, some analysts worried that consumers would choose to drive their own vehicles rather than share a car with a ride-hail driver and risk spreading the virus.

“All investors are trying to figure out industries that the pandemic will permanently transform for the better or permanently transform for the worse,” said Tom White, a senior research analyst with the financial firm D.A. Davidson.

Kate Conger reported in Oakland and Erin Griffith reported in San Francisco.

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Boom in Canned Food Means a Boom in Cans, Too

The restaurants in downtown Hannibal, Mo., have been closed for weeks because of the coronavirus, but on the town’s western outskirts, its largest employer is buzzing.

The big General Mills plant that turns out cans of Progresso soup is still operating 24 hours a day, seven days a week, just as it was before the virus hit. It employs 1,000 people and is hiring to fill 50 openings.

“I drove by the other day and the parking lot was full of cars, trucks coming and going,” said James Hark, a manager of an auto-body shop and the mayor of Hannibal, the boyhood home of Mark Twain.

Someone has to make all those cans. The surge in demand for processed foods like canned soups and vegetables during the pandemic has rippled through the food industry’s supply chain. Makers of metal containers have had to speed up production to keep pace.

Take Silgan Holdings, a maker of metal and plastic containers for consumer goods with more than 50 plants across the country. The company, based in Stamford, Conn., reported record first-quarter earnings, in part because of a jump in demand for cans.

In a conference call, Silgan’s chief executive, Anthony J. Allott, said the company expected demand for canned goods to remain strong for some time since many people would continue to eat and entertain at home in the months ahead.

“Our order books are full,” he said.

Another big maker of food and beverage cans, Crown Holdings, went into the year planning to increase production in the United States, and the virus has only added urgency to the effort. Crown’s website lists 81 open production jobs at its 25 U.S. plants, some for a third production line being set up at a factory in Nichols, N.Y.

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“We can sell every can we can make,” said Thomas Fischer, Crown’s vice president for investor relations and corporate affairs.

Acquiring the metal hasn’t been a problem. Despite the tariffs the Trump administration placed on imported steel and other metals, steel prices have eased this year. Moreover, recycling provides can producers with a reliable source — about 71 percent of steel food containers are recycled, according to the Can Manufacturers Institute, a trade group.

ImageWestlake Legal Group merlin_172211115_8bf1c2dc-a1b3-435b-bf54-cf66e2412686-articleLarge Boom in Canned Food Means a Boom in Cans, Too United States Economy Supermarkets and Grocery Stores Soups Silgan Holdings Inc Shutdowns (Institutional) Labor and Jobs General Mills Inc Food Coronavirus (2019-nCoV) Containers and Packaging Consumer Behavior Company Reports Apex Tool Works
Credit…Tony Cenicola/The New York Times

Smaller suppliers are busy as well. In Rolling Meadows, Ill., about 25 miles northwest of Chicago, Apex Tool Works makes the machines and tools that produce metal cans and lids.

“We are actually swamped,” said Mike Collins, president of Apex, the company his family has run for 101 years. “The soup shelves are practically empty in the supermarkets, so our customers can’t make the stuff fast enough, and they’re running through their tooling very quickly.”

Mr. Collins said that he would like to add to his staff of 42, but that workers with the required machine and metalworking skills were difficult to come by. “It was like that even before the virus, so we haven’t hired in a while,” he said.

The food business is normally steady. But the surge in sales of canned and other packaged foods, when other transportation companies and vegetable producers have been knocked off stride by the virus, has forced manufacturers into a state of high alert.

In the four weeks that ended April 4, food sales at General Mills and Campbell Soup rose more than 60 percent, and Kraft Heinz, Kellogg, Flower Foods and others had jumps of 37 percent to 50 percent, according to Nielsen, a provider of data on consumer purchasing.

“Almost all our plants are running at capacity,” John Church, General Mills’ chief supply chain officer, said in an interview. The company has 25 plants in North America.

For years, sales of soups and other canned foods have been declining slowly, as Americans gravitated toward fresh produce and other options often seen as more nutritious. In 2017, General Mills closed a large Progresso soup plant in Vineland, N.J., and consolidated production of that product line in Hannibal.

Credit…Brendan McDermid/Reuters

But lockdown orders have made shoppers cut down on trips to the supermarket and stock up on long-lasting items. The food industry has a name for this type of consumer behavior — “pantry-loading.”

Jim Parr, a teacher in Framingham, Mass., is an example. Ordinarily, he said, if he buys a can of beans and a can of diced tomatoes to make chili, it’s a spur-of-the-moment decision while shopping. But recently, he stocked up.

“I got enough to last two weeks,” he said. “I can’t just drive out at any time to go to the store. The way it is now, you have to think ahead more.”

To meet demand, General Mills is in the unusual position of hiring during a pandemic, and not just in Hannibal. A plant in Wellston, Ohio — a town of fewer than 6,000 people — has 30 openings, a mix of entry-level and midcareer jobs.

At some locations, General Mills has recruited office workers to help staff factories now running around the clock. Over all, absenteeism hasn’t been a problem, Mr. Church said. Having confronted the virus in its plants in China, the company began screening workers and sanitizing plants in the United States early on to limit any spread of the virus in the workplace, he said.

Like General Mills, Campbell Soup has had a jump in demand for canned products. It has increased pay for production workers by $2 an hour to help its employees juggling work hours with new challenges of child care and stay-at-home orders.

General Mills has also set up a control center where executives can monitor operations hour by hour.

“We used to meet monthly to look at demand coming and where we are,” said Mr. Church, the supply chain officer. “Now we have that meeting every day, to consider all the factors in our supply chain and optimize the day because we’re using a lot more carrots, a lot more chicken.”

For now, the company has not run short of food ingredients, in part because demand from restaurants and other large food-service businesses has fallen as sales of packaged food have jumped, he said.

As a food producer, the company operates a highly sanitized workplace to begin with. But it is now cleaning its factories more frequently and has workers taking breaks in their cars or in conference rooms to maintain distance from one another. In its cafeterias, the rule is now only one chair per table.

At Apex, the tool maker in Illinois, Mr. Collins said the new realities of the workplace were adding stress. “You feel it with the unknown,” he said.

At his company, though, the arrival of spring weather has helped. “When we have a nice day, we open up the building to get the fresh air flowing,” Mr. Collins said. “That makes things a little more pleasant.”

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First Quarter Earnings Were Terrible, But Executives Offer Some Hope

Westlake Legal Group first-quarter-earnings-were-terrible-but-executives-offer-some-hope First Quarter Earnings Were Terrible, But Executives Offer Some Hope United States Economy Stocks and Bonds Starbucks Corporation Standard&Poor's 500-Stock Index Southwest Airlines Company McDonald's Corporation MasterCard Inc HCA Holdings Inc Corporations Coronavirus (2019-nCoV) Company Reports China
Westlake Legal Group 05virus-earning1-facebookJumbo First Quarter Earnings Were Terrible, But Executives Offer Some Hope United States Economy Stocks and Bonds Starbucks Corporation Standard&Poor's 500-Stock Index Southwest Airlines Company McDonald's Corporation MasterCard Inc HCA Holdings Inc Corporations Coronavirus (2019-nCoV) Company Reports China

Companies releasing first-quarter results in recent weeks have detailed how the coronavirus pandemic is crushing their business, and many have gone so far as to stop offering forecasts for the rest of the year, claiming the future is just too uncertain.

Still, that didn’t stop some companies from pointing to glimmers of hope. Some senior executives said that business in April was slightly better than in the dark days of March as the virus quickly spread, leading to the deaths of thousands of people in the United States. Others tentatively outlined what a post-pandemic recovery might look like by pointing to how things were going in China, where the pandemic started and has since ebbed.

These shreds of optimism may have been an exercise in corporate spin, meant to reassure shareholders — or to tell them something many investors already appear to believe. The stock market has rebounded 27 percent from its March low as investors have become confident that the Federal Reserve and the Treasury Department will prevent the economy from going into a tailspin.

Though the most recent earnings reports were pretty awful, stocks did not crater, in part because Wall Street is expecting earnings to bounce back quickly. While analysts at Goldman Sachs expect the combined profits of S&P 500 companies to fall by a third this year, they expect them to surge next year to a level that exceeds what the companies made in 2019.

Government statistics and independent analysts paint a more dire picture. Economists expect the April unemployment rate to have hit about 16 percent, one of the highest on record, and up from 4.4 percent in March. Most importantly, the chances of an economic resurgence rest largely on whether the coronavirus pandemic will be contained as lockdowns are relaxed and not flare up again.

It is important to keep in mind that large companies, through hiring and investment, play a big role in the economy. Once big companies like Google, Ford Motor and Apple are confident about a recovery, their spending could make it so.

“The overarching theme is uncertainty,” said David Lefkowitz, an equity strategist at UBS Wealth Management. “That said, most companies are thinking the economy will reopen in stages, and on a region-by-region basis.”

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Starbucks, for example, suspended its companywide profits forecast, but provided a bullish prediction about its business in China, where pandemic lockdowns are being lifted and nearly all its stores have reopened. The company says China could offer lessons about what might happen in the United States.

The coffee chain, which has long billed itself as a hub for social interactions, is expecting sales in China for the three months through the end of October — its fiscal fourth quarter — to be roughly in line with the same period in 2019. In the three months through the end of March, sales were down by half compared with the year-ago period. “We are leveraging our experience in China to inform our actions in other markets, including the U.S.,” Starbucks said in a statement.

Other executives are also seeing signs that customers want to get back to old habits. The chief executive of McDonald’s, Christopher J. Kempczinski, said there was a three-hour wait at one of its restaurants in France when it reopened. But overall, he sounded cautious on last week’s earnings call. “The exact trajectory of our recovery, however, is highly uncertain and dependent on many factors outside our control, such as government mandates, the risk of a second wave of infection to the availability of testing and the overall economic backdrop,” Mr. Kempczinski said.

He is hardly the only corporate executive who is unwilling or unable to predict when business will pick up.

Of the roughly 300 companies in the S&P 500 stock index that regularly provide an earnings forecast, 114 have not provided one for future profits, according to Savita Subramanian, an equity strategist at Bank of America Merrill Lynch. “A lot of corporates are using this as an opportunity to essentially go silent,” she said, “No one knows when we’re going to come back on line.”

Even Apple, one of the most profitable companies in the world, declined to provide a forecast.

Of course, for companies in the hardest-hit industries like airlines and logistics, the downturn could last a while and sales will not quickly snap back. “Historically, it has taken years, typically five or more, for business travel to recover,” Gary C. Kelly, chief executive of Southwest Airlines, said last week. Southwest was one of the companies that did not provide an earnings projection. Stock analysts expect the company to lose $3.86 per share this year, a sharp swing from a profit of $4.27 per share last year.

And FedEx might not report profits that match its 2019 haul until 2024, according to analysts that cover the package delivery giant. This would not be without precedent. After the financial crisis, Fedex’s earnings took seven years to return to their pre-2008 level. Unsurprisingly, FedEx has also stopped providing an earnings forecast.

In tough times, companies, hoping to conserve cash and shore up profit margins, cut spending in ways that can weigh on the economy. Ford has been doing that in China, including laying off thousands of workers. “The stark reality of a protracted global shutdown of our sector and our vertical has forced a laser focus on cost and liquidity,” James D. Farley, Ford’s chief operating officer, said last week. “And just as we did in China, we have ratcheted down spending across the board, both fixed and variable.”

Even Google, which has done relatively well during the pandemic, said it was paring the pace of its hiring.

Spending on new plants, buildings and technology, which can give a big lift to other parts of the economy, is another budget item that is getting chopped — even at technology companies that are profitable and have tens of billions of dollars in the bank. ­Facebook said last week that it expected capital expenditures this year of $14 billion to $16 billion, down from an earlier forecast of $17 billion to $19 billion.

Still, one promising sign highlighted by some executives is that the economy might quickly hit bottom, or may already have done so. In other words, things are bad but they don’t seem to be getting worse.

Mastercard, for example, said that U.S. transaction volume in the week ended April 21 was down 15 percent from the same period in 2019. Ordinarily that would be considered disastrous but it was an improvement from the 26 percent decline the week before.

“We believe we are currently in the stabilization phase in most markets,” said Ajay S. Banga, Mastercard’s chief executive, said last week.

Even companies in the health care sector, which is playing a central role in the pandemic, are hoping that conditions will return to normal in the coming weeks.

The pandemic has weighed on HCA, which operates over 300 hospitals and surgery centers. Many of them are in Texas and Florida, which have begun to open up. The company has said that elective surgeries, generally more profitable than other types of care, have been put on hold. But HCA’s chief executive, Samuel N. Hazen, told investors last month that its “reboot phase” would be finished across most of its operations by the end of June, and said the company is taking steps to make sure patients feel safe in hospitals, clinics and other health care facilities.

When asked by an analyst during a conference call, Mr. Hazen seemed upbeat about the loosening of lockdowns. “We’re excited about the reopening in Texas,” he said. “We’re excited about Tennessee, and we anticipate other states starting to relax some of these procedures and policies.”

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Berkshire Hathaway Lost $49.7 Billion in First Quarter Stung by Coronavirus

Westlake Legal Group 02BERKSHIRE01-facebookJumbo Berkshire Hathaway Lost $49.7 Billion in First Quarter Stung by Coronavirus Coronavirus (2019-nCoV) Company Reports Buffett, Warren E Berkshire Hathaway Inc

Warren E. Buffett’s Berkshire Hathaway swung to a $49.7 billion loss in the first quarter, the conglomerate reported on Saturday, reflecting the toll that the coronavirus has inflicted on one of America’s best-known investors.

The loss — compared with a $21.7 billion profit during the same quarter a year ago — was driven by the pandemic’s hits to its vast array of investments and operating businesses, which expose it to huge swaths of an American economy battered by the pandemic.

That portfolio includes stakes in financial firms like Bank of America and American Express, both of which reported steep drops in earnings for the first quarter, and four of the biggest U.S. airlines. (In its regulatory filing disclosing its quarterly results, however, Berkshire said that paper gains or losses on its investments “are often meaningless” in understanding its overall health.)

The release comes ahead of Berkshire’s first-ever online-only annual shareholder meeting. It is a change, made necessary by the pandemic, to an event that usually draws tens of thousands of investors to an arena in Omaha to listen to Mr. Buffett expound on the state of capitalism, business, politics and much more.

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Chinese Coffee Chain’s Scandal Renews U.S. Calls for Oversight

Westlake Legal Group 29China-scandal-1-facebookJumbo Chinese Coffee Chain’s Scandal Renews U.S. Calls for Oversight Venture Capital United States Politics and Government United States Economy Stocks and Bonds Securities and Commodities Violations Rubio, Marco Pensions and Retirement Plans Nasdaq Stock Market Luckin Coffee Law and Legislation International Trade and World Market Frauds and Swindling Company Reports Communist Party of China Coffeehouses China Accounting and Accountants

HONG KONG — Luckin Coffee had an audacious goal: take on Starbucks in China. Last year, unprofitable, burning through cash and not even two years old, it went to Wall Street to raise over half a billion dollars. Just a few months ago, it was valued at $12 billion.

The one-time darling has now imploded spectacularly in an accounting fraud that has roiled China, a cautionary tale that has renewed a push in the United States to cut Chinese companies off from Wall Street.

Lawmakers from both parties say Chinese companies do not play by the same rules, adding to rising tensions between Washington and Beijing. And Luckin, which disclosed this month that it had fabricated most of its 2019 revenue, is also resurfacing frustrations from American regulators over the ability to prosecute Chinese companies often given cover by Chinese officials who cite the need to protect state secrets.

“The Luckin Coffee scandal is just one of many examples of Chinese fraud, and it should be a major wake-up call for policymakers and regulators that the time for action is now,” said Senator Marco Rubio, Republican of Florida.

China’s most powerful regulator has announced an investigation, and it made an unusual public statement to say it would work with Washington. Former regulatory officials and lawyers have expressed skepticism that China’s investigation of Luckin Coffee is anything more than perfunctory.

The country’s moves have failed to ease American lawmakers’ broader concerns and have added to the risk of further clashes over financial relations.

“If Chinese companies want access to the U.S. capital markets, they must comply with American laws and regulations for financial transparency and accountability,” said Mr. Rubio, who is pushing a bipartisan bill that would force Chinese companies to abide by federal auditing rules and disclosure requirements.

Soon after he and three other senators proposed the bill, known as the Equitable Act, last year, two Senate colleagues introduced a similar bill that also aims to mandate the delisting of foreign companies that fail to comply with auditing regulations.

White House national security officials say they have the same concerns, but some advisers to President Trump who encourage trade with China and have close ties to Wall Street firms have tried to downplay the issues. The same split occurs over many other policy debates on China.

Congressional aides said that federal regulators had tried to grapple with Chinese companies’ lack of transparency, with little success. A law could help, they said.

Mr. Trump’s trade war with China has already set in motion some efforts to decouple the world’s two biggest economies. Some supply chains are shifting out of China. Access to critical technology is being limited. And American lawmakers from both parties have discussed other legislation that would make it harder for Americans and their pension funds to invest in Chinese companies.

“There is no question that the lack of transparency and opacity by many Chinese companies, including as it relates to ownership structure and company ties to the Chinese Communist Party, create real and material risk for U.S. investors and for our capital markets,” said Senator Robert Menendez, Democrat of New Jersey, a co-sponsor of the bill with Mr. Rubio.

The Luckin scandal has given American lawmakers a prominent example as they make their case.

When it asked stock investors in America to back it last year, Luckin was an unprofitable start-up that handed out cash and aggressive subsidies to its customers. It promised to overtake Starbucks with its smartphone app for coffee delivery, thousands of stores and nearly 17 million customers, which it attracted by aggressively doling out coupons for Luckin drink products.

Investors were so enthusiastic that they sent its shares jumping 20 percent on its first day of trading on the Nasdaq and the company raised some $645 million. Big names like BlackRock, the world’s largest asset manager, and Singapore’s sovereign wealth fund quietly invested large sums. Venture capitalists sang its praises.

Even when some market watchers began to warn that Luckin’s rosy outlook and revenue growth did not seem right, the stock kept soaring. In January, Luckin executives raised over a billion dollars through a secondary share issue and stock-like bonds. By then the market was valuing the company at $12 billion

Around the same time, an investor, Carson Block, published an investigative report by an anonymous author that accused Luckin of fraud. A number of skeptical investors like him took positions to bet against its stock.

Then, in April, those predictions came to bear. The company said an internal investigation had discovered that a top executive and other employees had fabricated some $310 million worth of transactions over 2019. In a day, some $5 billion was shaved off the company’s market value. Louis Dreyfus, one of the world’s biggest commodities traders, and other powerful investors lost millions.

Nasdaq, the New York-based exchange, announced it was halting trading in Luckin shares until the company answered its questions.

A spokesman for Luckin declined to comment.

The test now will be whether the S.E.C. can conduct its own investigation, with access to corporate documents and executives.

The China Securities Regulatory Commission, the market regulator, has pledged to investigate. Over the weekend officials from the State Administration for Market Regulation raided the offices of Luckin executives.

The commission in China this week did what many in the international regulatory community thought unthinkable: It said publicly that it would cooperate with the S.E.C.

The regulator also said that it already cooperates with the Public Company Accounting Oversight Board, or PCAOB, a nonprofit auditing corporation created by U.S. legislation in 2002. The group, it said, had been invited on several occasions since 2018 to join inspections of accounting firms, coincidentally the most recent on April 3, the day after Luckin made its disclosure.

American regulators, though, warn of the opposite.

Last week, Jay Clayton, the chairman of the S.E.C., said his agency was effectively powerless to investigate corporate skulduggery because of China’s lack of assistance. In 2018, the S.E.C. and the oversight board complained that they faced “significant challenges” in overseeing the financial reports for U.S.-listed companies based in China.

Judith Burns, a spokeswoman for the S.E.C., declined to comment.

The recent statement from the Chinese commission is being read in different ways.

Eric J. Pan, managing director of Rock Creek Global Advisors and former head of International Regulatory Policy at the S.E.C. said he interpreted it as “a pre-emptory defense against expected criticism,” of the Chinese regulator.

“The C.S.R.C. basically is saying that it is doing everything properly, and it is the PCAOB that is acting unreasonably,” Mr. Pan said.

To some, it was an indication that China may be worried about the impact of the scandal on its domestic stock market and the reputation of Chinese companies.

“It will have an impact on Chinese companies who do things properly when they try to raise capital in U.S. stocks,” said Zhang Yifan, a private equity investor at Commando Capital, an investment fund in China.

“It will indeed lead to a very serious crisis of trust. It will take years to ease,” Mr. Zhang said.

In Washington, Republican operatives and politicians say they intend to keep the spotlight on China as the November election approaches, in part to paper over the deep failures of the Trump administration in addressing the coronavirus pandemic.

That could give an opening for lawmakers from both parties to move forward with the bills aimed at forcing Chinese companies to be more transparent or risk being delisted.

In February 2019, the U.S.-China Economic and Security Review Commission released a report with a complete list of all Chinese companies on the three largest U.S. stock exchanges. As of Feb. 25 of that year, there were 156 companies on the exchanges with a collective market value of $1.2 trillion, the report said. At least 11 were state-owned companies.

A significant number had denied access to information sought by the accounting oversight board, the commission found.

Some Washington policy experts doubt the U.S. government will be able to take meaningful action against opaque Chinese companies. Michael Pillsbury, an informal China adviser to Mr. Trump, said the S.E.C. often makes the logical argument that Chinese companies would simply choose to list on exchanges in other countries.

“It’s in the tool kit of the means of punishing China,” he said. “But you can’t just to do it out of the blue. It’s not a finely calibrated strategy.”

Cao Li contributed reporting from Hong Kong.

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Boeing, Expecting a Long Slump, Will Cut 16,000 Jobs

Westlake Legal Group 29virus-markets-briefing-boeing-facebookJumbo Boeing, Expecting a Long Slump, Will Cut 16,000 Jobs washington state Shutdowns (Institutional) Layoffs and Job Reductions International Trade and World Market Coronavirus (2019-nCoV) Company Reports Calhoun, David L Boeing Company Boeing 737 Max Groundings and Safety Concerns (2019) Airlines and Airplanes

The breathtaking slowdown in global aviation is taking a huge toll on Boeing, which said on Wednesday that it would slash about 16,000 jobs after reporting that revenue tumbled by 26 percent in the first three months of the year.

“The global pandemic has changed the way we live and work,” said Boeing’s chief executive, David L. Calhoun, in a note to staff. “It is changing our industry. We are facing utterly unexpected challenges.”

Airlines around the world are trying to stay alive, with losses expected to total more than $300 billion by year’s end, according to an industry trade group. As a result, many carriers are delaying purchases, deliveries and maintenance.

Boeing said it was slowing aircraft production, including for the troubled 737 Max, the 787, 777 and 777x. The company is also exploring ways to raise more capital, either from the federal government or financial markets. The job cuts, about 10 percent of Boeing’s staff, will be even steeper for those employed in the divisions most exposed to the downturn, the commercial airplanes and services businesses. Those units will see staff cuts of about 15 percent.

“I know this news is a blow during an already challenging time,” Mr. Calhoun said in the note. “I regret the impact this will have on many of you. I sincerely wish there were some other way.”

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Boeing reported a net loss of $641 million in the first quarter, compared to $2.1 billion profit a year earlier.

The company has said that it does not expect air travel to recover to levels reached before the pandemic for three years and that it would likely take several years more for travel to return to its previous long-term growth rate.

Boeing’s commercial aircraft business was especially hard hit in the first quarter by the grounding of the Max and the pandemic, with revenues for that business down nearly 50 percent to $6.2 billion in the first quarter compared to the same period last year. Total revenue dropped to $16.9 billion. The company received just 49 new orders and had 196 cancellations between January and March.

On Tuesday, Southwest Airlines said it has been negotiating a reduction in the number of 737 Max jets it will accept this year. Southwest said it would now receive no more than 48 Max jets by the end of 2021, instead of the 107 it had previously expected to take.

Boeing said it hopes to reach its job cut targets through voluntary means, including buyouts and early retirement offers. Employees who take the buyout will receive three months of health care and one week of pay for every year they have worked at Boeing, up to 26 years, the company told workers last week. Employees have until Monday to signal their interest in buyouts. If approved, they would leave in early June.

Any cuts are likely to be disproportionately focused on Boeing’s facilities in Washington State and South Carolina, home to its three major commercial aircraft manufacturing facilities. A weekslong shutdown of operations at those facilities disrupted production of passenger planes, but also affected Boeing’s defense and space business.

While Boeing itself is struggling to manage the effect of the pandemic, the company this week also expressed concern for the health of its suppliers, who receive about 70 percent of the company’s revenues.

“Currently, our team is focused on the best ways to keep liquidity flowing through our industry and to our supply chain until our customers are buying airplanes and related services again,” Mr. Calhoun told shareholders on Monday.

To that end, the company has taken out a loan, cut costs and suspended dividend payments and stock buybacks, he said. Boeing has $15.5 billion in cash on hand, but plans to raise more capital soon. In an interview on CNBC on Wednesday, Mr. Calhoun did not specify whether some of that would be in the form of federal aid.

On Wednesday, Boeing also said that it had suffered more than $2 billion in one-off costs in the first quarter.

A slower than expected ramp up in production of the 737 Max, which was grounded last year after two fatal crashes, subtracted about $1 billion from its bottom line. And the company incurred a pretax charge of $827 million for the KC-46A Tanker, most of it stemming from repairs Boeing agreed to make this month following discussions with the U.S. Air Force.

The company took a $336 million charge for repairs on the 737 Next Generation aircraft and the four-week suspension of work at Boeing’s facilities in Washington State cost the company about $137 million.

Over the weekend, Boeing also announced that it was terminating its $4.2 billion deal to buy an 80 percent stake of Embraer’s commercial jet business. Embraer is contesting that move and said Monday it had begun arbitration proceedings.

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Can Investors Trust the Stock Market Rally?

Westlake Legal Group 20virus-bottom-facebookJumbo Can Investors Trust the Stock Market Rally? United States Economy Stocks and Bonds Standard&Poor's 500-Stock Index Demonstrations, Protests and Riots Coronavirus (2019-nCoV) Company Reports

Less than a month ago, the stock market was in free fall, as a torrent of bad news about the coronavirus pandemic and its economic fallout drove investors to dump stocks. Just as swiftly, the market has rebounded, even as millions of people lose their jobs every week and the country is destined for a recession.

Can the rally be trusted?

The word on Wall Street is a tentative yes. More people are embracing the idea that stocks have “bottomed” — investor parlance for the lowest the market will go — and won’t fall below the depths they reached on March 23, when the S&P 500 stock index was 34 percent below its high from just over a month earlier.

Don’t celebrate just yet: Even if they don’t anticipate another sharp plunge, most observers hardly expect the market to soar, either. Investors who are wading back into the water are getting confusing signals: Quarterly earnings are shrinking and corporate reports provide few clues about the future, while rising stock prices are hard to square with the mounting toll of an unprecedented economic collapse.

What’s more, the combination of rising shares and reduced profits is making the market looking incredibly expensive, according to a metric widely used by investors to value the market, the price-to-earnings ratio.

“Right now you’re kind of in this no man’s land, purgatory,” said Brian Belski, chief investment strategist with BMO Capital Markets. “Earnings aren’t going to give you the answer. The economy’s certainly not going to give you the answer. They’re byproducts of the pandemic.”

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If there’s one thing analysts and investors agree on, it’s that neither the optimists nor the pessimists are firmly in control of the market’s direction at the moment. That’s because the path of the coronavirus crisis is impossible to predict.

Initially, as the outbreak spread across the country, forcing local governments to shut down economies and people to stay at home, the market’s reaction was unanimous. Starting in late-February, trading turned highly volatile, leading the S&P 500 to its steepest drop into a bear market since 1933. By the time the market hit what many now believe was rock bottom on March 23, the plunge had incinerated almost $10 trillion in wealth and ended an 11-year bull run.

Just as suddenly, stocks staged an about-face in the last week of March, after the Federal Reserve announced plans to pump trillions of dollars of new money into the markets and Congress passed a $2 trillion economic rescue package. The announcements — along with some signs of early success in “flattening the curve” of the outbreak in New York — set off a remarkable rally of more than 25 percent, catching many investors off-guard and helping the S&P 500 reclaim more than half its previous losses.

In recent days, though, stocks have settled into a middle zone: far from the low levels that clearly signaled a bear market, but not conclusively blossoming into a new bull market either.

“You could almost argue that we’re in a bull market and a bear market at the same time,” said Eddie Perkin, the chief equity investment officer at Eaton Vance, a Boston-based money manager.

On Monday, stocks were down more than 1 percent in early trading, led by a sell-off in energy shares.

While investors might be tempted to buy stocks now, before the market starts surging higher, many of them are torn. That’s because the recent stock market rally combined with the ongoing the pandemic has pushed price-to-earnings ratios incredibly high. It’s no overstatement to say the market is currently the most highly valued it has been in almost two decades, just as the country plummets into what’s expected to be the deepest recession since the Great Depression.

Typically, investors calculate a stock’s value by comparing the price of a share to its earnings. The higher the ratio, the more expensive the stock is considered. The calculation can be applied to all 500 companies in the index to assess whether the market as a whole is overvalued or undervalued.

When investors are optimistic about future earnings, they’re more willing to pay higher prices for expected earnings, generating a higher price-to-earnings ratio — sometimes just called the P/E ratio. When they’re pessimistic, they’re less likely to pay a lot for the earnings that have been forecast, in part because they’re skeptical those earnings will actually be produced. That typically results in a low P/E ratio.

When the market collapsed last month, P/E ratio plummeted. But it began rising in recent weeks, and could climb further if the market merely remains steady.

The reason: Public companies are beginning to report their first quarter results. Many will report drastically reduced earnings, with profit expectations for the rest of the year looking grim.

At the end of March, analysts were expecting earnings for S&P 500 companies to be down 10.5 percent in the second quarter, which ends in June. As of Friday, they had updated their expectations and now think profits will fall more than 25 percent, according to FactSet data.

With earnings shrinking and stock prices generally stable, the ratio between the two will rise, making stocks look more expensive and potentially making the market rally more precarious. (Highly valued markets often suffer some of the most violent pullbacks.)

That leaves investors in a state of limbo, watching a rally that is difficult to make sense of because of how bleak the future looks.

In other words, while the market is making money, it is churning out a lot of confusion too.

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Big Banks, Readying for a Recession, Set Aside Billions

Westlake Legal Group 14banks1-facebookJumbo Big Banks, Readying for a Recession, Set Aside Billions Wells Fargo&Company United States Economy Scharf, Charles W. JPMorgan Chase&Company Dimon, James Coronavirus (2019-nCoV) Company Reports Banking and Financial Institutions

The economic shutdown the coronavirus has caused has already forced millions of Americans out of work and threatened the future of thousands of small businesses, and the country’s biggest banks are bracing for the fallout.

JPMorgan Chase and Wells Fargo — which on Tuesday were the first two major banks to report earnings this quarter — set aside billions of dollars each for losses on loans to customers who may soon no longer have the means to repay them.

JPMorgan’s chief executive, Jamie Dimon, said the bank was preparing for “the likelihood of a fairly severe recession.”

JPMorgan, the country’s largest bank, estimated that it needed to add $6.8 billion to its reserves to prepare for impending defaults. Wells Fargo, the fourth largest, set aside $3.1 billion.

JPMorgan’s total reserves for losses now stand at $8.3 billion, while Wells Fargo has $4 billion set aside.

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“The actual level of losses we incur will be driven by how long this period lasts and the level of support the government provides,” Wells Fargo’s chief executive, Charles W. Scharf, said on a call to discuss the results with Wall Street analysts.

But the banks’ maneuvers to steel themselves for losses reflect their calculations that the $2 trillion economic relief bill, which includes direct payments to low-earning Americans as well as $349 billion in forgivable loans to small businesses, will not be enough to stave off widespread financial instability for everyday Americans and their employers.

JPMorgan’s reserves, for example, are now close to the levels the bank felt it was necessary to hold in the immediate aftermath of the 2008 financial crisis, which brought about the Great Recession.

The banks’ preparations hit their profits hard in the last quarter.

JPMorgan’s net income fell to $2.9 billion from $8.5 billion for the last quarter of 2019 and $9.2 billion for the same period a year earlier — with the bank’s new reserves essentially the difference. Wells Fargo reported a steep drop in profit to $653 million from $5.9 billion during the same period in 2019.

JPMorgan expected consumer loans — most of them credit cards — to lose $4.4 billion while commercial loans to businesses in real estate, retail and oil and gas could lose $2.4 billion, according to its estimates. And Wells Fargo said $1 billion of its potential losses could come from loans to consumers and small businesses.

The reserve-building activities spooked investors in both banks. Their stocks were trading more than 3 percent lower at midday, despite an overall increase in the values of the major stock indexes on Tuesday.

But there were some bright spots, particularly at JPMorgan.

The bank reported that revenue from trading things like foreign currencies, bonds and government debt rose 34 percent from a year earlier. Stock-trading revenue was 28 percent higher. Over all, revenue in the bank’s Wall Street markets division reached $7.4 billion, a record.

And there is Mr. Dimon’s health. Mr. Dimon underwent emergency heart surgery in March, but returned to work on April 2. He said the operation had not changed his outlook for his future; he said he felt good and under no pressure to retire.

“I’ve always liked working,” he said. “I think people having a purpose in life is a good thing.”

Both banks reported their corporate clients were pulling cash from the lines of credits they maintain to deal with the economic effects of the outbreak.

JPMorgan’s chief financial officer, Jennifer Piepszak, said on a call with reporters that corporate customers had taken cash out of their revolving credit lines at an unusually high rate. Mr. Dimon added that the rate was twice what it had been during the 2008 financial crisis.

“People got scared,” he said.

The bank also helped companies with good credit ratings raise more money through bond issues, Mr. Dimon said, adding that companies were piling up cash reserves to prepare for a long and slow journey out of the economic shutdown.

Both banks are participating in the government’s $349 billion small-business loan program. JPMorgan said it had distributed $9.3 billion so far to businesses employing a combined 700,000 people. And at Wells Fargo, the Federal Reserve temporarily lifted a growth restriction it had imposed on the bank over its fake-account scandal to allow it to make loans to its small-business customers.

But the banks’ preparations for personal and business customers who fall short of their obligations were a profound sign of the economic damage that the coronavirus had already done, even with the government interventions made so far. Both banks said they had started factoring the stimulus package into their economic forecasts as soon as it became law.

Wells Fargo made its loss estimates in part by looking at the bank’s performance during the 2008 crisis, said John Shrewsberry, the bank’s chief financial officer. And, he said, the bank always set aside more than it ends up charging off.

But, he said, the bank could set aside more soon, depending on how much worse conditions for everyday Americans become.

“If things play out substantially worse, it’s certainly possible that we end up building more reserves,” Mr. Shrewsberry said.

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