S&P 500 Worries Its Way Higher on More Record Jobless Claims: Darden’s New Dividend, Carmax Crash, United COVID Testing

The S&P 500 index (SNPINDEX:^GSPC) closed up 9.7 points, a modest 0.3% gain that belies how volatile the trading session was on Sept. 24. There were multiple periods in morning trading when the index was down, followed by a big midday run that sent stocks up over 1.2% just before 2 p.m. EDT. Yet by 3:30 p.m. EDT those positive gains were erased, and the index looked poised to close lower. But a late rally pulled stocks out of the red and kept the S&P 500 out of correction — meaning a 10% or more decline from a recent high — territory for at least one more day as individual stocks finished trading mostly mixed.

Between persistently high unemployment and surging coronavirus cases that have the economic recovery stalling, continued gridlock on support from Congress, and worries about the upcoming Presidential election, today’s mixed, volatile trading could prove the norm in the weeks and months ahead. Today’s biggest movers were restaurateur Darden Restaurants, Inc. (NYSE:DRI), with shares up 8% after starting its dividend back up, while shares of CarMax (NYSE:KMX) fell 11% after the company reported second-quarter earnings that were actually pretty good. 

Two hands, one with thumb up and one with thumb down.

Image source: Getty Images.

Economic, political uncertainty still holding the reins

The news driving the market today included another painfully high number of people filing for unemployment. Last week, 870,000 Americans filed for initial unemployment benefits, higher than economists were expecting and yet another week of record levels. Prior to 2020, there had never been a single week in U.S. history with as many as 700,000 unemployment filings; Since March, there hasn’t been a single week with less than 850,000. We are also fast approaching the point where the unemployment rate could start falling as workers exhaust their eligibility. Many states will only pay benefits for 26 weeks or less, and we are more than six months into the unemployment surge:

US Initial Claims for Unemployment Insurance Chart

US Initial Claims for Unemployment Insurance data by YCharts

With many state budgets tapped out, it’s going to take action from Congress to get economic support to the millions of people unemployed by service industry jobs that have yet to come back. Whether Democrats and Republicans can bridge their ideological chasm and reach a compromise before the Nov. 3 election remains to be seen. 

Diners coming back to Darden, so a dividend is coming back to investors

While sales are still well below 2019 levels, things are looking much better at Darden‘s Outback, Olive Garden, and other franchises. Earlier today, the company reported that sales have started to rebound enough that the company’s cash flows and balance sheet can support a dividend, after having to put the payout on pause in May. The plan is to pay investors $0.30 per share in November. 

That’s well below the $0.88 per share Darden sent shareholders in January, but it’s a step in the right direction. It gives beleaguered Darden investors — shares are still down 24% from the 2020 high — a reason to hold on and hold out for a full post-COVID recovery. 

Traffic jam? CarMax reports a good quarter, investors race for the exits

In a case of messed-up expectations, used car seller CarMax delivered a quarterly result that managed to both beat expectations and disappoint investors. The company said second-quarter revenue increased 3% and earnings per share shot 28% higher. Both were better than Wall Street analysts were predicting, and record levels for the company. 

So why the heavy selling? Most likely because investors weren’t happy that the company said it wasn’t going to rush to open new locations quickly but would open as many as 10 new stores in 2022, missing out on the opportunity to leverage its strong financial results and expand now. 

United Airlines to offer limited coronavirus testing

While the industry continues to struggle from a brutal drop in air travel demand, United Airlines (NASDAQ:UAL) announced it was going to start something that could be one of the only things to bring more people back to the skies. Earlier today, United announced that it would start offering COVID-19 tests for passengers flying from San Francisco to Hawaii in mid-October. The announcement comes after the state of Hawaii announced that people who present a negative test result within 72 hours of their travel would not have to quarantine for 14 days upon arrival to the state. 

Travelers will pay for the test, and the price has not been announced yet, but this is a step — if a very small one — toward a recovery for the industry. It’s likely to be well into 2021 before any of the leading vaccine candidates are likely to get regulatory approval, and it’s also going to take months for widespread COVID-19 testing to be commercially available for things like leisure travel. But United’s limited offering will be closely watched as both a test for how effective it is, and whether it puts enough travelers at ease to drive a further recovery for the struggling industry. 

Even with this move, United, like most of its peers, is likely to continue burning through cash for much of the rest of 2020, and possibly into next year. 

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