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Goldman Sachs, UnitedHealth Group beat Wall Street estimates in second quarter earnings report

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Yahoo Finance's Emily McCormick joins The First Trade with Brian Sozzi to discuss second quarter earnings reports from Goldman Sachs and UnitedHealth Group.

Video Transcript

BRIAN SOZZI: It's also another earnings day, and let me say this upfront, folks. The market may be basking in the glow of some big earnings beats early in earnings season, but the financial toll COVID-19 continues to have on corporate America is front and center. What is not front and center here, visibility into the return of any sense of financial norm.

Now let's get right to it here with Yahoo Finance's Emily McCormick for a dive into some earnings out this morning. Emily, Dow futures up more than 500 points. Some optimism there regarding a vaccine. We'll touch upon that in a little bit. But Goldman Sachs, pretty big earnings beat coming on the heels of JPMorgan's big beat yesterday.

EMILY MCCORMICK: Absolutely, Brian, and we do have Goldman Sachs really leading the Dow higher here in early trading. We have Goldman Sachs shares up just over 5 and 1/2% as we speak. That was after it beat on both the top and bottom lines for that bank. We actually saw its net income remain steady over the last year, in contrast to the deterioration on profitability be that for some of these other companies and other banks on Wall Street as well.

So really saw this beat being driven by strong trading revenues. That's also a trend that we saw for JPMorgan and Citigroup yesterday.

For Goldman Sachs, we saw global markets revenue double year over year to $7.18 billion. That was led by fixed-income trading which by itself [AUDIO OUT] more than doubled year over year to over $4.2 billion.

Also saw some pretty strong results for equities trading revenue. That was up about 50% to just under $3 billion. That was that division's best quarter in 11 years.

Now, investment banking also a big area of strength for Goldman Sachs. Quarterly revenue there hit a record $2.66 billion. Equity and debt underwriting coming in well above expectations.

Now as with other banks that we've seen so far, credit-loss provisions did rise significantly as Goldman Sachs [AUDIO OUT] loan defaults due to the coronavirus pandemic. We saw Goldman Sachs reporting a $1.59 billion provision. That was up from about $937 [AUDIO OUT] in the first three months of the year.

And what the bank had to say about that was, quote, "significantly higher provisions related to wholesale loans and, to a lesser extent, consumer loans reflect revisions to forecasts of expected deterioration in the broader economic environment."

Now, Goldman said in its own estimates for the year they see 2020 global GDP down 3.4% before rising by 6.2% in 2021.

Now, just as we saw with JPMorgan CEO [AUDIO OUT] the CEO of Goldman Sachs, David Solomon, did have some words of caution on the coming quarters, adding that the economic outlook, quote, "remains uncertain."

So as we did see a strong Q2, but seeing those loan provisions rise really shows the extent of the deterioration that banks, including Goldman Sachs, are anticipating for the rest of the year. Brian.

BRIAN SOZZI: Emily, I was just doing some rough math in my head. We had Goldman Sachs, Wells Fargo, JPMorgan, and Citigroup. Out of those four, they have set aside about $30 billion for potential loan losses in coming quarters. That's a very big number and doesn't appear to be priced into the market.

But also I did want to touch upon UnitedHealth. A big earnings beat from them, but it wasn't necessarily a very clean quarter.

EMILY MCCORMICK: That's right. We did have mixed results. So the top line was slightly short of expectations, although profit did come in ahead of anticipated results. That impact really because of the fact that their members were not going in for as many elective doctor's office visits, surgeries, and other checkups due to the pandemic and, of course, authorities canceling elective surgeries in states.

And that really showed up in the UnitedHealth's medical-care ratio. We saw that drop to 70.2% during the second quarter. That was down significantly from 83% last year, impacted by the, quote, "temporary deferral of care due to the pandemic."

Now with the medical-care ratio, of course a lower percentage is better for health-insurance companies since that measures cost as a percentage of revenue from premiums. Now, the company did say that it expects that to come back up in the coming quarters. We do see UnitedHealth shares down [AUDIO OUT] percent now, although they did actually maintain their outlook for the full year. So one of the few companies to not only provide guidance but maintain its full-year outlook, and that's for adjusted net earnings of $16.55 per share. Brian.

BRIAN SOZZI: Yeah, I'm sure you won't see much of that this earnings season, corporate America coming out and reiterating outlooks if they have them. All right, Emily, get back on that earnings beat. We'll talk to you soon.