Stocks opened lower this morning before rallying to trade flat through noon. The Dow held on to a small loss while the S&P and Nasdaq Composite remained unchanged from the session prior. Yields gained again as Treasurys slipped. The 10-year Treasury yield advanced to 3.62%.
The market sunk at the open today in response to plunges from Morgan Stanley (NYSE: MS) and Netflix (NASDAQ: NFLX), both of which fell after reporting earnings. MS had a seemingly strong quarter, but that didn’t stop the stock from falling in pre-market trading. Much like the rest of the market, however, MS rallied off the daily lows to trade flat through noon.
NFLX, on the other hand, wasn’t so lucky; the streaming giant announced that it would push back plans to crack down on password sharing after revealing a revenue “miss,” reporting $8.16 billion in revenue vs. $8.18 billion expected. NFLX surpassed earnings estimates ($2.88 EPS reported vs. $2.86 expected) but disappointing guidance drove shares 3.80% lower.
Password sharing has become a huge problem for NFLX, and it’s only gotten worse with time. The company said that roughly 43% of its total user base (100 million households) is now sharing login info with family and friends.
If NFLX is able to convert at least some of these households into separate, paying accounts, revenues could spike substantially.
“The launch in Q2 will be broad, including the U.S. and the bulk of our countries when we think about it from a revenue perspective,” Netflix co-CEO Greg Peters said, referring to his company’s new ad-supported streaming service and password-sharing countermeasures.
The latest batch of earnings continued the market’s recent trend in which “beats” are being countered by underwhelming forward guidance.
“The market’s really been sort of ho-hum in this earnings season so far,” said Aspirant chief client officer Sandi Bragar.
“We’ve been concerned about shrinking corporate profits and earnings going lower, and that is starting to play out certainly in companies that have reported so far, but the market hasn’t really been reacting too much to that.”
Fundstrat, whose founder is market perma-bull Tom Lee, released a note predicting major upside for the S&P as a result of the ongoing earnings “beats.”
“82% of companies are beating and by a margin of 7.6%. The earnings recession wallop the bears are expecting has not materialized,” read the note.
“1Q23 earnings season will ultimately enable the S&P 500 to push to new highs for the year.”
Fundstrat also expected a bullish year in 2022 that never came to fruition. That being said, the S&P could still absolutely set new highs should the Fed shift dovish in the weeks ahead.
Deutsche Bank analysts still believe a rate hike is coming in May, though, now that banks seem to be clear of an imminent crisis.
“The Fed [is] set to deliver another hike in just two weeks from now, which was supported by the latest round of FOMC speakers,” read a note to clients.
Like we said last week, markets should continue to chop sideways until the next FOMC meeting wraps up on May 3rd. As usual, the post-hike press conference – not the hike itself – will be what kicks off the market’s next trend, either up or down depending on how Powell frames rate expectations for the rest of the year.
