Market Update: Netflix rally & Tesla dally, what to watch for this week?

Following last week’s earnings rollercoaster, what awaits the market this week?

The financial markets have been nothing short of a rollercoaster lately, with last week serving as a prime example of the extreme fluctuations in stock prices. Two tech giants, Tesla and Netflix, grabbed the spotlight as they reported their quarterly earnings, with remarkably divergent results. Additionally, geopolitical tensions, economic indicators, and a packed schedule of earnings reports are on the horizon for this week, promising further turbulence and potential opportunities for investors.

Netflix Soars as Password-Sharing Crackdown Pays Off

With its third-quarter earnings report, Netflix, the global streaming platform, kicked off the week on a high note. The company’s stock (NFLX) surged an impressive 13% in after-hours trading following the release of strong financial data. Netflix’s performance demonstrated that its strategy to curb password-sharing was bearing fruit and that it was successfully attracting new subscribers.

For the third quarter, Netflix reported earnings of $3.73 per share, surpassing Wall Street’s estimates of $3.49 per share. Furthermore, the company achieved revenues of $8.54 billion, in line with market expectations. The standout success was the surge in net paid subscriptions, which reached 8.8 million, far exceeding the projected 6.1 million.

Netflix is confident about its continued growth, with forecasts suggesting a target revenue of $8.7 billion for the current quarter. This figure, although slightly below the consensus call of $8.78 billion, underscores Netflix’s ambition for sustained expansion. The company also expects an operating profit margin of 20% for 2023. Overall, Netflix’s shares have performed admirably, registering a modest 17% increase year-to-date.

Tesla Faces Rough Terrain After Disappointing Earnings

In a stark contrast to Netflix’s meteoric rise, Tesla (TSLA) had a challenging week after the electric vehicle (EV) manufacturer reported its third-quarter results. Tesla’s stock plummeted by 9.3% as investors reacted negatively to the disappointing financial data and the cautious tone set by Elon Musk regarding the upcoming Cybertruck model.

For the latest quarter, Tesla reported sales of $23.4 billion and earnings of 66 cents per share. These figures fell short of Wall Street’s consensus view, which anticipated earnings of 70 cents per share and revenue of $23.9 billion. Most strikingly, Tesla’s net income witnessed a significant decline of 44% when compared to the previous year. Notably, this marked the fourth consecutive quarterly report in which Tesla shares experienced a decrease of more than 9% following the company’s earnings release.

One of the concerns for investors is Tesla’s tightening profit margins, which have contracted to 7.6%, a nearly 10 percentage point decrease from the same period last year. Despite the stock’s overall performance, which had surged approximately 100% year-to-date, it had dropped by about 25% from its 2023 share-price peak of $293.

What to Watch for This Week

As we enter a new week, investors should brace themselves for several significant events that could impact the financial markets. Here are five key factors to keep an eye on:

Earnings

Earnings season is in full swing, and this week presents a robust lineup of companies set to announce their quarterly results. Tech giants often have a substantial influence on the broader markets, so the earnings of companies like Microsoft (MSFT), Google (GOOGL), Meta (META), International Business Machines (IBM), Boeing (BA), Amazon (AMZN), and Intel (INTC) are highly anticipated. Given their direct consumer ties, companies like Coca-Cola (KO), Visa (V), and Mastercard (MA), will be of particular importance. In addition to financial figures, watch for metrics like user growth and active sessions, which can provide valuable insights into consumer engagement. Guidance from these companies will also serve as a barometer for the overall economic outlook.

Geopolitical Conflict: A Constant Variable

Geopolitical tensions continue to simmer, with conflicts overseas influencing global markets. The potential for unforeseen events and attacks against American assets on the open sea adds a layer of uncertainty. These developments can lead to disruptions in supply chains and create difficulties in sourcing oil, especially as winter approaches in the Northern Hemisphere. Monitoring these tensions and their potential effects on the energy markets will be crucial for investors.

Flash PMI

The release of Flash Services and Manufacturing Purchasing Managers’ Index (PMI) data on Tuesday is a crucial event. These indicators provide insights into the level of buying by purchasing managers and are often used as leading indicators for economic health. A reading above 50 suggests economic growth, which could potentially boost market sentiment. Conversely, a reading below 50, consistent with recent trends, may weigh on market confidence and contribute to further selloffs.

Core PCE Prices

On Friday, the Personal Consumption Expenditures (PCE) report will be released, targeting price changes of goods purchased by consumers. This data is essential in assessing the inflation landscape, which has been a central concern for policymakers and investors. A positive outcome indicates that prices are still rising for consumers, while a decrease could suggest that measures to curb inflation, such as interest rate hikes, are taking hold.

Revised UoM Consumer Sentiment

The revised University of Michigan (UoM) Consumer Sentiment figures, also set for release on Friday, will provide valuable insights into market sentiment. Given the recent news and economic developments, these numbers could impact market movements. The previous revisions of the UoM Consumer Sentiment have consistently come in lower than the initial release, indicating a softening economic outlook. Keep in mind that this is a survey of a relatively small sample, so it should be considered with caution.

Other Key Events This Week

In addition to the above, several economic indicators and reports are worth noting:

Building Permits and New Home Sales are scheduled for Wednesday and can provide insights into the housing market.

Fed Chair Powell’s Speech on Wednesday can offer further insights into the Federal Reserve’s stance on monetary policy and economic conditions.

Q3 2023 GDP data, to be released on Thursday, will be closely watched to gauge the overall economic health and performance.

Pending Home Sales data, also set for release on Thursday, will offer additional information on the housing market.

Bottom line

In conclusion, the financial markets are in the midst of a turbulent period, exemplified by the starkly contrasting fortunes of Netflix and Tesla in their recent earnings reports. As we enter the coming week, investors should remain attuned to a multitude of factors that can significantly influence market dynamics.

Earnings season, geopolitical tensions, economic indicators, and shifting consumer sentiment all play vital roles in shaping investment decisions. With a packed schedule of earnings reports and key economic data releases on the horizon, this week promises to be both challenging and rife with opportunities. Navigating these volatile waters requires vigilance, adaptability, and a keen understanding of the multitude of factors at play in the ever-evolving financial landscape.

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