Opening Market Update: Netflix Boosts Sentiment Ahead of Tesla Results

Netflix Boosts Sentiment Ahead of Tesla Results

(Wednesday market open) U.S. stocks have the wind at their back early Wednesday as Netflix (NFLX) reported massive subscriber gains and Treasury yields eased. The positive earnings drumbeat faces a potential test later today when Tesla (TSLA) reports, directing focus toward the company's (and industry's) recent struggles.

IBM (IBM) also reports earnings later today followed by Intel (INTC), Comcast (CMCSA), and Humana (HUM) tomorrow.  

Beyond earnings, Thursday offers a first look at U.S. Q4 Gross Domestic Product (GDP) and a European Central Bank (ECB) meeting. It's a lot to juggle and could create some choppy trading.

The broader market enters this frenzied period at all-time highs, but there's some rumbling below the surface suggesting possible caution.

"Next week we’re going to hear from mega-cap tech, and the setup heading into the reports is a little ominous given the recent rally into the results (high expectations) and the bearish seasonality as we move into the month of February," said Nathan Peterson, director of derivatives analysis at the Schwab Center for Financial Research.

Key earnings expected next week include Apple (AAPL), Alphabet (GOOGL), Amazon (AMZN), Advanced Micro Devices (AMD), and Microsoft (MSFT).

The benchmark 10-year Treasury note yield lost ground early Wednesday but is up more than 20 basis points from last month's lows as investors look ahead to GDP and inflation data tomorrow and Friday. Recent U.S. data, aside from manufacturing, painted a resilient picture and pushed back hopes for a near-term Federal Reserve rate cut. Where yields go from here, at least in the near term, might depend on this week's data.

Yesterday, shares of banks and retailers sagged, while consumer staples were among the leaders. Oilfield services companies were also strong, as solid quarterly results from Halliburton (HAL) helped offset a late slide in crude oil futures. In other markets, the U.S. dollar index (DXY) hit its strongest level since mid-December, partly reflecting the Bank of Japan's (BoJ) decision to keep short-term interest rates unchanged.

Futures based on the S&P 500® index (SPX) rose 0.5% shortly before the close of overnight trading. Futures based on the Dow Jones Industrial Average® ($DJI) were up 0.4% and Nasdaq-100® (NDX) futures climbed 0.9%.

Morning rush

  • The 10-year U.S. Treasury Yield (TNX) fell four basis points to 4.1%.
  • The U.S. Dollar Index ($DXY) fell to just above 103, its lowest in a week.
  • The Cboe Volatility Index® (VIX) is steady at 12.55, also the lowest level in more than a week.
  • WTI Crude Oil (/CL) bounced to $74.79 per barrel despite a report of rising U.S. stockpiles.

Just in

Data's a little thin at the moment, but mortgage applications increased 3.7% from a week earlier, according to the Mortgage Bankers Association's (MBA) weekly survey. "Mortgage rates increased slightly last week, but there continues to be an upward trend in purchase activity," the MBA said.

Later today there's an auction of 5-year Treasury notes, worth watching for possible impact on yields. Also stay tuned after the open for January preliminary S&P Global U.S. Manufacturing and Services PMI.

Stocks in spotlight

FAANG refrain: A few years ago, Netflix was a member in good standing of the so-called "FAANG" gang of stocks that helped drive the pre-pandemic rally. It didn't make it into the "Magnificent Seven," but yesterday's surprising Q4 subscriber build of more than 13 million sent shares up 9% in premarket trading and above $500 a share for the first time in two years. Wall Street analysts had forecast about 8 million to 9 million new subscribers, but the quarterly growth suggests Netflix found new ways to pull customers in.

Subscriber growth at Netflix gave competing companies a lift, as well. Roku (ROKU), Disney (DIS), and Paramount (PARA) rose. The subscriber gains at Netflix came despite the company missing analysts' average earnings per share (EPS) estimate, but revenues outpaced expectations. The Q1 outlook topped analyst views, but Netflix warned that paid subscriber additions could be down in Q1 from Q4 due to some demand having been pulled forward.

Chipped: Semiconductor firm Texas Instruments (TXN) shares went the other direction ahead of the open as investors digested disappointing guidance in the company's earnings report from late Tuesday. That's a possible warning on consumer demand, as TXN chips go into products ranging from automobiles to electronics.

Tesla reports this afternoon after the electric vehicle firm missed analysts' earnings estimates in October and painted a pessimistic picture. Shares are down sharply this year amid concerns about EV demand, pricing, and potential competition from a bounce in used EV inventories. Questions for Tesla today could focus on the recent slowdown in EV sales and a major, one-time influx of used cars into the U.S. market could have global implications.

Analysts forecast TSLA's Q4 EPS to be down nearly 38% from the year-ago quarter, with revenues up nearly 5%. In 2023, the company's stock finished up nearly 102%.

Stocks on the move early Wednesday include:

  • Shares of DuPont de Nemours (DD) plunged nearly 12% in premarket trading after the materials company pre-announced Q4 results and guidance. Although it expects Q4 EPS to meet Wall Street's expectations, its Q1 guidance came in light. The company blames "channel inventory destocking" in its industrial businesses "as well as continued weak demand in China."
  • AT&T (T) shares fell nearly 3.5% after missing analysts' Q4 EPS expectations as revenue in business wireline sales dropped double-digits. Guidance also came up short. On the brighter side, quarterly revenue was higher than analysts had expected and so were subscriber gains. Wireless division revenue rose almost 4%. This came a day after AT&T's competitor Verizon (VZ) reported strong subscriber additions.

What to watch

Tomorrow morning brings the U.S. government's first look at Q4 Gross Domestic Product (GDP). Personal Consumption Expenditure (PCE) prices follow on Friday.

Analysts expect a 2% rise in GDP, less than half the 4.9% gain in Q3, according to Though GDP is a backward-looking report, it can have implications for the market. Notably, Q3 GDP surprised investors by coming in much stronger than expected. If that strength spilled over into Q4 above and beyond expectations, it could further cool hopes for a March Fed rate cut.

PCE prices is the Fed's favorite inflation metric, and analysts expect a 3% year-over-year rise in core PCE stripping out food and energy, down from 3.2% in November. On a month-over-month basis, consensus is for 0.2% growth in both core and headline PCE prices, said. That would be up from November's 0.1% rise in core and 0.1% decline in headline PCE.

"If the number comes in as expected, it will mark the smallest year-over-year increase since March 2021," said Collin Martin, a director of fixed income strategy at the Schwab Center for Financial Research. "Given the recent bounce in Treasury yields, an upside surprise could pull yields even higher and push back the timing of the first rate cut."

The Bank of Canada gathers today and the European Central Bank meets Thursday. There's a growing sense that rate cuts aren't on the immediate horizon either in those regions or in the United States when the Fed holds its meeting next week. Manufacturing data from several major European countries today came in above analysts' expectations but still in contractionary mode.

On the other side of the globe, major indexes in China and Hong Kong racked up gains earlier Wednesday amid reaction to Bloomberg's report that Beijing is considering a stimulus for the stock market. An analyst told Barron's the level of stimulus being considered, around $280 billion according to Bloomberg, is insufficient to lift market sentiment. China's stock market fell 13% last year and remained under pressure in early 2024.

In another development, the People's Bank of China lowered its reserve requirement by 50 basis points in a move designed to stimulate economic activity.


Eye on the Fed

Early today, futures trading pegged chances at 97.4% for the Federal Open Market Committee (FOMC) holding rates steady following its January 30–31 meeting, according to the CME FedWatch Tool. The market prices in a 50% chance the funds rate will be a quarter point lower than now after the Fed's March meeting.

"We expect the Fed to hold steady at next week's meeting, and unless the economy takes a severe turn for the worse, a cut in March seems unlikely as well," the Schwab Center for Financial Research said in a report. "We are still penciling in three rate cuts this year."

Mulling munis: The municipal bond market is likely past the peak in credit quality for this cycle, but most U.S. states have strong reserves and many credit strengths, which could lend stability, according to ratings agency S&P Global. Learn more about the outlook for munis in the latest post from Cooper Howard, a director, fixed income strategy, at the Schwab Center for Financial Research.

Thinking cap

Ideas to mull as you trade or invest

Participation trophy: Through midday Tuesday, 67 out of the S&P 500 members had reported and 49% beat analysts' expectations on the top line, Bloomberg said. Bottom-line performance was better, with an 83% beat rate. EPS numbers are up 1.2% from the same period a year ago, Barron's reported. Revenue beats are on the low side, historically, but it's early to make any judgments. Remember, analysts penciled in a low bar for Q4 earnings performance, so a high beat rate on the bottom line doesn't necessarily suggest overwhelming strength in balance sheets.

Distant thunder? One risk element hovering over record-high U.S. stock indexes is a developing counterintuitive fundamental scenario. On the one hand, the market continues to price in Federal Reserve rate cuts this year, though increasingly those aren't expected to begin until May at the earliest. At the same time, the market prices in double-digit 2024 earnings growth. These rosy developments don't necessarily square. Rate cuts, especially the five to six that Treasury futures price in, are normally the Fed's response to much slower economic growth. Yet the current SPX forward price-to-earnings (P/E) ratio is historically high, pricing in a return to double-digit earnings growth. Earnings typically don't gallop higher during an economic slowdown that requires rate cuts. On the contrary, better earnings typically reflect economic growth. Now, it's true the P/E would be closer to historic norms if you strip out the so-called "Magnificent Seven" and their huge market capitalizations. These stocks mainly trade at high multiples, tending to swell the overall P/E. Even so, it's a bit of a puzzle how or whether the market can find a way around this conundrum. Something might have to give.

Easy money: Corporate reporting season coincides with credit conditions that are the "easiest" in a while, meaning companies aren't finding it difficult to borrow money to grow their businesses. There's a bullish and bearish element to this. It's bullish for stocks if companies face lower expenses building new facilities and developing new products, but it's somewhat bearish for those hoping the Fed might quickly ease rates. In a sense, the market itself is loosening financial conditions, perhaps meaning less heavy lifting for the Fed. "Credit markets are off to a hot start with investment grade corporate bond issuance expected to reach $160 billion for the month," said Schwab's Martin. "Issuers are taking advantage of the drop in Treasury yields and the drop in spreads, with average borrowing rates near their lowest levels since last May."


Jan. 25: December Durable Orders, December Durable Goods, Q4 GDP, December New Home Sales, and expected earnings from Alaska Air (ALK), American Airlines (AAL), Comcast (CMCSA), Dow (DOW), Intel (INTC), Union Pacific (UNP), and Visa (V).

Jan. 26: December Personal Income, December Personal Spending, December PCE Prices, and expected earnings from American Express (AXP).

Jan. 29: Expected earnings from Whirlpool (WHR).

Jan. 30: January Consumer Confidence and expected earnings from General Motors (GM), UPS (UPS), Marathon Petroleum (MPC), Pfizer (PFE), and Starbucks (SBUX).

Jan. 31: FOMC rate decision and expected earnings from Boeing (BA), Mastercard (MA), GlaxoSmithKline (GSK), and Boston Scientific (BSX).

Next Steps

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