Netflix surprises, Tesla disappoints, US 10-year yield flirts with 5%

If you were expecting, like I did, that Netflix’s subscriber growth would lose the momentum that it had gained amid the company’s decision to scrap password sharing, well, you were also surprised by a decent rise in subscriber numbers of nearly 9 mio in Q3. The company also announced that it will be raising prices in the US, UK, and France. The combo of more subscribers who will pay a higher monthly fee is a dream come true for investors, who sent the stock price nearly 13% up in after-hours trading Wednesday. The latter will be enough to send the stock back into the past year’s ascending channel, but whether Netflix could consolidate and gain more is yet to be seen. Since the July peak, Netflix is under the pressure of an overall retreat in appetite. And that coincides with the acceleration of the US long-term Treasury selloff, which sent the US 10-year yield to the highest levels since 2007. Yes, Netflix did great last quarter, but being a good swimmer is still challenging when you must swim against a strong tide.  

Sentiment on the Tesla deck wasn’t as brilliant. Tesla missed both revenue and earnings expectations for Q3 after sales slowed, while the company earned less money by car it sold because it aggressively cut prices to gain market share. The company announced the first delivery date for its most-awaited Cybertruck, but Elon Must warned investors that Cybertruck won’t print cash for 12 to 18 months after production begins and that the company will remain focused on making affordable cars that people could afford in the environment of rising rates. Tesla sank its teeth below a 3-month triangle base yesterday, and the post-earnings selloff will confirm the negative breakout which should pave the way $223.85, the major 38.2% Fibonacci retracement that should give a last support to the actual positive trend. If broken, the way is open toward $200 per share.  

Else, ASML announced that its orders slumped the most in Q3 due to a sector-wide slowdown. And you know what that means. That means that ASML will be more reliant on China for keeping its revenues afloat. The problem is - yes you guessed it - the rising tensions in Gaza, which also fuels the US-China chip war, could easily spill over ASML and affect its business in China.  

TSM is expected to announce around 18% drop in its revenue today. 

Morgan Stanley also reported results yesterday took a big slap in its face on sluggish results. The profit dropped by 9%, it’s better than the 33% fall at Goldman Sachs, but not enough to make investors stay on board, so the stock recorded its biggest daily drop since June 2020.  

Generally speaking 

Expectations for this earnings season are mixed depending on where you get your information from. According to FactSet, the S&P500 companies could eke out a meagre, but a positive 1.3% growth in year-on-year earnings, after three straight quarters of negative earnings. And excluding oil companies, the S&P500 earnings would grow by around 4%.  

But Citi’s index of earnings revision posted its fourth straight week of higher downgrades versus upgrades.  

Of course, not all stocks have the same weight in the S&P500. Tech stocks weigh heavier than the rest. Apple, Microsoft, Alphabet, Amazon and Nvidia stand for about a quarter of the S&P500 index and their revenue is expected to have grown by 34% compared to the same time last year. But the rising yields is a problem.  

The US 10-year yield is now flirting with the 5% psychological mark despite the rising tensions in the Middle East as Biden’s visit to Israel only made things worse after the Gaza hospital blast. And when I see the US 10-year papers sold this aggressively despite high geopolitical tensions, I conclude that there is potential for a further rise. And a move in the US 10-year yield above the 5% mark will certainly increase the selling pressure in the S&P500 in the middle of the earnings season – regardless of how good or bad the results are.