Stocks were trading lower on Friday after disappointing earnings from
put the market on edge.
By midmorning, the
Dow Jones Industrial Average
declined 49 points, or 0.1%, and was on track for a sixth straight day of declines. The
fell 0.7%, while the tech-heavy
dropped 1.2%. The S&P 500 and Nasdaq fell 1.1% and 1.3% Thursday, respectively.
Any chance of a rebound from Thursday’s selloff was scuttled by Netflix’s (ticker: NFLX) earnings report. The streaming giant reported a profit of $1.33 a share, beating estimates of 82 cents a share, on revenue of $7.7 billion, in line with expectations. But the company also reported fewer new subscribers, with just 8.28 million in the fourth quarter of 2021, down from 8.5 million in the fourth quarter of 2020. Even worse, Netflix guided for 2.5 million in the current quarter, way below analyst estimates for 6.93 million. The stock fell 23%.
That has investors in other consumer-facing internet names nervous about growth, which was strong during much of the pandemic.
(AMZN) fell 1.7%, while
(PINS) fell 6% and
(FB) fell 1.1%.
“If the Netflix results are anything to go by, big tech may also underwhelm,” wrote Craig Erlam, senior market analyst at Oanda. “The subscriber numbers were a real blow and investors are being forced to adjust to the reality that there is nowhere near the momentum that the last couple of years was expected to generate.”
Even before Netflix’s release, the Nasdaq was deep in correction territory as surging bond yields have hurt tech stocks. Higher yields on long-dated bonds make future profits less valuable—and many tech companies are valued on the basis that they will rake in sizable profits many years into the future. Friday, long-dated Treasury yields were slipping, and now the worry is more about earnings.
The weakness in the stock market was spreading to other risk assets as well. WTI crude oil futures have fallen more than 2% to below $85 a barrel, causing the
Energy Select Sector SPDR
Fund (XLE) to decline 1.8%. Cryptocurrencies also tumbled, with Bitcoin 8% lower over the past 24 hours to below $39,000, according to data from CoinDesk. Smaller peer Ether dropped more than 9% over the same period to below $2,900.
As for oil, traders are preparing for higher supply. As demand has surged—and the price has already risen almost 30% since an Omicron-related low point in November—oil producers are building inventories. Crude stockpiles rose by 515,000 barrels last week, according to the Energy Information Administration. Gasoline inventories rose by 5.9 million barrels.
The drop in cryptocurrencies can mostly be blamed on Russia, where they are popular among citizens. The country is also a hub for mining—the process that generates new digital currency tokens. The Russian central bank has proposed banning crypto mining as part of a wider prohibition that includes preventing people from trading or transacting with the likes of Bitcoin.
Elsewhere, new earnings reports are also revealing that inflation continues to cause companies’ costs to rise, hurting their profit margins. That isn’t exactly helping the stock prices of companies that haven’t reported yet. Several companies “cited higher costs as impacting profitability, furthering margin concerns,” wrote Tom Essaye, founder of Sevens Report Research.
Sure, earnings results are beating estimates, but investors may be demanding even greater earnings beats than those seen so far. The aggregate earnings result on the S&P 500 early in the fourth quarter reporting season has beaten expectations by 5.9%, according to Credit Suisse. The average stock price reaction in the trading day after earnings has been a 0.3% increase, according to Wells Fargo.
Here are five stocks on the move Friday:
(PTON) stock rose 5%. The shares tumbled 24% Thursday following reports that the company, which makes home workout equipment including bikes and treadmills, was halting production. The company’s CEO rejected the report as false.
(CSX) stock fell 4.1% after the company reported a profit of 42 cents a share, beating estimates of 41 cents a share, on sales of $3.4 billion, above expectations for $3.3 billion. Higher costs were part of the equation, with labor and fringe costs up $115 million year-over-year. Fuel costs doubled to $282 million. These higher costs caused the company’s operating profit margin to fall year over year.
(PPG) stock fell 2.8% after the company reported a profit of $1.26 a share, beating estimates of $1.20 a share, on sales of $4.19 billion, above expectations for $4 billion. Its raw material costs rose 30% year over year.
(KBH) stock fell 0.4% despite getting upgraded to Buy from Neutral at Seaport Research Partners.
(DVN) stock fell 5.5% after getting downgraded to Neutral from Buy at Goldman Sachs.