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After some early morning gains, stocks lost momentum Friday, sending the S&P 500 index down almost 2%. Friday’s decline reversed the significant gain the major averages enjoyed in Thursday’s stunning session. With the third quarter earnings season now underway, following some solid results from from big Wall Street banks, investors are left balancing consumer inflation data, while weighing what the Q3 earnings season might bring.

On Friday, the Dow Jones Industrial Average fell 403.89 points, or 1.34%, to close at 29,634.83. Among the Dow’s notable decliners were American Express (AXP), which fell 3.12%. Also contributing to the blue-chip decline were Chevron (CVX), Caterpillar (CAT) and Goldman Sachs (GS), which each declined more than 2%. The S&P 500 declined 86.84 points, or 2.37%, finishing at 3,583.07, while the tech-heavy Nasdaq Composite lost 327.76 points, or 3.08%, to close at 10,321.39. The Nasdaq was pressured by losses in Tesla (TSLA), which declined 7.5%.

Investors sent the averages to session low after inflation expectations were increasing, based on consumer survey from the University of Michigan which showed that prices consumers pay for a wide range of products and services rose more than expected in September as inflation pressures continued to weigh on the U.S. economy. The higher-than-expected inflation data is poised to keep Federal Reserve on a more hawkish stance on monetary policy and interest rate increases as it attempts to cool off price increases.

This sentiment drove the 3% decline in the Nasdaq which features high growth companies which are most sensitive to interest rate hikes. Aside from inflationary concerns, investors were also assessing rising bond yields which spiked, sending the 10-year U.S. Treasury year above 4%. Doing so for the second consecutive day as investors react to higher inflation expectations. The stronger-than-expected number suggested that, while budgets are tight, consumers are still spending despite the rise in inflation.

Meanwhile, investors were also weighing a round of results from big Wall Street banks as earnings reporting season gets under way. Early results reveal that while consumer spending remains strong, consumers are still relying on credit card debt for their buying power which could lead to potential headwinds in the quarters ahead. Nevertheless, third quarter earnings season kicks into high gear, with results expected from technology heavyweight Netflix, among others. Investors will see whether its results can pull tech stocks out of the doldrums; Netflix is one of several names investors will be watching this week.

Netflix (NFLX) – Reports after the close, Tuesday, Oct. 18

Wall Street expects Netflix to earn $2.17 per share on revenue of $7.84 billion. This compares to the year-ago quarter when earnings were $3.19 per share on $7.48 billion in revenue.

What to watch: With the shares falling 37% and 60% in the respective six months and nine, Netflix stock has significantly underperformed the market in 2022. Currently down 61% year to date, compared to the 23% decline in the S&P 500 index, the market appears to assume that the growth story at Netflix is over. Is now a buying opportunity? There are tons of burning questions for Netflix management heading into the upcoming earnings report. But analyst Benjamin Swinburne at investment firm Morgan Stanley believes the streaming giant’s upcoming advertising-supported tier is one reason to remain bullish on Netflix. Swinburne, who as $230 price target on Netflix, said in a note to investors that the company’s ad-supported tier could help Netflix not only grow its average revenue per user in developed markets, but also help expand its total addressable market. When looking at the U.S. and Canada region, Swinburne expect Netflix to generate between 9 and 10 million new subscribers in 2023. As such, he raised his subscribers estimates for paid net additions between 2023 and 2025. That, combined with measures to curb account sharing, hoping to recoup potential lost revenue, could lead to higher overall subs and ARPU. These assumptions will be answered when Netflix issues its guidance forecast for the next quarter and full year.

IBM (IBM) – Reports after the close, Wednesday, Oct. 19

Wall Street expects IBM to earn $1.78 per share on revenue of $13.53 billion. This compares to the year-ago quarter when earning were $2.52 per share on $17.62 billion in revenue.

What to watch: When looking at IBM, it appears that the company has been in a perpetual transformation cycle. But the recent results from the company suggests that operational improvements are underway evidenced by the company’s results in its most-recent quarter, reported on July 18th. The reported figures demonstrated solid revenue growth across the company’s diversified business segments. When combined with its 4.9% dividend yield, IBM has always been a great stock to buy for dividend investors, but the company is also worth a look for growth investors as well. While the company has struggled to grow revenues over the past decade and has not benefited in the massive economic expansion that saw cloud leaders such as Amazon (AMZN) and Microsoft (MSFT) produce double-digit revenue gains, the company’s cloud ambitions have shown some promise in recent quarters thanks to the Red Hat acquisition. Currently boasting 3,800 customers on their hybrid cloud platform, which accounts for more than 70% of total software revenue in the most-recent quarter, the company no longer relies on its legacy business. The hybrid cloud provides IBM the foundation to run any application. But for shares to maintain their relative outperformance, the company on Wednesday will need to demonstrate continued operating leverage and revenue growth acceleration.

Tesla (TSLA) – Reports after the close, Wednesday, Oct. 19

Wall Street expects Tesla to earn $1.00 per share on revenue of $22.07 billion. This compares to the year-ago quarter when earnings came to 62 cents per share on revenue of $13.76 billion.

What to watch: Is now a good time to buy Tesla stock? That’s been the prevailing question as shares of the company recently plunged to 52-week lows. While Tesla has not been the only high-growth tech stock to fall during the recent bear market, its decline in appears more pronounced when compared to other high-growth tech stocks that neither generate the level of cash as Tesla, nor have the same level of growth appeal. Currently down 37% year to date, while falling 18% over the past year, Tesla stock looks attractive at current levels. The company recently released its third quarter production and deliveries total which arrived lighter than expected, and prompted Morgan Stanley analyst Adam Jonas, among others, to temper their bullishness. “We believe that factors that drove Tesla’s weaker than expected 3Q production and deliveries could continue to present headwinds into 4Q as well as into 2023,” Jonas explained. However, Tesla has shown with its product-pricing flexibility that it can navigate these sorts of headwinds. The company’s increased focus on its growth strategy, namely production and profit margins, have been a major factor in the company’s historical success. These factors will be the main driver of the stock for the just-ended quarter and the rest of the year.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


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