earnings

The third quarter earnings season kickstarted last week with leading banks like JPMorgan Chase and Wells Fargo reporting their earnings. This week also, investors will be watching earnings and key economic indicators.

US stock markets whipsawed last week but continued to head downwards, hitting a new 2-year low. Bank earnings were reasonably good and JPMorgan and Wells Fargo closed in the green despite the broader market sell-off. Morgan Stanley however closed in the red as markets gave a thumbs down to its earnings.

This week, we’ll have several notable releases. Today, Bank of America, the second largest US bank would report its earnings. Berkshire Hathaway is the second largest stockholder in the bank and Warren Buffett has raised the stake above 10%. Buffett has mostly been overweight on banking and financial stocks. We have a guide on buying bank stocks.

As Bank of America releases its earnings, markets would watch for commentary on US economic outlook. JPMorgan Chase sounded quite circumspect about the US economy while Wells Fargo talked about a “less favorable economic environment” as it increased the provisioning for bad loads.

Netflix to Report Its Earnings This Week

Netflix would report its earnings on Tuesday. As is the case, it would be the FAANG name to report its quarterly numbers. Netflix stock has whipsawed this year. It plunged amid the broader market sell-off but has rebounded smartly. The company lost 1.2 million subscribers in the first half of the year which spooked investors.

During its upcoming quarterly report, markets would watch for the subscriber adds in the third quarter and the management’s guidance for the fourth quarter. Also, markets would look for more color on the company’s ad-supported tier.

Last week, Netflix announced the pricing for its ad-supported tier. It would be priced at $6.99 in the US and would be available early next month. The company has priced its ad-supported tier $1 below that of Disney and is also launching it a month ahead.

Many Wall Street analysts advise buying Netflix stock expressing optimism over the ad-supported tier. Last week, Citi also reiterated its buy rating on Netflix stock.

In a client note, it said, “We believe the prevailing sentiment on Netflix’s equity remains muted. Investors cite three issues: 1) several unknows including the potential incremental demand from lower consumer prices, 2) the degree of success may not be known until 2H23 and 3) with prevailing market conditions, most investors are keen to preserve capital rather than take on incremental risk.”

Tesla’s Earnings are Coming on Wednesday

Tesla would also report its earnings this week. The stock has fallen over 50% from its all-time highs. It also missed consensus delivery estimates for the third quarter. Markets would watch the commentary on 2022 delivery guidance.

Tesla has guided for a 50% CAGR growth in deliveries. It would need to deliver 495,000 cars in the final quarter of the year to reach 1.4 million deliveries. However, Wall Street analysts are circumspect about the company meeting the guidance and consensus estimates call for only about 457,000 deliveries in Q4.

According to many brokerages, Tesla would stand to gain from the Inflation Reduction Act which would restore the $7,500 EV tax credit for Tesla cars beginning in 2023. Wolfe upgraded Tesla stock to a buy and raised its target price.

Key Economic Indicators to Watch This Week

Last week, the inflation data was released and the reading was worse than expected. This week, several housing market indicators will be released, including housing starts, builder sentiment, and home sales.

Also, we’ll get the index of inflation expectations. High US inflation has spooked markets. The Fed has responded with massive rate hikes this year to tame inflation.

Cathie Wood of ARK Invest believes that Fed is making the mistake of overtightening. Wood believes that the US economy is headed for deflation. Bond guru Jeffrey Gundlach has echoed her views and believes that bonds are an attractive investment option. Gundlach also said that the Fed is making the mistake of “overtightening.”

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