The Market's Big Test Today
Much of the market's recent strength came from chip stocks like Micron, AMD, Intel, and SanDisk. All pulled back sharply this week, and the drop got worse today, with the Nasdaq down almost 2% in the morning. The S&P 500 futures fell about 1%, though the index closed yesterday still about 1% below its all-time highs.
The number to watch is the 50-day moving average on the S&P 500. It sits about 73 points below the current level, right where the market was set to open. The S&P has stayed above this line for a long time. Where the S&P closes today is vital, because it will show whether this is a real rotation out of tech names into others. The Nasdaq, which is far more tech-heavy, has already dropped through its own 50-day moving average.
Yesterday at one point in late morning, 10 of 11 sectors in the S&P 500 were higher. The one sector that was down, information technology, dragged on the whole market until the entire market broke down.
Inflation Good, Energy Not
Inflation data this week was strong. CPI and PPI both came in positive. Energy went the other way. Crude oil moved from at or below $70 to at or above $80, a jump of roughly $10, leaving crude oil futures up 12% for the week.
The driver is the conflict. There has been a sixth straight day of bombing in Iran. Iran has been striking Qatar, Kuwait, and Jordan, and hitting U.S. military ports in Bahrain and Syria. The market needs some sign of de-escalation and is not getting it, which puts upward pressure on oil. The price response has been slightly muted given the scale of events, likely because some traders expect de-escalation later, though there is no way to know when that comes.
Netflix: Nothing Exciting
Netflix is falling after earnings, driven by weak guidance. The move is far smaller than the roughly 40% drop after earnings two or three years ago, when Netflix pulled down the whole market.
The results were not horrible, just dull. Earnings per share beat at 80 cents versus 79 cents expected. Revenue was a slight miss at $12.56 billion versus $12.58 billion. Free cash flow fell by about a billion dollars, partly from taxes tied to the breakup amount of the Warner Brothers deal, where Netflix came out the net loser. Netflix keeps frustrating the street by giving less guidance, fewer numbers, and fewer figures going forward, including on subscribers, and the street dislikes less information. Rumors point to Netflix looking for some kind of acquisition.
If you were bullish on Netflix, little here changes that; if you were bearish, little here changes that either. The stock keeps getting cheaper on valuation, which forces a long-term view.
The one real signal is live sports and live TV, which keep adding viewers and interest. Football, basketball, and an upcoming Women's World Cup all point Netflix toward more live events. Netflix's NFL Christmas games over the last two years worked well and won over earlier doubters. Live sports come at heavy cost but heavy reward, and that kind of catalyst is what Netflix is now lacking.
Streaming is a saturated space. Without big growth or a hit series pulling in major user gains, it is hard to stand out. U.S. markets are fairly saturated, consumers have subscriber fatigue, and the overseas story is not shaping up the way Netflix has tried to frame it.
Linear TV is declining at an increasing rate but still holds its grip on live sports. Amazon is dipping into Thursday night football. The open question is when a streamer makes the big splash and spends the money needed to compete with ESPN and the major networks for live sports. Streaming is the future and will not go away, even if it levels out with more players; linear TV looks weaker as older viewers age out and younger viewers lean streaming. Dominating live sports is the next hurdle for streamers, and the next big mountain for Netflix.
Watching every NFL game across all platforms for a season costs about $1,100, which makes viewing a full season difficult and messy.
Economic Data: A Good Week
The Fed would be pretty happy with this week's data. Jobless claims improved yesterday. Retail sales were more modest. CPI and PPI were good reads on inflation.
Housing is a mixed picture. Pending home sales yesterday were brutal, down 5.4%. Housing starts today were impressive at 1.427 million, a nice jump from 1.17 million a month ago and a beat over the roughly 1.32 million expected. A housing start is triggered when the foundation for a new home is poured. Building permits, the paperwork for future building, missed at 1.367 million versus about 1.4 million expected.
Import-export prices were volatile. Import prices were expected to drop month over month but rose 0.3%. Export prices were expected to rise 0.8% but fell 0.6%. These are not game-changers for the overall market today.
Housing will be very important in the second half of the Trump administration, backed by the housing bill that was just passed, but current numbers show only a mixed picture at best. None of today's data moved the needle much against the bigger forces, mainly the pressure on chips.
