A solid start to the third-quarter US earnings season helped stocks to make decent progress over the past week.
However, concerns about the impact of tightening by the US Federal Reserve continue to linger in the background and helped to temper some of the optimism. Jobless claims came in lower than expected to suggest the labour market remains pretty tight.
While downbeat expectations meant companies had a relatively low bar to clear, companies have still shown impressive resilience given the challenges posed by rising inflation and interest rates.
Big industrial firms like Baker Hughes (BHI:NYSE) and Lockheed Martin (LMT:NYSE) have impressed the market with their quarterly showing. Cruise operator Carnival (CCL:NYSE) was also in demand as it secured $2 billion in new funding through a bond backed by its fleet of ships.
Moderna (MRNA:NASDAQ) shares have come under pressure on signs of waning demand for Covid vaccines. Next week could be a crunch one for US markets as the big technology firms get set to post their earnings.
TESLA
Elon Musk has been hinting at a share buyback of up to $10 billion of Tesla (TSLA:NASDAQ) stock, which is one way of telling investors he thinks the share price is too cheap after sharp declines lately. The stock has lost 33% in a month and is down nearly 50% in 2022.
Yet little is ever straightforward with the billionaire entrepreneur, and sceptics may wonder at the timing of this news, coming on the back of third-quarter growth that missed forecasts, albeit narrowly, and tapered full year vehicle deliveries growth.
Q3 revenue rose 56% to $21.45 billion, below the $22.5 billion consensus forecast, although earnings narrowly beat estimates, at $1.05 versus $1.03 expected.
While Musk tried to brush off concerns about rising competition, falling demand from a weakening global economy and stubbornly resistant supply chain snarl-ups, Tesla's chief financial officer Zachary Kirkhorn said ‘we do expect to be just under 50% growth [for deliveries] due to an increase in the cars in transit at the end of the year,’ a toning down of the original 50% target.
NETFLIX
Shares in streaming video giant Netflix (NFLX:NASDAQ) delivered double-digit gains over the past week after the company surprised investors by beating third quarter earnings expectations.
To be fair the earnings bar has been lowered considerably in 2022 with full-year consensus forecasts falling around 25% since the start of the year.
Earnings per share came in at $3.1 per share compared with Street estimates of $2.1 per share. But the real excitement was the company returning to subscriber growth again after two consecutive quarters of shrinkage.
The growth means Netflix's 223 million subscribers nudges it ahead of rivals Amazon Prime (200 million) and Walt Disney (DIS:NASDAQ) across its various channels and platforms which had 221 million subscribers at the end of June.
Looking forward, subscriber growth numbers will be absent from guidance after the company's initiative to offer an advertising-led subscription tier and to clamp down on password sharing by offering sub-accounts for friends and family.
ALCOA
Aluminium producer Alcoa (AA:NYSE), typically one of the first non-financial companies to report and a bellwether for raw materials stocks, sounded a downbeat note on current trading and the outlook for the rest of the year.
Lower selling prices coupled with higher energy and raw material costs have pushed the firm to a thumping third-quarter loss while cash from operations was just $134 million on sales of $2.85 billion, down 22% on a year ago.
In an effort to reduce losses from what it called ‘exorbitant’ natural gas prices, the company slashed production at its Spanish refinery to 50% of its annual capacity while cutting output by a third at its Norwegian facility to mitigate high electricity prices.
If evidence were needed that high energy costs are leading to ‘demand destruction’, Alcoa provided plenty of it and investors in other energy-intensive raw materials firms including the UK-listed mining companies should take note.
