Conflict in the Middle East has had an inevitable knock-on effect to investor sentiment but other than a surge in crude prices there seems, so far, to be no lasting impact on markets in general with the S&P 500 shedding just over 2% over the past week.
However, with US Treasury yields almost at 5% and real yields close to 2.5%, risk aversion was the order of the day leading to selling of basic materials, industrials and consumer cyclicals and safe-haven buying of energy and staples stocks.
The third-quarter reporting season got off to a strong start with Citigroup (C:NYSE), JPMorgan Chase (JPM:NYSE) and Wells Fargo (WFC:NYSE) all beating forecasts, but electric vehicle maker Tesla (TSLA:NASDAQ) disappointed with revenue and profits undershooting estimates on lower selling prices.
Why investors are excited about upcoming big tech results
As the week draws to a close, the focus will turn to the results of big technology stocks, with Alphabet (GOOG:NASDAQ), Amazon.com (AMZN:NASDAQ), Meta Platforms (META:NASDAQ) and Microsoft (MSFT:NASDAQ) all scheduled to report next week.
DOLLAR GENERAL
Bombed-out shares in Dollar General (DG:NYSE) rallied sharply following the discount retailer’s surprise decision (12 October) to bring back its former chief executive Todd Vasos to lead the company for the ‘foreseeable future’.
Shareholders who have seen more than 50% wiped from the value of the stock over the last year will be hoping the move arrests the sales growth slowdown behind recent earnings downgrades at the variety stores operator.
Head of the firm from June 2015 to November 2022, Vasos replaces Jeff Owen, in the role for less than a year, with immediate effect.
Dollar General, which has faced criticism from federal officials and activists for operating stores that are unsafe for employees at risk, downgraded its full year 2023 sales and EPS (earnings per share) guidance once again alongside the Vasos news.
The retailer now expects EPS in the $7.10 to $7.60 range, below its previous expectation of $7.10 to $8.30, and revised down its net sales growth forecast from the 1.3% to 3.3% range to between 1.5% and 2.5%.
One believer in Dollar General’s turnaround potential is HSBC, which reckons the shares have hit bottom and in a note to clients pointed out Vasos’ previous tenure was marked by ‘a significant transformation, accelerated growth and innovation’.
MODERNA
Shares in biotechnology firm Moderna (MRNA:NASDAQ) came under heavy selling pressure this week after rival Pfizer (PFE:NYSE) slashed its full-year revenue guidance and announced $3.5 billion of cost cuts to counter falling sales of its Covid-19 vaccine.
While Moderna is developing treatments for other diseases using its novel mRNA technology, the company relies heavily on Covid-19 vaccine sales for its annual income.
The company put a brave face on things, saying it remained comfortable with market expectations which call for full-year vaccine sales of between $6 billion and $8 billion.
However, management conceded it was still too early in the US vaccination season to accurately project where vaccination rates would land for the full year, which went down badly with investors, causing the shares to fall more than 18%.
Since peaking in August 2021, Moderna shares have lost over 80% of their value.
NETFLIX
Third quarter results from Netflix (NFLX:NASDAQ) were quite the gala event, the streaming giant putting up star-studded numbers that had investors rolling out the red carpet.
Netflix added 8.8 million customers in the three months to 30 September, smashing analysts’ estimates and taking its overall subscriber base to 247.2 million. That’s a couple of million more than most analysts had expected and around 11% more than the same quarter last year.
Growth hasn’t been this good since peak lockdown, but to do it while clamping down on password-sharing, reeling in production costs and raising prices in key markets (the US, UK and France) is show-stopping.
‘We’re incredibly pleased with how it’s been going,’ said co-chief executive Greg Peters, words echoed by investor’s action – the stock jumped 16%, its biggest one-day rally of 2023.
Netflix produced almost £2 billion in free cash flow in the quarter, again way more than anyone had predicted and its largest haul ever barring this year’s first quarter’s $2.1 billion.
With new subscription money pouring in Netflix spent $2.3 billion on share buybacks and is confident enough in its new belt-tightened reality to boost future buyback plans by a massive $10 billion.
