Market snapshot: Netflix and Tesla head in opposite directions

There's a flood of US companies reporting results right now and plenty of big share price moves. Our head of markets looks at events overnight in the US and China and their implications for investors.

With the earnings season in full swing and in full focus, investors are reacting to the differing fortunes of companies battling inflationary pressures and a changing interest rate environment.

The Dow Jones index was boosted by positive earnings from the likes of International Business Machines Corp (NYSE:IBM) and Procter & Gamble Co (NYSE:PG), although the measured progress over the last couple of trading sessions only partially offsets the decline of 3.2% in the year to date.

With more companies to report, the effects of high inflation will continue to be scrutinised, as companies have differing levels of pricing power depending on the sectors in which they operate. Both defensive stocks, which have seen some buying interest on both sides of the pond, and those able to pass on price increases that provide a hedge against inflation, have become the focus of interest given the current economic backdrop.

Elsewhere the shockwaves of the Netflix Inc (NASDAQ:NFLX) update continued to reverberate around the tech sector, sending the Nasdaq lower once more to a cumulative loss of 14% in the year to date. It remains to be seen whether the issue of declining subscribers is specific to Netflix given its recent round of price increases to its customers, or whether the problem is more broadly based given the increasing pressure on consumer wallets.

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The picture should become clearer as the likes of Amazon.com Inc (NASDAQ:AMZN), The Walt Disney Co (NYSE:DIS) and Apple Inc (NASDAQ:AAPL) update investors on their streaming services in the near future. in the meantime, Netflix has borne the brunt of investor disappointment, with a share price decline of 35% leaving the stock down by 62.5% in the year to date.

The Nasdaq could be due some immediate respite given positive updates from the likes of Tesla Inc (NASDAQ:TSLA) and United Airlines Holdings Inc (NASDAQ:UAL) after the bell, which have further underlined the mixed messages which are currently emanating from US boardrooms in this volatile trading environment. The impact of tech stocks in general has also been felt on the flagship S&P500 index, which is down by 6.4% so far this year.

Meanwhile the intentions of the Federal Reserve also remain core to investors’ current caution. The “Beige Book” summary of recent economic conditions pointed to a moderately recovering economy, despite the pressures of high inflation and labour shortages in many sectors.

Although the picture was clouded by a weaker than expected reading from the US housing market, where rising prices and interest rates are beginning to take effect, the likelihood remains that the Fed will aggressively pursue the taming of inflation as a priority.

There was also some disappointment in the Asian region as China left interest rates unchanged, despite previous pledges to support an economy which has come under renewed pressure following a surge of Covid-19 cases resulted in more lockdowns across some key industrial areas.

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The cautious tone followed through to the UK in early exchanges, as investors await further company updates and having potentially factored in some of the monetary tightening to come. Buying interest nonetheless remains selective rather than broad based, and the flagship FTSE100 continues to reap the benefit of overseas buying interest given the array of choices it gives to investors who are currently searching for a relatively safe harbour in the current environment.

The index has fallen slightly behind as some further pressure on the miners combined with a number of stocks going ex-dividend, but still remains ahead by 3% in the year to date in a continuing display of outperformance relative to many of its global peers.