🎙Equity Market Retreated🪜

Nasdaq had a poor showing while other indices remained firm as the markets see-saw within the week for gains and losses. The sour sentiment of Netflix pulled down technology stocks but investors welcome a better than expected reading from the just released Tesla results. This should provide support for the earnings season as community banks reported generally strong results, allaying worries of an expected “recession fear”.

🧨Netflix: A miss that is worrying💊

A disappointing quarterly result had sent its stock price to tumble. This is on the news that it had a net loss of subscribers for the quarter, far away from the expected addition of 2.5 million subscribers. In Russia, it had lost about 700,000 subscribers after suspending service in the country., Removing this effect, the company probably net added 500,000 subscribers for the quarter. 

The forecast dimmed the outlook further. It expects to lose another 2 million net subscribers for the coming June quarter, falling behind Wall Street’s estimate. This had a ripple effect across other related competitors such as Roku and Disney. 

🏸What had caused the weaker performance ?💈

It is attributed to the presence of account sharing. Netflix estimated that with its 222 million households paying for the subscription, about an additional 100 million used shared accountings, of which 30 million are in the US and Canada. Hence, it explores the vast potential of those nonpaying households to push down such sharing beyond the same household family. 

Next, competition has become stiffer, and with more entertainment companies moving to the streaming sphere, it motivates Netflix to focus on high retention and customers satisfaction. Other macroeconomic factors include weaker economic growth and inflation. Russia naturally topped the main reason, and some Covid-19 disruption matters. 

Pika World will be on the sideline as we explore potential opportunities in price weakness.

🚖Discretionary stocks are weakening, Beware⏱

Consider the ticker RCD, an ETF,  which comprises the discretionary consumer stocks, and has fallen from its high since mid-November. A bear market is perhaps approaching in the sector. It has been in the correction territory since the Fed decided to lift interest rates multiple times, possibly over the next few years. That can dampen expenditure in the area of cars, hotels and cruises. 

The rising wages and higher commodity prices are eroding the profit margin of many companies that are highly dependent on such discretionary spending. It has become more evident as the first quarter result of S&P 500 discretionary companies (excluding internet retailers) is expected to fall by 13.6% on a yearly basis. 

While sales can grow, the fall in margin would eat up the earnings per share by a possible 4.8% yearly. Then, investors would have to consider if such situations have been factored into the stock prices or perhaps more decline is on the horizon. 

Market participants seemed not to have factored in and expected more weakness. For example, trading action showed that it has fallen from its peak of $160, and with each rebound, the recovery lacks momentum and moves down to a lower range. If it cannot recover above $140, it could hint at entering the bear territory.