Just tomorrow! Tesla and Netflix may influence the US stock market this week!
Corporate profits are under pressure. Has the downward revision of profit expectations been digested by the market? The better-than-expected performance and guidance from tech giants are not enough. Be cautious of a sell-off after the earnings report! Once investors start to sell the news, be wary of a widespread decline in tech stocks.
The curtain of the US stock earnings season has been raised, with streaming giant Netflix and electric vehicle leader Tesla taking the lead. These two heavyweight performance reports are likely to determine whether the US stock market will rise or fall this week!
After the US market closes on Wednesday, July 19th, Netflix and Tesla will both announce their earnings reports. Outperforming expectations does not necessarily guarantee an increase in stock prices, and underperforming expectations does not necessarily mean a significant decline. Why is that?
Firstly, it should be noted that in the past 90 days, Wall Street analysts have raised the median earnings per share expectations for the "Big Seven" US stocks, including Microsoft, Apple, Meta, Alphabet-C, Amazon, NVIDIA, and Tesla, by 5.4%.
However, despite the upward trend in earnings expectations for large-cap tech stocks, the earnings per share expectations for companies in the S&P 500 index components have still declined by 8.1% compared to the same period last year, mainly due to pressure on profit margins. The current issue in the market is whether the downward revision of earnings expectations has already been absorbed by the market.
At present, companies may need to announce better performance and provide guidance for the next few quarters that exceeds expectations in order to satisfy shareholders. Otherwise, there is a high probability that stock prices will fall.
However, it is not enough to simply have earnings reports that outperform expectations.
Let's not forget last Friday when major Wall Street banks unexpectedly released excellent earnings reports, causing investors to sell off due to the significant difference from expectations. This resulted in a decline in the overall US stock market.
Considering that the US stock market usually faces stronger headwinds in the summer - since 1971, August and September have been the two worst-performing months on average for the Nasdaq index - there is an increased risk of sell-offs for US companies after announcing their earnings.
As leaders in their respective industries, Netflix and Tesla are likely to have a significant impact on the US stock market. Investors in stocks related to streaming, new energy vehicles, such as Disney, Ford, and "Wee Small Rationality," should be cautious this week.