Netflix, Tesla And Intel Take Wall Street For A Wild Ride, But The Rally In Stocks Remains Intact

Earnings from Netflix and Tesla took Wall Street for a wild ride last week, but all major equity averages managed to close with slight gains, suggesting that the stock rally remains intact.

The S&P 500 closed at 4,890,97, up 0.81% for the week; the Dow Jones at 38,109.43, up 0.25%, and the tech-heavy Nasdaq at 15,455.36, up 0.61%. These gains added to the previous week's gains when the S&P 500 was up 1.20%, the Dow Jones was up 0.70% and the Nasdaq was up 2.2%.

The continuation of the rally in equities, which took the S&P 500 and the Dow Jones to yet new highs, came as bond prices and yields remained steady. The benchmark 10-year U.S. Treasury bond ended the week with a yield of 4.16%, slightly up from 4.10% from the previous week and above the 3.96% it had traded two weeks ago.

Early in the week, stocks got a boost from a couple of bullish earnings reports from market-moving momentum stocks like Netflix. The streaming giant reported earnings of $2.11 a share on a 13% rise in revenue.

That's thanks to a 5% subscriber growth for the December quarter, bringing the total number of subscribers to 260 million and drawing praise from industry experts.

"Netflix continues to be the hitmaker platform, where shows go to become hits, season after season," Dan Goman, CEO and founder of Ateliere Creative Technologies, told International Business Times. "Their fourth quarter and year-end 2023 earnings are strong, reflecting the success of their content and strategic initiatives like the advertising tier and password-sharing policies. 2023 was a banner year for Netflix, as they kept innovating and growing."

"Netflix's decision to introduce ad-supported tiers to its service has paid off, with ad plans accounting for 40% of all sign-ups," added Stefan Lederer, CEO and founder of Bitmovin. "Introducing ad plans was a gamble for Netflix after its former long-standing opposition to adverts on its service, which is bringing in the dollars. We can expect its ad service to become more sophisticated as it continues to optimize targeting and measurement for advertisers."

The earnings situation was quite different later in the week, following bearish reports from Tesla and Intel. Tesla reported a profit of 71 cents per share for the December quarter and gave disappointing guidance for sales growth in 2024. Intel fared better in earnings per share in the last quarter, but it provided disappointing guidance for the current quarter. Thus, the reversal in some of the tech gains toward the end of the week.

Still, U.S. equities managed to shake off the earnings volatility and end positively, aided by several government reports on the U.S. economy, showing that economic growth remains robust as inflation continues to de-accelerate.

For instance, a report from the U.S. Bureau of Economic Analysis (BEA) on Thursday showed that the U.S. economy grew at an annual rate of 3.3% in the fourth quarter of 2023, beating market forecasts of a 2% rise but below the 4.9% rate in the third quarter.

Then, on Friday, BEA said that the Fed's favored measure of inflation, the PCE price index, rose at an annual rate of 2.6% in December of 2023, unchanged from November and in line with market expectations. The core PCE Price Index, excluding food and energy from the consumer basket, decreased to 2.93% in December, down from 3.15% in November.

These numbers helped reaffirm the popular narrative on Wall Street that the U.S. economy is heading for a soft landing, an ideal environment for stocks and bonds.

Still, Dan Raju, CEO of Tradier, remains skeptical of the recent economic reports and action on Wall Street. "The personal consumption expenditures price index rose by 0.2% in December, indicating that inflation remains a problem for the economy overall and is impacting retail investor sentiment," he told IBT. "Investors seek stability as more tech companies continue to lay off workers and revise earnings, resulting in volatile market conditions across multiple sectors."

Disclosure: The author is short Tesla shares.