Preview of the week starting 16 Oct 2023 - Netflix earnings to rise?

Public Holidays

There are no public holidays in the coming week for Hong Kong, China, the USA & Singapore.

Economic Calendar (16Oct2023)

Economic Calendar for the week of 16 Oct 2023

Notable Highlights

• Retail Sales. Core retail sales & retail sales data will be released. This will be a good reference on domestic consumption in the USA.

• China’s GDP will be released. This can be a good indication for global consumption.

• Building Permits and Existing Home Sales will be released in the coming week. These will be a good reference for the real estate in the USA. There were concerns that a real estate bubble. The data will help to give better insights for this sector.

• Philadelphia Fed Manufacturing Index will allow us some insights on the manufacturing sector in the USA.

• Jobless claims. Initial jobless claims will be announced on Thursday. This would form critical data points for the Fed to decide on the next interest rate adjustment. This is part of the data consideration for the Fed in their coming interest rate decision.

• Crude Oil Inventories can be seen as forward indicators of market demand and consumption. If the trend of excess inventories continues, this implies demand erosion that can lead to reduced production & weakening consumer spending.

Earnings Calendar (16Oct2023)

For the coming, there are a couple of earnings of interest in the coming week. Personally, the earnings of the following companies are interesting namely, Charles Schwab, Bank of America, Tesla, Netflix & TSMC.

Let us take a look at the earnings of Netflix in detail.

Earnings of Netflix (NFLX)

Observations:

• This is the performance of Netflix for the last 10 years (since 2013).

• Revenue has grown from $4.375B (2013) to $31.616B (2022)

• The 10-year median gross profit averages at 34.6% and an average pre-tax income of 7.1%.

• However, there are some concerns of -6.7% FCF (10-year median).

• Operating profits have grown from $228M (2013) to $5,633M (2022).

• EPS has grown from $0.26 (2013) to $9.95 (2022).

In the last 1-year, the stock has increased 52.97%. The stock is considered volatile with a beta of 1.29 and the P/E ratio stands at 37.27 with a market cap of $158.4B.

For the coming earnings, the forecast of the quarterly EPS and Revenue stands at 3.51 and $8.54B. Will Netflix be able to defy the downward trend?

Market Outlook - 16Oct2023

Technical observations of the S&P500 1D chart:

• The Stochastic indicator looks to complete a top crossover in the coming days. Thus, the outlook for this week should end with a downtrend.

• The MACD indicator is on an uptrend.

• Moving Averages (MA). The MA50 line has started a downward trend and the MA200 line is on an uptrend. With the last candles below the MA50 line and above the MA200 line, this can be interpreted as an uptrend in the long term. For the mid-term, it is on a downtrend. As the 2 lines move closer, there is a chance of the formation of a death cross - typically, a bearish indicator. This will take weeks before this death cross is formed and changes are possible.

• Exponential Moving Averages (EMA). All the 3 EMA lines are indicating a downtrend but with the conversion of 2 EMA lines, there is a chance for a reversal to an uptrend. This reversal may be completed in the coming days.

From the 1D technical indicators above, there are a total of 11 (Buy), 11 (Sell) and 1 (Neutral). Investing recommends the “NEUTRAL” recommendation based on the technical indicators above (1D chart for S&P500).

This week should be a downtrend for the S&P500.

News and my thoughts from the last week (16Oct2023)

• CNN > General Motors and Ford are laying off almost 900 additional workers between them, blaming the expansion of the strike announced by the United Auto Workers union at those companies on Friday.

Auto loan delinquencies have risen past pre-COVID levels.

• Business Today > Amazon has slashed jobs in communications divisions in Amazon Studios, Amazon Prime Video & Amazon Music verticals. Around 5% of the workforce has reportedly been impacted in the communications divisions.

• Business Insider > Bloomberg reported losses on Treasury bond with maturities of 10 years or more had notched 46% since March 2020, while the 30-year bond had plunged 53%.

• CNBC > More than 2,000 people were killed in earthquakes in Afghanistan and more than 9,000 injured, the Taliban administration said on Sunday, in the deadliest tremors to rock the quake-prone mountainous country in years.

• The Kobeissi Letter > The average payment on a new home is now at a record $2,900/month. The average house is now renting for a record $1,900/month. The average new car payment is now at a record $740/month. The average used car payment is now at a record $530/month. The average student loan payment is now $500/month. The average gallon of gas is now nearing $4.00 again. The average household credit card balance is now at a record $7,300. The average household will have $0 of excess savings by the end of this quarter. How can the average person afford to live?

• BREAKING: 4,000 UAW members at Mack Trucks have voted to REJECT a tentative agreement, and will STRIKE at 7 am on Monday.

  "I'm inspired to see UAW members at Mack holding out for a better deal, and ready to stand up and walk off the job to win it," said UAW President Shawn Fain. The Big 3 have laid off nearly 5,000 workers since the start of the historic United Auto Workers (UAW) strike against Ford (F), General Motors (GM), and Stellantis (STLA).

WSJ > The New York-based co-working company said in a regulatory filing Monday that it owed $37.3 million in cash and $57.9 million payable on payment-in-kind notes to lenders on various notes.

• My investing approach: My outlook is based on the data that I receive. When the data changes, my approach changes though fundamentals must be "updated" regularly. "I could be wrong" is my approach.

• I have learned a new term - data poisoning when bad data is introduced to pool of good data causing the data source to be less than adequate.

• WSJ > UAW Strikes at Ford's Largest Factory. The plant’s 8,700 workers walked off the job at 6:30 p.m., marking the largest strike action taken by the UAW

• Business Times > Coal’s coming decline has 400,000 miners facing layoffs by 2035: report

• Business Insider > The US's $33 trillion debt pile is reflecting "unsustainable" fiscal policy, the IMF said. The government has already racked up a $1.5 trillion deficit in the first 11 months of 2023.

• I have attended several AI-related seminars. AI should be a big part of our future. Most of the solutions address the science of AI. Perhaps, solutions that marry the art and Science of AI should do the best.

• Food, Energy and Border security or independence remain key for countries. Without which, countries are at risk and conflicts may surface.

• CNBC > Pharmacy staff from Walgreens are laying the groundwork for a nationwide walkout & multiple rallies to protest unsatisfactory working conditions, and are in talks with employees from other retail pharmacies about joining them.

• Reuters > Workers at Amazon UK warehouse to walk out on Black Friday

My investing muse - CPI, Q3 Earnings outlook and LEI

Inflation - CPI

CPI (inflation) YoY came in at 3.7%, hotter than the forecast of 3.6%. With the PPI showing a significant 0.5% compared to 0.3% forecast, it is likely that the coming inflation (CPI) figures will trend upward. With this, the Fed will review the need for another interest rate increase or to keep the rates per status quo.

With inflation using a YoY formula, we should not forget the accumulative impact of inflation. From BLS, $100 in January 2020 has the same buying power as $119.31 in September 2023. This is an accumulated inflation of 19.31% since 2020.

Has your income increased by at least 19.31% since Jan 2020? Prices have continued to rise almost 20% since Jan 2020. Thus, more households are facing a “cost of living” challenge. With the impact of Commercial Real Estate (CRE), the resumption of the student loan would add more strain to the families. The increasing household debts from credit cards, mortgages, rentals & cars would add to the challenges ahead.

S&P500 Earnings Growth

FactSet has advised on the following for Q3/2023:

$SPX is expected to report a Y/Y earnings decline of -0.3% for Q3 2023, which would be the fourth straight quarter of Y/Y earnings declines for the index.

For the coming Q3 earnings, it is expected that S&P500 to see a decline along with the sectors of healthcare, materials and energy.

The other sectors of expected growth in the coming earnings include Communications services, consumer discretionary, Utilities, Financials, Info Technology, Real Estate and Consumer staples.

The sectors with the biggest growth forecast are Communications Services 31.5%, Consumer discretionary (22.0%) and utilities (12.5%)

The Conference Board’s Leading Economic Indicators (LEI) update

18 months of decline in leading economic indicators (LEI). Thus, the recession is expected next year as per the conference board. With the above, The Conference Board have raised their concerns about a pending recession.

Conclusion

With the Gaza conflict, the Middle East will be the next media hotspot. Will this add to the challenges in the global supply chain? There are more data that are pointing to a challenging time ahead.

I recommend caution and let us research before investing.

@TigerStars

$Netflix(NFLX)$

$S&P 500(.SPX)$

$Tesla Motors(TSLA)$