EmailThe major indices are going to start today's session on the softer side of things, partly because Netflix (NFLX) failed to live up to the high expectations embedded in its own guidance and stock price.
Shares of NFLX are down 13% in pre-market trading after the entertainment giant -- and growth-stock darling -- reported 5.2 million global net additions in the second quarter versus a company forecast of 6.2 million. The company, which topped second quarter earnings estimates, issued third revenue, EPS, and global net additions guidance for the third quarter that was below analysts' average expectations.
The sting of the Netflix disappointment can be seen in the Nasdaq 100 futures, which are down 18 points and trading 0.9% below fair value.
The fallout in shares of NFLX has weighed on other growth/momentum stocks, namely its FAANG cohorts, which include Facebook (FB), Amazon.com (AMZN), Apple (AAPL), and Alphabet (GOOG). Those stocks are all down between 0.4% and 1.2%.
Frankly, the broad market fallout from the Netflix disappointment isn't that bad. In fact, it could be spun as a positive potentially in that it will awaken investors to the understanding that there is a big universe of stocks out there that don't have the crowded positioning the FAANG stocks do and which sport less demanding valuations.
The S&P futures are down five points and are trading 0.3% below fair value while the Dow Jones Industrial Average futures are down 14 points and are trading close to fair value.
Boeing (BA) is providing a measure of relative strength, trading up 0.6% after increasing its long-term commercial airplane forecast and announcing new orders at the Farnborough International Airshow valued at $9.6 billion at current list prices.
Fellow Dow component Goldman Sachs (GS) is helping, too, with a pre-open gain of 0.6% after the investment bank posted second quarter earnings that were well ahead of analysts' consensus earnings estimate. Johnson & Johnson (JNJ) is up 1.1% after topping second quarter expectations, too.
UnitedHealth (UNH), which is another Dow component, exceeded second quarter earnings estimates but is trading down 1.8% before the open.
The important takeaway is that there is some appreciation for the existence of life outside the FAANG galaxy. That is keeping the broader market relatively stable as the gravitational pull of Netflix holds down other growth stocks.
In general, though, it is fair to say that buying conviction outside the FAANG galaxy is still restrained and still altogether muted in the very early stages of the second quarter earnings reporting period.
The S&P 500, which closed at 2798.20 ahead of the earnings reports from JPMorgan Chase's (JPM), Citigroup (C), and Wells Fargo (WFC) last Friday, closed yesterday at 2798.43.
Clearly, the fallout after the Netflix disappointment has cast a pall on investor sentiment before today's opening bell. Market participants are likely waiting to see how things take shape in the regular session when there is more liquidity.
Will there be a rotation from growth into value? Will financials and/or industrials and/or health care benefit from a rotation out of the information technology sector?
These are some questions that are playing in the market's mind right now. What is also playing in its mind is the recognition that Fed Chairman Powell will be appearing before the Senate Banking Committee at 10:00 a.m. ET to provide his semi-annual monetary policy report.
There will a lot of interest in his views for obvious reasons, yet there will be added attention on his answers pertaining to the expected impact of fiscal stimulus and protectionist trade matters.
