Power Hour: Rotation into value stocks as Netflix disappoints

The stock market is fending off the disappointing subscriber news from Netflix ( NFLX 224.85, -123.65, -35.5%) with a rotation into value stocks. The S&P 500 is up 0.3% and is looking up to both the Dow Jones Industrial Average (+1.0%) and Russell 2000 (+0.8%).

The Nasdaq Composite (-0.8%), however, is feeling the weight of Netflix and its negative effect on names like Meta Platforms ( FB 201.39, -15.86, -7.3%) and Amazon.com ( AMZN 3100.61, -61.70, -2.0%).

Briefly, shares of Netflix have tanked over 35% after the company lost 200,000 global paid subscribers in Q1 and estimated it will lose another 2 million subscribers in Q2. A bunch of analysts on Wall Street have downgraded the stock while investors brace for similar disappointments in streaming competitors and other growth stocks.

Fortunately, investors haven’t been spooked by the disappointing news and/or reactions, as shown by gains in nine of the 11 S&P 500 sectors, the 2-to-1 advantage for advancing issues over declining issues at the NYSE, and the 0.9% gain in the Russell 3000 Value Index.

The health care (+1.7%), real estate (+1.9%), consumer staples (+1.4%), financials (+1.3%), industrials (+1.1%), and utilities (+1.1%) sectors are each up more than 1.0%. The two holdouts are the communication services (-3.7%) and consumer discretionary (-0.8%) sectors.

A supportive factor has been better-than-expected earnings reports from heavyweights like Procter & Gamble ( PG 163.01, +3.60, +2.3%), Abbott Labs ( ABT 123.80, +3.82, +3.2%), IBM ( IBM 139.09, +9.99, +7.8%), and Anthem ( ANTM 527.99, +11.36, +2.2%).

In addition, long-term interest rates are backing down from recent highs with the 10-yr yield down five basis points to 2.86% while oil prices ($101.22/bbl, -0.82, -0.8%) are extending yesterday’s sell-off with a modest intraday decline.

The Dow Jones Transportation Average is another pocket of strength with a 2.3% gain. Avis Budget ( CAR 317.23, +31.88, +11.3%) stands out with an 11% gain after the stock was upgraded to Equal Weight from Underweight at Barclays.

Reviewing today’s economic data:

  • Existing home sales decreased 2.7% month-over-month in March to a seasonally adjusted annual rate of 5.77 million (Briefing.com consensus 6.20 million) versus a downwardly revised 5.93 million (from 6.02 million) in February. Total sales in March were down 4.5% from a year ago.
  • The key takeaway from the report is that the supply of available homes for sale remains extremely tight, yet higher mortgage rates and higher inflation are contributing to a slowdown in demand rooted in affordability pressures that are expected to persist.
  • The weekly MBA Mortgage Applications Index decreased 5.0% following a 1.3% decline in the prior week.
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