In New York markets are heading full steam into a critical Q3 earnings season after the three major indices all suffered losses of varying degrees through August and September.

Up front, it’s all about Tesla (TSLA) and Netflix (NFLX) and then we’ll be getting a handy read on where the semiconductor firms are headed with Dutch chip-making-tools-maker ASML (ASML) and its best customer, Taiwan Semiconductor (TSM).

The season arrives as surging US Treasury yields do the hurt on Wall Street, while unending investor anxiety over the Federal Reserve holding rates higher for longer, heightens broader concerns of what a recession might amid stronger cost of living pressures.

That of course has underpinned 2023, when we kicked the year off expecting big things from China and as The Fed vs Inflationary conditions looked headed for a tie with recession for last man standing.

Unfortunately/fortunately – jobs and retail data continues to imply the hidden (wealth of) resources within both the US consumer and the US economy.

Historically the run into Christmas is the S&P500’s most gregarious period of buying – the index has risen 70% of the time going back to October 1953, and when it does the gains are close to a handsome 7%.

Now that Big Tech – Apple (AAPL) Amazon (AMZN), Google parent Alphabet (GOOG, GOOGL), Meta Platforms (META), Microsoft (MSFT), Nvidia (NVDA) and Tesla (TSLA) carry a combined circa 30% of the entire US benchmark market cap, the bulls are encouraged that decent earnings will propel Wall Street out of its recent malaise.

Morgan Stanley says stocks are positioned for a Q4 rally after the losses of the past few months, while Wedbush believes ‘transformational AI growth and stabilising IT spending… will create a massive tech rally heading into year end.’

Analyst Dan Ives predicts tech stocks to be up another 12%-15% over the final quarter of the 2023.

 

Corporate Earnings and the Wall Street Christmas Quarter

As per tradition, the US banks kicked off  Q3 earnings late last week, delivering surprisingly upside results and forward guidance.

JPMorgan Chase (JPM), Citigroup (C) and Wells Fargo (WFC) all delivered beats which analyst have taken on board as further proof of the resilience of the US consumer.

The implication may well be that while the Fed’s been whacking away at inflation, the consumer (and their jobs, retail and sentiment) has been impacted to a far lesser degree than Wall Street.

We also learnt on Friday of Lululemon’s (LULU) imminent ascension to the S&P 500, which becomes a thing, from Wednesday night Sydenham time.

The “athleisure” fitness fashion brand is replacing Activision Blizzard, after Microsoft’s US$69 billion acquisition was finally green-lit by regulators. It may also be a handy proxy for that great retail weathervane Nike (NIKE), and if so, the weather is better than economists have imagined.

LULU stock is up 25% so far in 2023, and joins 22 other S&P 500 companies that are officially based outside of the US — and the only one based in Canada.

In a celebratory nod, the share price practically levitated on Monday, closing well over 10% higher.
 

US Earnings Calendar Highlights This Week

Monday 
Charles Schwab (SCHW); Equity LifeStyle Properties (ELS)

Tuesday
Johnson & Johnson (JNJ); Bank of America (BAC); Lockheed Martin (LMT); Goldman Sachs (GS).

Wednesday
Tesla (TSLA); Procter & Gamble (PG),; Abbott Laboratories (ABT), Netflix (NFLX); Morgan Stanley (MS).

Thursday
Philip Morris International (PM); Union Pacific (UNP); AT&T (T); Taiwan Semiconductor Manufacturing (TSM); American Airlines Group (AAL).

Friday
American Express (AXP); Schlumberger (SLB).

 

Tesla (TSLA) – Wednesday 18th

The Street reckons TSLA will earn 0.74 US cents per share (EPS) on revenue of US$24.16 billion. This compares to Q322 when EPS hit US$1.05 on revenue of US$21.96 billion.

TSLA remains the third top S&P500 stock this year so far, up more than 100%.

And yet, Tesla’s been right in there among its Magnificent 7 peers in losing heavy ground amid the recent Fed-led pullback in growth and in particular tech stocks, while TSLA coverage in that time has featured some sharp lowering of forecasts for Q3 earnings estimates.

One problem for Elon has been TSLA’s conservative delivery numbers dropped earlier this month with, that’s been exacerbated by the willy-nilly approach to discounts which has pretty much led to the electric vehicle price war – mainly with Chinese brands (and that’s rarely a fight foreign brands can win). Tesla’s cars are circa 25% cheaper now than they were a year ago.

And the world is catching up too. No less than 13 brand new EV models emerged on the global market during Q3, and will soon be alongside TSLA in the competition for TSLA’s dominant market share.

Still, TSLA is churning out an incredible volume of EVs; the company says some 1.8 million vehicles will be spat out of the various gigafactories this year one of the reasons TSLA remains the only EV maker to consistently make money. In this regard, Elon remains his only competition.

There’s the unparalleled war chest too – Tesla’s massive cash card with very little in debt to speak of – superb free cash flow, some US$23 billion in cash and not even a bill in long-term low-interest debt.

As the Nasdaq’s Richard Saintvilus says: “Until these fundamentals change, Tesla stock should be owned, not traded.”

 

Netflix (NFLX) – Wednesday 18th

FactSet says Wall Street has Netflix pulling in an EPS of US$3.49 a share on sales of US$8.53 billion vs the US$3.10 it made on sales of US$7.93 billion for Q3 last.

Q3 profit is seen rising 12%.

Netflix stock has been out front of the tech losses of late, shorn of some -20% compared with the mere 2.5% fall on the benchmark S&P 500.

Shares gapped down sharply on July 20 when the company reported second-quarter results. The good news was that Netflix added 6 million subscribers during the period, well above expectations.

The stock was up 60% earlier in the year and the streaming-content giant’s pullback has been part of the broader re-evaluation of megatech ever since The Fed’s fight vs inflation came back into play.

Still,  analysts expect the subscription content-on-demand service to have found a startling 5.3 million new subscribers during the last three months.

Netflix last week flagged job cuts from its animation studios and shut down two films in preproduction. The news came one day after Piper Sandler maintained a neutral rating on NFLX stock but lowered Netflix’s price target to US$400 from US$440, citing margin squeeze.

Shares also dropped last week when Wolfe Research rerated NFLX to Peer Perform from Outperform.

Currently trading at around US$355 a pop, Netflix still has potentially 30% returns based on its aggregate 12-month price target of US$460.

However, after its huge early 2023 run, it’s circa 20% gains now badly lags the heroics of the Nasdaq-100 which is up 40%.

That could see a strong beat drive the stock higher, faster.

It’s been a terrifically adroit crackdown on the account/password sharing and the easy money it delivers is why lots of analysts reckon Netflix can clock its aforementioned consensus price target. UBS says the company is ‘operating more efficiently and is looking to capitalise on its existing 238 million global subscribers’ through the newly launched ad-based plans and the various growth initiatives are paying dividends.

 

Goldman Sachs (GS) – Tuesday 17th

Wall Street expects Goldman Sachs to report Q3 earnings per share (EPS) of US$5.31 when it reports results on Tuesday (tonight AEDT), according to aggregate analyst estimates compiled by FactSet. That’d be a dreadful -36% decline from last year’s EPS around the same time US$8.25.

Goldman just looks set to remain in relative doldrums, en route to another set of dolorous quarterly earnings.

it’s tough being a super investment bank every now and again when M&A is largely off the table, deal-making is doubtful and Goldman’s usually bumptious consumer business is now a loss-making albatross.

Goldman’s previous report – Q2’s disastrous earnings – where GS profits that sank to a three-year low – really set the stage for this week and aside from culling a few bankers it’s a victim of circumstance and previous succes.

And remember the pandemic-powered 2021 was a stunning time for the investment bank as the money taps flowed. Goldman’s performance has been sublimely subdued ever since than as inflation, rising rates, economic uncertainty and geopolitics made deal-making a non-event.

 

Johnson & Johnson (JNJ) – Tuesday 17th

Wall Street expects Johnson & Johnson to deliver earnings of US$2.51 per share (EPS), on lower revenue down 11.6% on last year to $21 billion.

The pharma giant set to disclose its third-quarter results ahead of Tuesday’s open and JNJ is near the bottom of the pack for Dow stocks in terms of price performance this year based on its total return (price change plus dividends) of 9.6%.

Profits are thought to come in some +12.6% year-over-year and according to FactSet data US analysts are anticipating ‘solid bottom-line growth’ in JNJ’s third-quarter earnings report.

Wells Fargo says JNJ  will drop  Q3 earnings per share “at least in line with our above-Street estimate.”

The bank predicts “continued procedure recovery and solid pharma momentum.”

 

 

 

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