The plunge in Netflix, whose shares fell 36 per cent last week after its March quarter earnings showed a small drop in subscribers, neatly brought together these narratives. At the same time as inflation pushes up the company’s costs and also cuts into its customer numbers, rate hikes compound the pressure on its valuation.
Netflix’s status as a household-name stock previously beloved by both professional investors (hello, Bill Ackman and Hamish Douglass) and retail punters meant its fall had a broader impact on sentiment last week.
But that would pale into insignificance if we saw a meaningful sell-off in the two tech titans who report quarterly earnings this week: Microsoft (which reports on Tuesday night) and Apple (out Thursday night).
As New York-based financial adviser Joshua Brown argues on his excellent blog The Reformed Broker, the fact these two widely held stocks remain relatively close to their record highs has been vital to limiting Wall Street’s losses this year to 7 per cent.
The pair, with a combined market value of $US4.7 trillion ($6.7 billion) account for huge chunks of the world’s most-watched indexes – the S&P 500, the Nasdaq 100 and the Dow Jones Industrial Average. As Brown eloquently puts it, Apple, with a market cap of $US2.7 trillion “is not merely another planet in the Nasdaq solar system like PayPal or Amazon, it is the sun itself”.
But both stocks are under pressure, with Apple down 9 per cent since April 4, and Microsoft down 13 per cent over the same period. Brown argues they are now approaching levels where investors have previously rushed in to buy.
If this week’s earnings reports disappoint in any way – something that’s not difficult in a skittish market – then any resulting sell-off would have big ramifications for the broader market.
Of course, good news from Apple and Microsoft could buoy global markets and as Harnett points out, for all the doom and gloom investors have bought the dip in US tech stocks for eight weeks running.
But the uber-bear remains convinced reality will bite. “Central banks [are] the oncoming freight train, and will tighten until credit and/or consumers break.”
