Fourth quarter earnings season kicks off this week, with reports from several market-moving companies likely to set the tone for stocks in the near term. Big tech and automakers take center stage in a busy week packed with inflation and manufacturing data as well.
Tesla and Netflix Earnings to Test Record Highs
Electric vehicle maker Tesla and streaming giant Netflix deliver highly anticipated quarterly scorecards this week [1]. With stocks hovering near all-time peaks, the reaction to results from these market darlings could determine whether major indexes can extend their record run.
Tesla CEO Elon Musk has predicted record production and deliveries when the company reports January 25, despite economic uncertainty weighing on demand [2]. The auto pioneer likely saw strong uptake of its Model Y and Model 3. Investors expect 40% revenue growth.
| Metric | Expected | Prior Year |
|---|---|---|
| Revenue | $24.67 billion | $17.72 billion |
| Adjusted EPS | $1.19 | $0.85 |
Netflix serves up fourth quarter results January 19 amid increasing competition in streaming and password sharing crackdowns [3]. The company surprised markets last quarter with 2.4 million customer additions. But another loss of subscribers could batter shares already down 50% over the past year.
Beyond headline numbers, markets want evidence both companies can sustain growth and profitability. Their reports could validate record index levels or trigger a reality check.
Semiconductors in Focus
Chipmakers face growing inventory gluts and waning demand, though specific dynamics differ across the sector [4].
Intel’s quarterly update Thursday comes after the company slashed capex targets amid the personal computer market downturn. Its rapid expansion into chip production also requires huge investment with a delayed payoff. Analysts forecast a nearly 40% earnings plunge.
Texas Instruments reports the same day. The analog chip expert generates heavy cash flow it can allocate to dividends and buybacks during the downturn. Its diversified business model helps smooth volatility.
Results from semiconductor suppliers Lam Research on Wednesday and KLA Corp Thursday provide additional data points on underlying supply and demand trends.
Inflation Pressures Still Cloud Outlook
The October producer price index on Tuesday underscores whether pipeline inflation pressures are stabilizing as the Federal Reserve wants [5]. Consumer spending trends revealed Friday offer insight on household budgets amid stubborn inflation.
Manufacturing readings Monday through Friday cover national and regional factory health. Surveys likely show ongoing supply constraints and inventory issues, though hints of improvement would aid market sentiment. The FOMC meets next week to potentially slow its tightening pace.
On the earnings front, airlines, railroads, consumer products giants, telecoms, healthcare firms, and more round out a packed week. Reports spanning a variety of sectors make it a telling stretch for broader economic appraisals.
With stocks anticipating confirmation of a soft landing, weak outlooks or signs of consumer stress could prompt volatility. But markets seem optimistic resilient corporate profits offer room for more gains.
Automaker Earnings Parade Rolls On
legacy carmakers General Motors Tuesday and Ford Motor Wednesday follow Tesla amid shifting consumer preferences and production challenges [6]. The Detroit duo needs to show their electric vehicle investments are closing the gap with industry leader Tesla.
But parts shortages continue hampering output, inventory remains low, and discounts are nonexistent. Pricing power and strong demand buoy revenues yet volume growth stalls. Cost inflation also crimps margins.
That makes Ford and GM’s ability to scale EV production this year vital to financial results. Sales updates will be closely watched to see if consumer appetite shows any signs of satiation from recessionary worries.
What Happens Next
With no major negative catalysts apparent, the U.S. economy seeming increasingly likely to achieve a soft landing, and treasury yields declining, stocks may have room to add modest gains.
But much depends on the Federal Reserve’s tone toward further rate hikes when policymakers meet January 31 to February 1. Markets expect a lower 25 basis point increase, and hope for hints of a pause or pivot this year [7].
Corporate commentary around demand trends carries extra significance with rosy projections potentially giving bulls more moxie. On the other hand, conservative or downbeat outlooks may prompt traders to take risk off the table for a market breather.
Still, stocks already endured the bulk of monetary tightening effects, leaving valuations more attractive for long-term investors. Dips remain buying opportunities. Though volatility will linger amid global headwinds, the path of least resistance seems to be up over time.
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