- Core PCE inflation, Q4 GDP, and more earnings will be in focus this week.
- Netflix (NASDAQ:NFLX) is a buy with strong earnings, subscriber growth expected.
- Tesla (NASDAQ:TSLA) is a sell amid weak profit growth, disappointing guidance on deck.
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Stocks on Wall Street finished higher on Friday to notch another winning week as big tech shares rallied amid ongoing expectations the Federal Reserve will cut interest rates in 2024.
The benchmark S&P 500 and the blue-chip Dow Jones Industrial Average both closed at new record highs, with the former doing so for the first time in more than two years to confirm a bull market.
For the week, the Dow rose 0.7%, the S&P 500 gained 1.2%, and the NASDAQ Composite jumped 2.3%.
The week ahead is expected to be another busy one as earnings season shifts into high gear, with reports expected from several high-profile companies, including Tesla, Netflix, IBM (NYSE:IBM), and Intel (NASDAQ:INTC).
Some of the other notable reporters include Visa (NYSE:V), American Express (NYSE:AXP), AT&T (NYSE:T), Verizon (NYSE:VZ), Johnson & Johnson (NYSE:JNJ), Procter & Gamble (NYSE:PG), General Electric (NYSE:GE), 3M Company (NYSE:MMM), Lockheed Martin (NYSE:LMT), American Airlines (NASDAQ:AAL), and United Airlines (NASDAQ:UAL).
In addition to earnings, most important on the economic calendar will be Friday’s core personal consumption expenditures (PCE) price index, which is the Federal Reserve’s preferred inflation measure. As per Investing.com, core PCE, which strips out volatile food and energy prices, is seen rising 3% year-over-year in December, slowing from 3.2% in the preceding month.
Other economic data set to drop includes the preliminary Q4 GDP reading, which will provide more clues as to whether the economy is heading for a soft-landing.
Meanwhile, Federal Reserve officials will be in a blackout period ahead of the U.S. central bank’s policy meeting scheduled for January 30-31.
As of Sunday morning, financial markets see a 53% chance of the Fed leaving rates at current levels in March, according to the Investing.com Fed Rate Monitor Tool, compared to a 47% probability of 25 basis point rate cut.
Regardless of which direction the market goes, below I highlight one stock likely to be in demand and another which could see fresh downside.
Remember though, my timeframe is just for the week ahead, Monday, January 22 - Friday, January 26.
Stock To Buy: Netflix
I foresee another strong performance for Netflix(NASDAQ:NFLX)’s stock in the week ahead, possibly culminating in a breakout and a push towards new 52-week highs, following the release of the streaming giant’s fourth quarter earnings report.
Netflix is scheduled to deliver its Q4 update after the U.S. market closes on Tuesday at 4:00PM ET, and results will surprise to the upside in my view thanks to improving consumer demand trends and a favorable fundamental outlook.
Market participants expect a sizable swing in NFLX shares following the print, as per the options market, with a possible implied move of about 9% in either direction. The stock soared 13% after the company’s last earnings report in mid-October.
It should be noted that Netflix’s profit estimates have been revised upward 17 times in the last 90 days, according to an InvestingPro survey, as sentiment grows increasingly bullish on the streaming video leader.
As seen above, Netflix is seen earning $2.23 a share for the fourth quarter, soaring over 1,700% from EPS of just $0.12 in the year-ago period, amid the positive impact of ongoing cost-cutting measures and reduced content spending.
Meanwhile, revenue is forecast to increase 11% annually to $8.71 billion, as the company benefits from its new lower-cost, ad-supported basic subscription tier and amid intensifying efforts to crack down on illegal password-sharing.
If that is in fact confirmed, it would mark the highest quarterly sales total in Netflix’s 17-year history, as more people sign up for its video streaming services amid the current environment.
As such, I reckon Netflix will maintain its rapid pace of subscriber growth and easily top Wall Street estimates of about 8.8 million new global subscribers added during the December quarter.
NFLX stock ended Friday’s session at $482.95, not far from its highest level since January 2022, earning the Los Gatos, California-based company a valuation of roughly $211 billion.
Shares are down 0.8% through the first three weeks of 2024, following a 65% rally in 2023.
Stock to Sell: Tesla
I expect Tesla (NASDAQ:TSLA) will suffer a challenging week ahead, with a potential breakdown to fresh lows on the horizon, as the Elon Musk-led electric vehicle maker will deliver underwhelming earnings in my view and provide a weak outlook due to the negative impact of various headwinds on its business.
Tesla’s fourth quarter update is scheduled to come out after the close on Wednesday at 4:10PM ET in what will likely be the most closely watched report of the week. A call with analysts is set for 5:30PM ET.
Underscoring several near-term headwinds Tesla amid the current climate, 21 out of 23 analysts surveyed by InvestingPro reduced their EPS estimates in the past three months to reflect a drop of 45% from their initial expectations.
Market participants expect a sizable swing in TSLA stock following the print, with an implied move of about 8% in either direction as per the options market. Notably, TSLA shares declined 4.4% after the last earnings report to suffer their third straight earnings-reaction-day selloff.
Consensus expectations call for the Austin, Texas-based EV giant to post Q4 earnings per share of $0.74, slowing 37.8% from a profit of $1.19 in the year-ago period.
Revenue is seen rising 5.8% year-over-year to $25.7 billion, while Tesla’s Q4 automotive gross margin is forecast to come in at 18.1% with average selling prices falling.
Tesla’s margins have come under pressure in recent quarters due to the negative impact of its ongoing price-slashing strategy. The ongoing price cuts have fueled concerns that it is having to offer discounts on its vehicles to retain market share in the face of weakening demand and growing competition from traditional legacy automakers as well as Chinese EV startups.
As such, it is my belief that Elon Musk and Tesla executives will disappoint investors in their forward guidance for the first quarter of 2024 and strike a cautious tone amid the uncertain macroeconomic environment and declining operating margins.
TSLA stock closed at $212.19 on Friday, the lowest since Nov. 9, 2023. At its current valuation, the EV company has a market cap of $674.5 billion, earning it the status of the world’s largest automaker.
Shares have gotten off to a downbeat start to the new year, tumbling 14.6% in the first few weeks of 2024 after ending 2023 with a gain of 101.7%.
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Disclosure: At the time of writing, I am long on the S&P 500, and the Nasdaq 100 via the SPDR S&P 500 ETF (SPY), and the Invesco QQQ Trust ETF (QQQ). I am also long on the Technology Select Sector SPDR ETF (NYSE:XLK).
I regularly rebalance my portfolio of individual stocks and ETFs based on ongoing risk assessment of both the macroeconomic environment and companies' financials.
The views discussed in this article are solely the opinion of the author and should not be taken as investment advice.