Wall Street rebounded strongly to finish at the top of the day on Tuesday, thanks to cyclical and technology stocks. However, energy, the most consensual bet for 2022, fell back. The renewed risk appetite was fueled by corporate earnings, particularly from Johnson & Johnson. Initial US corporate earnings reports are generally stronger than expected, creating a positive sentiment.

However, let's not forget that the results of US companies are always better than expected, in particular because analysts are cautious in their expectations and companies skillfully guide them to be able to surprise positively. Of the 50 S&P 500 companies that have already published, or 10% of the index as readers familiar with complex mathematics will have noted, 80% have exceeded expectations, according to data compiled by Refinitiv. This figure averages 66% over a "normal" earnings season, i.e. when estimates are wrong as they should be. Hence the rather positive sentiment, especially since forecasts are not revised downwards at this stage, or only at the margin and with excuses that the market finds valid.

There is, however, one exception that proves the rule in the US, and that is Netflix. The streaming service released its quarterly results after the close of Wall Street. And when a stock is down 26%, there is a problem. Netflix lost subscribers for the first time in the first quarter. When you are a global pioneer and you start with a number one spot, you can only go down when powerful competitors emerge. This is what is happening to Netflix, with the development of Disney+ and Amazon Prime Video.

The company wasn't helped either by the loss of 700,000 Russian customers due to the shutdown of its services in the country after the invasion of Ukraine, nor by the widespread practice of password sharing. Netflix remains number one with 221.6 million subscribers worldwide, but its rivals are on a strong momentum, especially Disney +, which reached the 130 million subscribers mark in early 2022. Amazon claims that 200 million people have viewed content on Prime Video, but its base is mixed with that of its Amazon Prime service, which makes the comparison a little less relevant.

With no major macroeconomic indicators today, investors will focus on the next round of corporate earnings releases, including Tesla or Procter & Gamble later. They will also keep an eye on the situation in Ukraine, where the Russian army is tightening its grip on Mariupol.

Meanwhile, the yield on US Treasury bonds continues to rise with relative indifference, perhaps a sign that investors are becoming increasingly aware of the new environment and the rate hikes that will follow. The 10-year debt is approaching 3%, allowing real rates to return to the green. This morning, futures were all up by 0.5%.

 

Economic highlights of the day:

US housing data and oil inventories are due today.

The dollar is down 0.3% to EUR 0.9235. The ounce of gold is down to USD 1947. Oil consolidates recent gains with North Sea Brent at USD 107.71 per barrel and US WTI light crude at USD 102.95. The yield on 10-year U.S. debt continues to climb to 2.94%. Bitcoin is back on track at USD 42,000 a coin.

 

On markets:

* Netflix announced Tuesday evening that it lost 200,000 subscribers in the first quarter, the first time this has happened in more than a decade, and said it expects this trend to continue in the second quarter. Piper Sandler and UBS lowered their recommendation to "neutral" on the stock, which plunged 25% in pre-market trading.

* International Business Machines (IBM), which reported better-than-expected quarterly results Tuesday night, now expects annual revenue growth at the top end of its initial guidance range, despite a $300 million negative impact from the suspension of its Russian operations. The share price is up 1.6% in pre-market trading.

* Procter & Gamble gained 2% in premarket trading after raising its annual revenue forecast on Wednesday, as demand for consumer staples remained strong despite a rate increase.

* Abbott reported a 36% increase in first-quarter profit on Wednesday, buoyed by demand for its Omicron variant coronavirus tests.

* Baker Hughes on Wednesday reported an increase in first-quarter profit from the same period a year ago, as soaring commodity prices supported drilling activity and demand for oilfield services.

* Omnicom - The advertising group advanced 4% in pre-market trading on better-than-expected first-quarter results.

* Anthem - The health insurance company is up slightly in premarket trading after raising its full-year adjusted profit forecast on Wednesday, helped by strong results from its Medicaid division.

* Tesla is scheduled to report its first-quarter results after the close of the New York Stock Exchange.

* Twitter - Elon Musk posted on Twitter Tuesday the message "___is night" after announcing last week a $43 billion hostile takeover bid for the social network.

* A consortium led by KKR on Wednesday launched an unsolicited bid for nearly $15 billion for Australian healthcare group Ramsay Health Care.

* Avient - The specialty polymer materials maker said Wednesday it has reached an agreement with DSM to buy its protective materials division for $1.48 billion.

* Uber, Lyft - The two VTC services specialists lifted mask requirements for drivers and passengers in the United States on Tuesday.

*Alphabet-owned YouTube announced Wednesday that it has blocked the account of John Lee, Beijing's candidate to become the next chief executive in Hong Kong next May, as part of U.S. sanctions. Separately, Citigroup raised its recommendation to "buy" from "neutral" on Alphabet.

 

Analyst recommendations:

  • Alphabet: Citigroup lifts to buy from neutral, price target to $3,500 from $2,965.
  • Avis Budget: Barclays upgrades to equal-weight from underweight. PT down 14% to $245.
  • Belden: Goldman Sachs upgrades to neutral from sell. PT up 7.3% to $55.
  • Booking: Citigroup lifts booking holdings to buy from neutral, price target to $2,600 from $2,290.
  • Dentsply: Piper Sandler downgrades to neutral from overweight. PT up 9% to $46.
  • Exelon: J.P. Morgan upgrades to overweight from neutral. PT up 11% to $55.
  • KE Holdings: UBS upgrades to buy from hold, adjusts price target to $22.50 from $18.60.
  • Meta Platforms: Citigroup raises to buy from neutral, price target to $300 from $258.
  • Mosaic: Exane BNP Paribas downgrades to neutral from outperform. PT up 5.2% to $82.
  • Netflix: J.P. Morgan downgrades to neutral from overweight. PT down 14% to $300.
  • Peloton Interactive: Citigroup lifts to buy from neutral, price target to $36 from $32.
  • Snap: Citigroup raises snap to buy from neutral, price target to $50 from $41.
  • Sun Communities: JMP Securities initiated coverage with a recommendation of market outperform. PT up 17% to $220.
  • The Charles Schwab Co: UBS adjusts price target to $80 from $95, maintains neutral rating
  • Wizz Air: Berenberg maintains a "hold" rating with a price target reduced from GBp 4400 to GBp 3500.