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Tech rebound, Netflix, TSMC, ECB decision - what's moving markets

Published 2024-07-18, 04:34 a/m
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Investing.com -- Wall Street looks set to rebound Thursday after the tech sector's battering during the previous session. TSMC has reported strong results, while Netflix is due to release its latest numbers after the close. The European Central Bank is expected to stand pat at its latest policy-setting meeting. 

1. Futures rebound after tech battering

U.S. stock futures traded largely higher Thursday, rebounding after the tech-heavy Nasdaq Composite’s worst session since 2022 as investors grow wary of the elevated valuations of the big tech stocks. 

By 04:30 ET (08:30 GMT), the Dow futures contract was 20 points, or 0.1%, lower, while S&P 500 futures climbed 12 points, or 0.2%, and Nasdaq 100 futures rose by 90 points, or 0.5%.

The Nasdaq Composite slumped 2.8% on Wednesday, its worst day since December 2022, while the S&P 500 dropped 1.4%. The blue-chip Dow Jones Industrial Average, however, gained 0.6%, closing above 41,000 for the first time ever.

All eyes will remain on the tech sector, although the strong results from TSMC [see below] could generate some confidence. 

There are more earnings to digest Wednesday, including from Domino’s Pizza (NYSE:DPZ) and Alaska Air (NYSE:ALK) before the open, while streaming giant Netflix (NASDAQ:NFLX) is expected to post results after the close (see below).

On the economic front, jobless claims for the week ending July 13 are due later in the session, as investors look for clues about the health of the country’s labor market with the Federal Reserve seeking more guidance before cutting interest rates.

2. TSMC posts strong rise in Q2 net profit

Taiwan Semiconductor Manufacturing (NYSE:TSM) may face choppy waters ahead, but there’s no doubt the Taiwanese chipmaker is thriving at the moment.

The world’s largest contract chipmaker posted a hefty 36% rise in second-quarter net profit earlier Thursday, riding the surge in demand for semiconductors used in artificial intelligence applications.

TSMC posted a net profit of T$247.85 billion ($7.6 billion), compared with Reuters expectations for a profit of T$236.1 billion. 

It is the world’s main producer of advanced chips found in everything from smartphones to AI applications, counting companies like Apple (NASDAQ:AAPL) and Nvidia (NASDAQ:NVDA) among its clientele.

The surge in AI demand over the past year, as a slew of tech giants raced to roll out their own offerings after the success of OpenAI’s ChatGPT, has resulted in the firm’s American Depository Receipts reaching a total market capitalization of over $1 trillion.

The firm is considered as a bellwether for the global chipmaking industry, given that it has the highest capacity for producing advanced chips in the industry. 

That said, TSMC stock slumped on Wednesday on heightened geopolitical tensions, after Republican Presidential candidate Donald Trump said Taiwan should pay the U.S. for defense supplies, putting the spotlight on the island’s most important company. 

On top of this, reports emerged that the Biden administration was considering more export curbs on China, particularly in chipmaking technology, which could herald lower sales in China, which is a major consumer of chips. 

3. Netflix net adds set to contract

Netflix releases its latest results after the close Thursday, with the streaming giant having already guided for lower net subscriber additions in the second quarter than in the first three months of the year.

LSEG forecasts that the company will have added an estimated 4.82 million subscribers in the second quarter, which would be the lowest additions since the first quarter of 2023 and about half the 9.3 million it added in the previous three months.

This dropoff follows sharp gains in the wake of a crackdown on password sharing and as viewer attention moved to summer sporting events including the European Championships soccer tournament.

The company added an estimated 4.82 million subscribers in the second quarter, according to LSEG data. That would be the lowest additions since the first quarter of 2023 and about half the 9.3 million it added in the previous three months.

That said, JPMorgan (NYSE:JPM) believes Netflix may spring a few upside surprises, supported by an impressive content slate, price hikes and ongoing benefits from efforts to crackdown on password sharing.  

"We remain positive on Netflix shares heading into 2Q earnings, analysts at JPMorgan said, in a note published last week, “while also recognizing high expectations." 

Industry data suggests rising demand, JPMorgan said, citing Sensor Tower’s data showing global download and daily active user trends improved in 2Q.

4. ECB set to hold rates steady

The European Central Bank holds its latest policy-setting meeting later in the session, and is widely expected to keep interest rates unchanged having lowered rates from record highs last month.

The focus, thus, is likely to be on ECB President Christine Lagarde’s accompanying press conference, with investors looking for clues over the future path of interest rates.

Lagarde will likely attempt to strike a balance, acknowledging that regional growth is weak, but domestic inflation and wage growth remains stubbornly high. 

Markets are pricing in almost two rate cuts over the rest of the year, with the next move lower widely expected to be in September.

“The ECB will keep rates on hold in July,” said analysts at Morgan Stanley (NYSE:MS), in a note. “From its perspective, more data is needed to confirm the assumed (and projected) timely return of inflation to target.”

5. Warner Bros Discovery to split up?

Warner Bros Discovery (NASDAQ:WBD) has discussed a plan to split its digital streaming and studio businesses from its legacy TV networks, the Financial Times reported on Thursday, as it looks to generate greater value for its shareholders.

The report said that CEO David Zaslav is examining several strategic options for the media and entertainment conglomerate, ranging from selling assets to separating its Warner Bros movie studio and Max streaming service into a new company.

Warner Bros' stock has fallen nearly 27% so far this year, and nearly 70% since the merger between Discovery and AT&T (NYSE:T) spin-off Warner Media in 2022.

In May, the company reported a bigger-than-expected quarterly loss due to slumping advertising sales at its cable TV unit and as the studio segment contended with the fallout of last year's Hollywood strikes.

"While several financial assumptions behind the combination of Warner Media and Discovery have not materialized, we still believe several of WBD's assets are best in class with tremendous unrecognized value," analysts at Bank of America (NYSE:BAC) said, in a note earlier this week.

The company could create more value for its shareholders if it explored strategic options, including a potential sale, the bank added.

 

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