Wall Street’s rise sheds light on reports from Tesla and Netflix

Oct 18 (Reuters) – Investors are speculating on whether Monday’s rally in big stocks is the start of a recovery or another pause in the market’s decline, and the answer may depend in part on upcoming quarterly results from heavyweights including Tesla Inc (TSLA. O). and Johnson & Johnson (JNJ.N) and Netflix Inc (NFLX.O).

The world’s most tracked stock index jumped 2.65% on Monday, buoyed in part by strong quarterly results from Bank of America (BAC.N), even as investors worried that the US Federal Reserve’s war against inflation could derail the economy.

The outlook is low for the September quarter earnings season currently underway, suggesting a potential rally for company stocks that come in ahead of analyst estimates, with increased risks for companies that fail to meet even modest expectations.

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“This week and next week are important and full of profits,” said Peter Toze, chief investment advisor at Chase in Charlottesville, Virginia.

Monday’s big rally on Wall Street was the latest in an extraordinarily volatile year. The S&P 500 has posted a daily gain or loss of more than 2% 39 times so far in 2022, compared to seven times last year and 44 times in all of 2020.

Tesla shares jumped 7%, with the electric car maker’s report late Wednesday set to be one of the main attractions this week.

Tesla, the most traded stock on Wall Street, has fallen more than 17% since Oct. 2, when it revealed third-quarter auto deliveries that didn’t beat estimates as logistical challenges overshadowed its record deliveries. However, analysts still expect CEO Elon Musk to post a 60% jump in quarterly revenue and a 48% increase in “adjusted” EBITDA.

Analysts worried about a deteriorating global economy lowered their forecast for quarterly earnings. They now expect, on average, that earnings per share for the S&P 500’s September quarter increased 3.0% annually, down from a consensus estimate of more than 11% in July, according to I/B/E/S data from Refinitiv.

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With the S&P 500 down 23% so far in 2022, the index’s forward earnings valuation has fallen to 17, slightly below the 10-year average, according to Refinitiv data.

On Tuesday, Netflix reported, analysts expect revenue to grow just 5% year-over-year, the smallest quarterly increase on record, according to Refinitiv. Netflix stock on Monday jumped over 6%, leaving it with a loss of about 59% in 2022.

Other major companies reporting results this week include Lockheed Martin (LMT.N) on Tuesday, Procter & Gamble (PG.N) on Wednesday, and AT&T (TN) on Thursday.

Many investors are warning that expectations that the Federal Reserve will continue to raise interest rates will limit the amount of optimism generated by a potentially strong quarterly earnings season.

“Right now, the Fed owns the market,” said Emily Rowland, chief investment strategist at John Hancock Investment Management in Boston. “Sentiment is very bearish. You want to be careful here.”

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Reporting by Noel Randewicz in Oakland, California; Additional reporting by Sinead Karo and Chuck Mikolajchak in New York. Editing by Alden Bentley and Edward Tobin

Our Standards: Thomson Reuters Trust Principles.

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