U.S. stock futures sink as Netflix, Tesla weigh on Nasdaq

What’s driving markets

Investors were reminded Thursday that when stocks rise swiftly and are afforded rich valuations, earnings results that are good on the surface still may not be good enough.

The S&P 500 index and the Nasdaq Composite closed the previous session at 15-month highs after jumping 18.9% and 37.2% respectively for the year to date, as cooling inflation has revived hopes that the Federal Reserve can soon stop raising borrowing costs.

Helping drive those gains were Tesla
TSLA,
-0.71%,
up 136% so far in 2023, to sport a price-to-projected 2023 earnings ratio of 86, and Netflix
NFLX,
+0.59%,
up 62% and a P/E ratio of 42, according to FactSet.

But results and comments from both market darlings, released after Wednesday’s close, have been found wanting. Shares in Tesla were off 4% in premarket action and Netflix was sliding 8%, dragging futures for the tech-focused Nasdaq 100 lower.

“Netflix missed sales estimates and issued lower-than-expected Q3 guidance, while Tesla’s results showed shrinking profitability with squeeze on margins,” said Henry Allen, strategist at Deutsche Bank.

Susannah Streeter, head of money and markets at Hargreaves Lansdown, said that both could be vulnerable to a deterioration in household sentiment.

“Concerns are growing that a slowing economy, combined with the erosion of lockdown savings will weigh further on spending on discretionary goods and services, particularly big-ticket items like cars and nice to have but not necessary streaming accounts in the months ahead,” said Streeter.

Still, the earnings come thick and fast. America Airlines
AAL,
-0.43%,
Johnson & Johnson
JNJ,
-0.20%
and Blackstone
BX,
+1.21%
are among those delivering figures before the opening bell, while after the close its the turn of Capital One
COF,
+1.63%,
CSX
CSX,
+0.15%
and First Financial Bank
FFBC,
+4.21%,
to name a few.

On the economic-data front, weekly jobless claims data showed the number of Americans applying for unemployment benefits fell to a two-month low of 228,000. Meanwhile, the Philadelphia Fed’s gauge of manufacturing activity came in at negative 13.5 in July, up from 13.7 during the prior month.

June existing home sales and leading economic indicators will be released at 10 a.m.

Companies in focus

• Tesla Inc.
  TSLA,
  -0.71%
  shares dropped after the EV maker beat Wall Street analysts for its second quarter but not in the blowout fashion that some market observers were expecting.

• Netflix Inc.‘s
  NFLX,
  +0.59%
  slumped after the streaming giant easily topped subscriber expectations but brought in less revenue than Wall Street was modeling and delivered a light top-line outlook for the current period.

• United Airlines Holdings Inc.
  UAL,
  +0.02%
  rose in premarket trade after the air carrier raised its full-year profit outlook, following strong second-quarter results.

• Johnson & Johnson’s stock
  JNJ,
  -0.20%
  rose in premarket trade Thursday, after the health care company posted better-than-expected second-quarter earnings and raised its guidance. 

• American Airlines Group Inc. 
  AAL,
  -0.43%
  easily exceeded expectations with its latest results and offered a more upbeat profit outlook for the year, though its shares were moving about 2% lower in premarket action Thursday after the company posted its latest results.

• Carvana Co.’s
  CVNA,
  +40.20%
  shares have soared followed strong second-quarter results released early Wednesday.