Morning Minutes 10/17/2018

Netflix, Lam Research and IBM Earnings in Focus

October 17, 2018
8:45 am EDT

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Market Commentary By:
Colin Cieszynski, CFA, CMT
Chief Market Strategist
+1 (647) 282-4428

Positive sentiment from yesterday’s North American stock market rally carried through Asia overnight but ran into a brick wall in Europe this morning. Markets are mixed across the pond and lower over here this morning, US index futures are down 0.3%, suggesting that yesterday’s 2%-plus gains for the Dow, S&P, and NASDAQ, plus the 1.1% gain for the S&P/TSX may have been a dead cat bounce within a volatile market.

Today’s trading in Netflix may provide the clearest indication of whether investors are prepared to step up and support good earnings or not.  The company blew the doors down with huge numbers, reporting:

EPS                                $0.89 vs street $0.68 and year ago $0.29

Subscriber additions      6.96M vs street 5.32M and guidance 5.0M

NFLX shares soared 10-13% in aftermarket trading depending on the report and could gap upward today. The big question is after an initial burst of enthusiasm, can the shares keep upward momentum going or are they going to run into a wall of profit-taking? Although the open may attract more headlines, it’s the close that may send a more important signal of what investors are thinking as we move deeper into earnings season.

Netflix is now part of the Communications Services sector, but what’s left of the Technology sector may also be active today, particularly the Computer Hardware and Semiconductors groups, off of mixed results:

Lam Research   EPS $3.36 above street $3.22, next quarter EPS guidance $3.45-$3.85 above street $3.29

IBM                  EPS $3.42 vs street $3.40, sales $18.76B below street $19.10B

LRCX shares climbed in aftermarket trading while IBM shares declined late yesterday (concerns a long-term downward trend in sales may be resuming) on their respective announcements.

Today is lighter for results with Alcoa later in the day being the main event. Crude oil is down 0.75% this morning but could be active with US and Saudi officials meeting over the disappearance of journalist Khashoggi. The street is expecting a 0.2 mmbbl decline in the mid-morning DOE weekly US oil inventories; API reported a 2.1 mmbbl weekly drawdown last night. FOMC minutes are out this afternoon but are unlikely to contain any surprises


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