Market snapshot: Netflix plunges and property problems in China

A slump in share price to levels not seen since 2019 has shocked Netflix shareholders, while issues elsewhere are giving investors plenty to think about. Our head of markets explains what's affecting sentiment.

Stocks staged something of a relief rally, despite the unravelling earnings season providing mixed messages.

Although still early in the season, there are contrasting factors at play, with an estimated 80% of companies so far exceeding expectations. The airlines provided a positive surprise following a return to travel demand, while the likes of Johnson & Johnson (NYSE:JNJ) also beat estimates.

However, following on from lacklustre numbers from the banks last week, there were also some misses, most notably from Netflix Inc (NASDAQ:NFLX). Subscriber numbers declined for the first time in a decade amid intensifying competition and following some widespread cost increases passed on to an increasingly squeezed consumer. With further falls predicted, the shares tumbled by over 20% after the bell.

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Meanwhile, the general consensus remains rooted to the likelihood of the Federal Reserve ratcheting up the pressure on inflation with higher than expected interest rate rises.

Comments from various Fed members have kept investors guessing on the pace of increases, however, with some dovish comments from two members offsetting the previously stated possibility of a rate of 3.5% by the end of the year, beginning with a 0.75% increase next month. In the meantime, the country’s ability to withstand such increases without derailing the economic recovery remains central to concerns.

Despite the contrasting messages which have tended to prevail, investors sought stocks which have been under pressure to the potential point of being oversold, with the technology benchmark Nasdaq posting the strongest gains. Even so, the main indices remain in negative territory in the year to date in the absence of any fresh positive catalysts, with the Dow Jones having slipped by 3.9%, the S&P500 by 6.4% and the Nasdaq still down by 12.9%.

Elsewhere, reports of a depreciation in property prices across hundreds of smaller Chinese cities is beginning to have an impact on consumer confidence in the world’s second-largest economy. Alongside the recent additional lockdowns, unemployment has recently risen and retail sales have dropped, while travel in the country has also been crimped due to both financial and lockdown restrictions.

The perceived lack of demand from China has weighed on markets throughout the region, with its importance in the supply chain having been elevated following the conflict between Russia and Ukraine. In the meantime, uncertainty around its slowing growth adds to the global cocktail of concerns.

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Amid such a raft of concerns, the FTSE100 remains a relative beacon of light. The composition of the index continues to attract investment interest, underpinned by an average dividend yield of over 3% which adds to the total return. Despite the premier index having outperformed many of its global peers, the UK as a whole is still seen as providing value, as evidenced by any number of bid approaches for UK companies from foreign buyers this year.

The generally positive direction of travel has tended to be incremental, however, as evidenced by another tepid start in opening exchanges today. Despite some early buying interest among defensive stocks, the FTSE100 has made little headway, although remaining ahead by 2.9% in the year to date.

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