Market snapshot: Netflix shares dive, UK inflation rises

Many stocks trade on high valuations, so any slip-ups will be punished this US earnings season.

Markets are taking a pause for breath ahead of an intense period of company reporting next week and as the coronavirus wave shows little signs of abating in some populous areas of the world.

Airlines and cruise operators came under pressure as virus spikes in the likes of Japan, Brazil and India threatened to undermine the global economic recovery and tourism in particular.

At the same time, with higher valuations come higher expectations, so the pressure will be on companies to repeat the strong numbers already reported by the banks as the corporate reporting calendar gets into full swing over the next week or so. 

Netflix (NASDAQ:NFLX) shares were slammed after the market close, dropping 11%, following subscriber growth which fell significantly short of expectations. Competition from the likes of Disney+ has eaten into the company’s market share, although Netflix highlighted that a lower content slate in the quarter was the main culprit, as the pandemic crimped the production of new shows.

That situation is expected to reverse in the second half of the year with several new shows in the pipeline, although it will come at a time when the company will face the acid test of whether viewing habits will revert to the norm in a post-pandemic environment.

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Even so, revenues were ahead of expectations for the quarter at $7.16 billion and, despite the dip, the shares have added 27% over the last year. The next few months could yet define the new landscape for streaming services such as Netflix and in turn place questions over its valuation.

The major indices have maintained their strong showing despite the current pause, and in the year to date the Dow Jones has added 10.5%, the S&P 500 10% and the Nasdaq 7%.

In the UK, a marginal upswing in inflation to 0.7% will keep the bears at bay for the moment. Investors have been questioning the longer term impact of such an accommodative monetary environment for some time, but there is little in the UK number to accelerate such concerns. Fuel and transport costs inevitably rose following a strong spike in the oil price this year, with the overall figure held back by declining food prices, some of which are below pre-pandemic levels.

More broadly, general investor caution has also made its way to the FTSE100, which has dipped over the last couple of trading sessions. however, the index remains ahead in the year to date by 6.4%, and will also be subject to a busy corporate reporting season next week which may determine any shorter term progress.