Capital 19 Catch-Up

Weekly Index Movement

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Global markets started strong last week but poor results from Netflix (NFLX) and Tesla (TSLA) caused some selling of growth stocks towards the end of the week.

We are now starting to see the rally broaden as Industrials and Financials join Tech in the rally. It’s a good sign for further gains in 2023.

The stock market rally still looks strong, with the major indexes right at 52-week highs with breadth robust and leadership diverse. The Nasdaq’s sell-off Thursday was fierce, but it closed the week finding support at the 10-day line.

The Nasdaq and S&P 500 are on the edge of being extended, so an orderly pause or pullback would be healthy.

A market pause would forge new buying opportunities. Many leading stocks are extended. A number of others look OK after big losses Thursday but may need a few days or weeks to set up again.

This is not a great time to be adding exposure. The Nasdaq took a hit but also isn’t far from being extended again. Not many stocks are in position. And earnings this week, along with the Fed meeting, could roil individual stocks, sectors, and the market rally.

The Fed meets this week and will announce its interest rate decision on Wednesday. The market expects them to raise by 25bps. Predictions are this will be the last one. But there is a divergence of opinion on where we go from here.

Futures markets are pricing in cuts in 2024. But bond prices are saying no cuts. It doesn’t really matter. This won’t stop the stock market rally. The cut camp is pricing 1% of cuts. Which won’t be enough to excite traders anyway.

The interest rate story is so 2022. You can forget about it now

There is no sign of the widely predicted but not going to happen recession either. GDP is predicted to come in around 2.4%. Not exactly running hot but a far cry from recession.

So it’s all about company earnings and they have been good so far.

The banks were really strong but Tesla (TSLA) disappointed. Despite beating earnings expectations by 12% it missed revenue numbers on declining margins. Tesla cut its prices to compete with other manufacturers and is also experiencing increasing costs.

The stock was sold down 10% on the announcement. This is always the danger with the high-flying names. Their stocks are priced for perfection and a slight miss can lead to a big sell-off. It’s why I can’t bring myself to buy Nvidia (NVDA) now.

Netflix (NFLX) fell 8% on its earnings announcement. Netflix has been playing the bad cop recently, cracking down on account sharing in a bid to boost users – and that strategy seems to be working. After all, data showed a surge in new US subscribers after Netflix started warning about the clampdown. That helps explain why the firm added 5.9 million new subscribers last quarter – more than double what analysts predicted. But there’s a snag: revenue still fell short of expectations, partly due to price cuts in some markets and unfavorable foreign exchange rates. And while the firm unveiled plans to kick-start revenue growth, a worse-than-expected forecast didn’t exactly win investors’ hearts.

With so many online offerings these days, I can’t see where the growth can come from for Netflix. It’s one to avoid.

Back in March, when we had the very short-lived banking crisis, I picked Schwab (SCHW) as a buy. It announced earnings last week. Profits were down year over year but topped revenue and earnings expectations as well as expectations for most operating metrics.

The beats were largely due to better customer activity and flows during the second quarter, which typically shows tax seasonality. The company attracted 960,000 new customer accounts (over 100,000 accounts better than expected) and gathered over $52 billion in core new assets during the quarter, $180 billion on the year to finish with total client assets topping $8 trillion.

I continue to think that SCHW is an integral part of the financial universe that is currently too big to fail and only getting bigger. Cash accounts stabilising and overall brokerage account growth in number, as well as assets, are testaments to that. The integration with Ameritrade continues apace and the company believes it will be complete by year-end.

Earnings will be down year over year but are on pace to comfortably exceed $3, perhaps even exceed 2021’s $3.25 if cost cuts can continue apace. With a P/E sub 20, you are still getting a world-class franchise at a huge discount to its historical multiples.

Microsoft shares closed at a record high Tuesday after the tech giant released higher prices for its new artificial intelligence subscription service, called Copilot, for Microsoft 365. The stock is now up 50% for the year, reflecting investors’ bullishness over Microsoft’s investment in ChatGPT maker OpenAI. Copilot, which the company announced in March, is a generative AI assistant intended to complement Microsoft’s suite of office programs, such as Excel and Word. Microsoft wants to charge $30 per month for this. I do love this company and its ability to constantly find new ways of charging fees. I’m very happy to be a shareholder.

Next week will see earnings announcements by Microsoft (MSFT), Alphabet (GOOG) and Meta (Meta). I’m looking forward to these announcements and expect them all to exceed expectations. But these stocks are too high to be buying now. Wait for a dip.

It’s probably time to start looking at the mid-cap and small-cap sectors. The magnificent seven are too overbought, but the smaller end of the market still offers good value.

Lastly, don’t be worried about the Nasdaq rebalance. They have done it before and it won’t make any difference to the big seven. This news has been out for a few weeks and traders have had plenty of time to position for it.


Stock values can go down as well as up. It is possible to lose 100% of your investment in a stock. Any advice given by Capital 19 is general advice only and does not take your personal circumstances into account and might not be suitable for you.