Stocks Mixed on Earnings Announcements

Major stock market indexes opened mixed this morning. Somewhat disappointing earnings announcements from Netflix and Tesla drove the S&P 500 lower, but an encouraging announcement from Johnson & Johnson and Travelers propped up the Dow. The bond market is selling off as traders worry that increasing signs of economic strength will force the Federal Reserve to hike interest rates by another .5% before year-end.

Weekly filings for unemployment insurance benefits fell to a two-month low, suggesting the job market remains tight. While the monthly rate of layoffs has increased somewhat over the last year, we haven’t seen unemployment claims explode. Perhaps that’s because we still have nearly 10 million open job positions throughout the country. Bloomberg News lamented this “fresh sign of labor market resiliency that could support another hike in interest rates this year.”

Netflix (NFLX) reported mixed second quarter results and the stock is down 9%. The company added 5.89 million new subscribers, almost 3 times more than analysts expected. But sales rose only 2.7% from the prior year, hit by foreign exchange rates and price cuts in some markets. Management guided third quarter sales growth to about 8%, which was slightly below Wall Street forecasts. The company’s efforts to crackdown on password sharing and provide lower-priced subscription tiers supported by ads seem to be progressing well, but Co-CEO Greg Peters said it will take “several quarters” to see the full financial benefits. All evidence points to Netflix reaccelerating growth, but perhaps the stock was priced for an immediate turnaround.

Travelers (TRV) stock is up 1.6% after reporting what the CEO called “strong underlying results and investment returns.” Clearly, the insurer’s massive investment portfolio is beginning to benefit from higher interest rates, and net investment income rose 5%. And new business—net written premiums—rose 14%. The quarter wasn’t without problems though. Profitability is lower than it was last year due to natural disasters. The CEO noted official catastrophe events during 88 of the 91 days in the quarter.