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Stocks Finish Friday, Week Higher; Morgan Stanley, Silvergate, Netflix on Deck

Friday, January 13, 2023 04:12 PM | Nick Dey

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Stocks Finish Friday, Week Higher; Morgan Stanley, Silvergate, Netflix on Deck

Stocks reversed course and rose Friday, and rallied for the week as inflation cooled and consumer sentiment rose.

Today’s News

Stocks bounced from lows after the preliminary reading for the January University of Michigan Consumer Sentiment report was better than expected.

Consumer sentiment came in at a reading of 64.6, higher than the expected creep higher to 60.5 from 59.7 in December. This report was encouraging because assessments of personal finances surged 16% to the highest reading in eight months with respondents to the survey noting higher income and easing inflation.

Elsewhere, major banks reported earnings today, garnering mixed reception. Bank of America (BAC), Wells Fargo (WFC), and JPMorgan (JPM) all fell a few percent in pre-market, however, they all rose following market-open.

Likely spooking investors early in the day were cautious comments by CEO Jaimie Dimon on persisting headwinds for the bank. These included geopolitical tensions including the war in Ukraine, vulnerable energy and food supplies, persistent inflation, eroding consumer purchasing power, and “unprecedented quantitative tightening”.

Lastly, it wouldn’t be a day without Tesla (TSLA) in the news. Tesla lowered prices in the U.S. for its Model 3 and Y cars. This allowed more cars to qualify for the $7,500 EV tax credit and was interpreted as a telltale sign by bears that Tesla’s demand issues are bigger than expected.

The price hikes were always meant to reverse at some point, according to Elon Musk anyway, so some Tesla bulls say that it may just be a coincidence that the lowered prices happened during a time when questions regarding demand have suppressed its shares.

Or that, perhaps, it is a sign of a competitive advantage as it is common for industry leaders to lower prices to reap the benefits of efficiency of scale when it can.

Further Tesla stock fell a while back when a majority of Model Y models didn’t qualify for the credits. We’d all agree it makes good business sense to take advantage of the credits, so some of this is just the damned if you do, damned if you don’t nature of investing.

The reality is it is likely a mix of both. When the company reports earnings on January 25, we will likely get a better idea via changes to its margins and cost of goods sold as to how much of the price cuts are demand-related versus cooling supplier prices to Tesla.

Consumer Prices

Speaking of cooling prices, December’s Consumer Price Index report showed just that.

Year-over-year, headline CPI cooled to 6.5% from 7.1% in November as it unexpectedly decreased 0.1% month-over-month in December. Meanwhile, core consumer prices were up 5.7% in December after rising 6% in November as monthly gains met expectations for a 0.3% rise.

Unencouragingly, the services index - which represents the largest sector of the US economy - showed inflation picked up in December with a monthly rise of 0.6% following a 0.3% rise in November.

Stocks to Watch

With earnings season really set to kick off next week, there are a lot of major stocks reporting.

Among companies reporting are banking giants Morgan Stanley (MS) and Goldman Sachs (GS) before market opens on Tuesday. These stocks will be interesting as banks whipsawed Friday on the mixed signals discussed above.

The Silvergate Capital (SI) report will be really interesting when it drops after market close Tuesday. The company recently reported select preliminary fourth-quarter earnings early as ramifications from FTX spurred a run on deposits and a 40% headcount reduction in the shift to “risk off” mode as the crypto bear market persists.

Meanwhile, United Airlines (UAL) will follow up on a crazy week for airlines with its earnings report also after close Tuesday. American Airlines (AAL) sent the industry soaring this week after it strongly raised its guidance. However, airlines declined when an FAA outage grounded flights.

Netflix (NFLX) should also be a fun follow after the close on Thursday. Netflix comes into this earnings report on a strong rally as it has doubled in price since it bottomed out at $162.71 with it currently trading at $333.12. This will be the first report to include the ad-tier subscription that began on November 3 that offers a lower price. It won’t be a full quarter of the new tier, but we should get some idea of how consumers are responding.

Anyways, all told, stocks rose this week. The S&P 500 marched 2.75% higher while the Dow underperformed with a 2.34% rise. The Nasdaq and Russell 2000 both outperformed, advancing 4.17% and 5.02% respectively.

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