Earnings mostly impress, bond market selloff may last, bitcoin boom

Strong earnings lift US equity markets

US stocks are rising after a wrath of earnings showed mostly better-than-expected results and guidance, except for Netflix.  The lessons learned from the bond market should be that Wall Street needs to expect excessive volatility over the next few months as the Fed manages a taper announcement as pressure grows for them to normalize rates.  The Dow Jones Industrial is leading the charge higher while the Nasdaq is barely positive.

If the theme from earnings season continues to be an upbeat outlook for the economy and strong consumer that is handling the current price increases, Treasuries could plunge even further, and the 10-year yield could be back above 1.40% by the time earnings season wraps.  The reflation trade is back and this time it might stick around.

Earnings

Netflix was the first FAANG stock to report and did they disappoint.  Netflix earnings came in at USD 2.97 a miss of the USD 3.14 estimate, while revenue rose to USD 7.34 billion in line with expectations.  Traders did not like the guidance for subscriber growth, 3.5 million subscribers are expected in Q3, short of the 5.86 million that Wall Street was anticipating.

Netflix seems like they will be spending a lot more in the foreseeable future on both content and as they try to break into video games.  The streaming giant stated they will create original games and that it will be included in members’ Netflix subscriptions at no additional cost.

Chipotle

Chipotle delivered a robust earnings report with strong beats across the board, a stock buyback announcement, and optimism that lunch is starting to return.  Second-quarter adjusted EPS impressed at USD 7.46, much higher than the analysts’ estimate of USD 6.53, while comp sales rose to 31.2%, better than the 29.8% estimate.

Chipotle CFO Hartung noted that they have not seen any resistance whatsoever to higher menu prices, a sign that the US consumer is still very strong given the recent inflation surge.

J&J

The New Brunswick, New Jersey-based drugmaker delivered a solid earnings beat and raised both sales and EPS guidance.  J&J had robust sales with both devices at USD 6.98 billion, better than the USD 6.59 billion estimate, and with most of their drugs.

Coca-Cola

The soft drink giant’s business is thriving as the reopening of the economy is unlocking a key portion of the business that was lost last year.  Coca-Cola crushed this earnings report with strong EPS and organic revenue beats along with boosting full-year organic revenue guidance.

Verizon

Verizon posted strong wireless-subscriber growth along with a raised outlook.  Verizon CEO noted that they are not seeing any supply chain constraints.  With 20% of their customers having 5G phones, Verizon still sees strong upside in gaining new customers.

This round of earnings covered many sectors and was fairly impressive. The remaining second-quarter results look like they will also come in strong and show that peak earnings growth expectations did not disappoint.

Bitcoin

It appears crypto traders will not see a plunge towards USD 20,000 as too many retail and institutional traders started to line up entry orders to buy what was believed to be the last major dip.  Risky assets are rebounding across the board, especially bitcoin, as calm returns to Wall Street as the panic-selling frenzy appears to be over.  Some traders are viewing today’s rebound as an all-clear signal for getting back into bitcoin, but that probably won’t be confirmed until financial markets see if risk appetite is upheld after the FOMC policy next Wednesday.

Over the next couple of months, bitcoin will predominantly trade as a risk-on asset and not so much as an inflationary hedge. Bitcoin’s best friend will be a dovish Fed and as long as that remains the case, prices could continue to stabilize going forward.

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