The weight of the market’s recent gains is starting to take a toll. The S&P 500 spent the bulk of Tuesday’s session in the black, even reaching new multi-week highs in the process. There’s little to no conviction (or volume) behind the current rally effort though, which serves as a red flag.
Today’s close of 2100.80 for the S&P 500 was 0.31% better than yesterday’s close.
For eBay Inc (NASDAQ:EBAY), International Business Machines Corp. (NYSE:IBM) and Netflix, Inc. (NASDAQ:NFLX), Tuesday was not only lackluster, but downright bad.
Here’s the deal.
EBay Inc (EBAY)
For a few weeks it looked as if eBay was going to shrug off the 25% pullback it suffered between December and mid-February, having gained nearly 15% from its February low and Monday’s close. Morgan Stanley pulled the rug out from underneath the budding EBAY rally today, however, downgrading the stock out of nowhere.
Morgan Stanley analyst Brian Nowak lowered his stance on the online-auction company from “Equal weight” to “Underweight,” subsequently lowering his target price on EBAY from $24 to $22.50.
The core of the downgrade stemmed from concerns about eBay’s overseas business. Nowak explains:
“Our cautious call is based on emerging weakness at eBay’s international marketplaces … We see particular signs of erosion in the U.K. and Germany — at a high level, marketplace growth is driven by buyers and more spend per buyer and we see forward risk to both of these factors.”
EBAY closed down 4% on Tuesday.
International Business Machines Corp. (IBM)
International Business Machines shares gave up nearly 6% of their value today, not so much due to another disappointing quarterly earnings report, but because hopes for a turnaround are increasingly dashed.
Actually, IBM did better than expected in its first quarter of the current year, earning $2.35 per share on sales of $18.7 billion; the pros were only looking for a profit of $2.09 per share of IBM and revenue of $18.3 billion.
Still, Q1 was the 16th consecutive quarter of falling year-over-year revenue, forcing International Business Machines shareholders to wonder if things would ever get any better. Cantor Fitzgerald analyst Joseph Foresi thinks it will be another two years before IBM logs any actual growth.
Netflix, Inc. (NFLX)
Last but not least, for the second day in a row, Netflix has found itself on the daily “Worst 3” list. But today’s 13% drubbing inflicted on NFLX had nothing to do with yesterday’s weakness.
The bad news: Netflix expects to only add 2.5 million new members in the second quarter, after adding 6.74 million new subscribers in the first quarter. International growth is expected to run into a particularly strong headwind.
Fanning the bearish flames was news that the cash-burning company is looking to issue debt later this year or early next year.
A large portion of that funding is put back into the company’s original programming, which Netflix says it needs to drive subscriber growth. But, owners of NFLX are beginning to wonder if the business model will ever be viable … particularly now that it’s raising prices without significantly beefing up its content library.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities.
