The macro world is in focus on Wednesday, as volatility continues to run freely through various asset classes. The problem? Too many people think they’re overnight experts, even though many struggled to trade the stock market today.
Pre-market trading showed that investors were continuing to breathe a sigh of relief, with equities slightly higher. Before they knew it though, the SPDR S&P 500 ETF (NYSEARCA:SPY) and PowerShares QQQ ETF (NASDAQ:QQQ) were down. Both slogged to a 1.5% decline in early trading before closing higher on the day.
Recession Signs Flaring Up
Investors were hoping that the inverting yield curve was a mechanism of the Fed. In short, that by raising short-term rates while demand for long-term bonds from global investors remained high, the spread was shrinking. That was threatening to invert the yield curve, a long-time warning signal that a recession may be around the corner in the next 12 months.
The consumer is doing well — as we heard from JPMorgan (NYSE:JPM), Visa (NYSE:V) and other companies — but investment spending was at its lowest point in years according to the latest GDP report.
When the Fed cut rates last week, the hope was that the pressure on the spread would loosen. However, the 3-month/10-year Treasury spread just hit a new low, while the 2-year/10-year spread is near its cycle lows. That’s renewed worries of a recession — and hammered bank stocks.
Coupled with increased volatility and an intensifying trade war situation, investors have been fleeing into bonds. More than that though, they’ve been gobbling up gold too, a common safe-haven asset. The SPDR Gold ETF (NYSEARCA:GLD) is up more than 6% in the past few days and 16.6% in 2019. The iShares 20+ Year Treasury Bond ETF (NASDAQ:TLT) has ripped almost 10% in just a few days too. Although, that trade looks likely to unwind soon.
The long-term implications are still unclear. In the short term however, this morning’s action felt more like confusion than panic. That came as other countries were also lowering rates.
Other Considerations
Lower rates are supposed to be good for assets like equities. Financing is cheaper and that benefits both businesses and consumers. While current price action has many investors in a risk-off mood, it’s worth pointing out that the Fed and other central banks are likely to remain in a period of falling interest rates.
Lower rates will allow companies with a lot of debt — companies like AT&T (NYSE:T), CVS Health (NYSE:CVS) and others — to refinance at lower rates. It will let REITs do the same thing, as well as gobble up more properties with favorable borrowing terms.
Disney vs. Netflix
Disney (NYSE:DIS) reported its fiscal third-quarter earnings on Wednesday evening, and boy were they a doozy. Earnings of $1.35 per share came up well short of estimates for $1.74. Revenue of $20.24 billion missed estimates by more than $1 billion, despite growing ~33% on the year.
The miss was mostly attributed to its Fox acquisition, but spending is a worry too. That’s on account of increasing costs for its streaming platforms. The company announced that it will be bundling Disney+, ESPN+ and Hulu (with commercials) for $12.99. Disney Plus will be available separately at $6.99 per month for those interested, with both options launching on November 12th.
The $12.99 price tag is in-line with the standard option from Netflix (NASDAQ:NFLX), which offers Basic, Standard and Premium choices.
Who will win? I wouldn’t say there will only be one winner. NFLX has established itself as a top candidate in the streaming entertainment world. However, the company still generates negative free cash flow and is increasingly finding itself on the hook to produce more and more of its own content.
That’s as companies like Disney take back its own content, just like NBC and AT&T will do for Netflix’s top two shows starting in 2020, with The Office and Friends, respectively.
While Disney is paying the price now, it’s still profitable and cash flow positive. It’s also got a vault of content for its streaming platforms. Many believe that while it endures short-term pain, it should reap long-term gains. That said, shares fell almost 5% on the day.
And for any wonder about the long-term trend of streaming check out the absolute monster of quarter Roku (NASDAQ:ROKU) just printed after the close.
Movers in the Stock Market Today
CVS Health finished near its highs — up more than 7% — after an impressive earnings report, although nothing looks as good as Weight Watchers (NASDAQ:WW). Shares surged more than 42% on the day after impressive earnings results. Here’s how to trade both names now.
Match Group (NASDAQ:MTCH) didn’t finish at the highs, but a 24% gain is still impressive. The company beat on earnings and revenue expectations, while raising full-year guidance as well.
Bret Kenwell is the manager and author of Future Blue Chips and is on Twitter @BretKenwell. As of this writing, Bret Kenwell is long ROKU, DIS and T.
