Netflix Impresses After Stocks Hit 1-Month High
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Welcome to the Schwab Market Update podcast, where we prepare you for each trading day with a recap of recent news and a look at what's ahead. I'm Keith Lansford, and here is Schwab's early look at the markets for Wednesday, January 22nd.

After stocks hit one-month highs yesterday on falling yields and hopes for market-friendly fiscal policy, investors digested solid earnings from Netflix and prepared for the latest U.S. leaning indicators data.

Netflix earnings late Tuesday boosted shares double digits in post-market trading. Margin expansion and subscriber growth were two standouts, with paid net subscriber additions up nearly 19 million in the quarter, well above the company's previous guidance. The overnight strength in Netflix conceivably could spill over into competing streaming firms like Amazon.com and Walt Disney.

United Airlines kicked off a big reporting week for airlines with results that impressed investors yesterday afternoon. Shares rose nearly 5% in post-market action, lifted by earnings per share and revenue that exceeded Wall Street's consensus views. Demand trends are continuing to accelerate the airline set in its release. The key metric of total revenue per available seat mile rose 1.6% year-over-year.

Treasury yields backtracked to start the holiday-shortened week, helped by hopes that the new administration's emphasis on oil drilling could lower gas prices, keeping inflation at bay. The 10-year Treasury note yield fell below 4.6 percent yesterday but remains well above its January low.

Treasurer yields are likely to remain elevated with risks to the upside, said Colin Martin, director of fixed income strategy at the Schwab Center for Financial Research. Yields started the holiday-shortened week with a modest decline as President Trump did not explicitly announce new tariffs. But we don't expect the declining trend to continue. Inflation remains sticky with or without potential tariffs, and the labor market has stabilized, likely keeping the Fed on hold for the next few meetings.

December leading indicators from the conference board are due after the open. They posted a rare gain last time out, but analysts expect a flat reading. Today's earnings calendar includes Procter & Gamble and Johnson & Johnson among the largest staples in health care companies. The last time Procter & Gamble reported, revenue turned out light in part due to soft sales in its greater China market.

In its October earnings call, the company said it expected its regional weakness to continue, but more recently cited strong U.S. consumer sentiment. Johnson & Johnson received positive news yesterday when the U.S. Food and Drug Administration approved its nasal spray for adults with major depressive disorder that doesn't respond to at least two oral antidepressants.

Paxet now expects blended fourth quarter earnings growth of 12.5% for the S&P 500, which would represent the highest year-over-year growth since the fourth quarter of 2021. Blended growth includes actual numbers from companies reporting already and average estimates for companies still ahead.

Earnings estimates for the fourth quarter are up from last week, but full-year estimates trended lower, now at 13.8%. The average was 15% a few months ago. And so-called magnificent seven stocks have struggled lately. The best performer year-to-date is Tesla, ranked No. 127 in the S&P 500. The worst is Apple, ranked 490.

Tech shares wobbled yesterday as Apple fell sharply on reports of tepid iPhone sales in China. That was balanced somewhat by a surge in Oracle shares after a CBS report that OpenAI, SoftBank and Oracle are planning a joint venture called Stargate for AI infrastructure, supported by billions of dollars in support from the federal government under the Trump administration.

Still, small-cap shares outpaced large caps Tuesday, partly because falling yields tend to help smaller companies that are often more reliant on borrowing. The S&P 500 Equal Weight Index, which weighs all members the same rather than by market capitalization, outpaced the overall S&P 500 index yesterday and outperformed the S&P 500 by 1% last week.

That was the best outperformance of the Equal Weight Index since the start of last September, said Kevin Gordon, director and senior investment strategist at Schwab. The S&P 500, meanwhile, didn't perform shabbily yesterday itself, posting a one-month high close just below 6,050. It was the first close above 6,000 this month. The all-time high close is 6,090, established December 6th.

As of late Tuesday, the CME FedWatch tool built in nearly 100% chances of a Federal Reserve rate pause at its meeting next week and around a 26% chance of a rate cut this quarter.

The S&P 500 index climbed 52.58 points Tuesday, or 0.88%, to 6,049.24. The Dow Jones Industrial Average added 537.98 points, or 1.24%, to 44,025.81. And the Nasdaq Composite rose 126.58 points, or 0.64%, to 19,756.78.

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