Joey Solitro
A strong start to third-quarter earnings season went into overdrive, boosted by shares in many of the Magnificent 7 stocks that have done much of the bull market's heavy lifting.
Communications services and tech names led the market higher Friday, helped by two of its largest stocks. Shares in Apple (AAPL) gained 1.2% on strong demand for its new iPhone in the Chinese market. Meanwhile, Nvidia (NVDA) rose another 0.8% after analysts at BofA Global Research raised their price target on the stock.
Additional stimulus measures from the People's Bank of China also helped equities catch a bid on Friday, notes José Torres, senior economist at InterActive Brokers. At the closing bell, the blue chip Dow Jones Industrial Average rose almost 1% to 43,275, a new closing high, while the broader S&P 500 added 0.4% to 5,864. The tech-heavy Nasdaq Composite added 0.6% to finish at 18,489.
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Housing starts in focus
Housing starts declined 0.5% in September from the prior month to a seasonally adjusted annual rate of 1.35 million, according to the U.S. Census Bureau. Meanwhile, building permits declined 2.9% to a seasonally adjusted annual rate of 1.42 million.
Oliver Allen, senior U.S. economist at Pantheon Macroeconomics, described the decline in starts as "trivial," and believes new residential construction is likely to flatline.
"The boom-and-bust cycle in multi-family construction, which tracked the surge and then retreat in rental growth during the pandemic, has now faded entirely," Allen writes. "This points to new residential construction having a roughly neutral, at best, impact on overall GDP growth over the next few quarters."
Stocks on the move
CVS Health (CVS) stock fell 5.2% after the healthcare company announced the appointment of a new CEO. David Joyner took over as president and CEO of CVS Health effective October 17. He replaced Karen Lynch, who had been in the position since February 2021.
The news comes less than three weeks after reports surfaced that CVS was conducting a strategic review of its business and had hired bankers to assist in exploring options, including a possible breakup of its retail pharmacy and Aetna insurance units.
Shares in CVS have lost about a quarter of their value so far this year to lag the broader market by almost 50 percentage points. Worse, CVS stock has underperformed the S&P 500 by wide margins over pretty much every standardized return period you care to measure.
American Express (AXP) stock slid 3.2% after the payments company reported mixed results for its third quarter and raised its full-year profit forecast.
As a result of its strong financial performance in the first nine months of 2024, AXP now anticipates earnings per share (EPS) in the range of $13.75 to $14.05, up from its previous forecast of $13.30 to $13.80. It still expects revenue growth of around 9%.
AXP stock is up almost 50% for the year to date, which has some analysts becoming more cautious on the name at such levels. The Dow Jones stock carries a consensus recommendation of Hold, partly as a function of valuation. However, as a long-term investment and dividend payer, AXP has been tough to beat. That's why AXP has been one of Warren Buffett's favorite stocks for half a century.
Netflix (NFLX) stock surged 11.1% after the streaming giant beat on all major metrics for its third quarter (revenue, earnings and paid memberships) and issued a strong outlook for its fourth quarter.
NFLX now anticipates Q4 revenue growth of 15% and paid net additions to be higher than in the third quarter. Given this outlook, Netflix is on pace to grow revenue by 15% for the full year, which is the high end of its previous guidance for revenue growth of 14% to 15%. For 2025, the company anticipates revenue in the range of $43 billion to $44 billion, representing year-over-year growth of 11% to 13% from its 2024 revenue forecast of $38.9 billion.
UBS Research analyst John Hodulik, who rates shares at Buy, said Netflix is "planting the seeds for double-digit growth."
Netflix stock was the S&P 500's top gainer on Friday, but then long-time shareholders should be used to such remunerative – if volatile – returns. Indeed, anyone who put $1,000 into Netflix stock 20 years ago has enjoyed outstanding outperformance.
Wall Street is mostly bullish on the blue chip stock's prospects over the next 12 months or so, too. Per S&P Global Market Intelligence, industry analysts assign NFLX a consensus recommendation of Buy, albeit with somewhat mixed conviction.
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