US stocks fell on Wednesday after being dragged down by a dramatic decline in streaming service Netflix, despite encouraging earnings reports elsewhere that suggested companies could weather the impact of rising inflation and slowing economic growth.
Netflix fell 35 percent on Wednesday after releasing a somber update the night before, the biggest loser in both the tech-heavy Nasdaq index and the blue-chip S&P 500. The Nasdaq ended the day down 1.2 percent , while the S&P ended the day down 0.1 percent.
Netflix results angered investors in the sector across the board, with Walt Disney — the owner of Disney Plus — down 5.6 percent, Roku down 6.2 percent and music streamer Spotify down 10.9 percent.
Still, companies like Procter & Gamble, Danone and Heineken reassured the health of consumers on both sides of the Atlantic.
The rally in US stocks over the past two days has been helped by short-covering – when traders who have been betting on falls have to buy stocks to close their positions – according to a note to clients of Morgan Stanley’s Prime Brokerage.
A recent sell-off in government bonds also continued, further easing pressure on equity markets. The benchmark 10-year US Treasury yield fell 0.1 percentage point to 2.8 percent. Higher yields reflect lower prices, and rising yields on low-risk government bonds reduce the attractiveness of riskier assets like stocks.
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The Federal Reserve on Wednesday released its latest beige book report, an anecdotal overview of economic conditions. The report highlighted ongoing inflationary pressures, the potential for higher prices and geopolitical factors that could slow growth.
The report provided “further confirmation of the realities of the current environment for the Fed,” said Ian Lyngen, head of US rates strategy at BMO Capital Markets.
The Fed has already signaled its readiness to raise interest rates by 0.50 percentage point at its May meeting – more than the typical quarter-point hike – the possibility of which has been fully priced in by futures markets.
The 10-year German bund yield fell 0.06 percentage point to 0.85 percent and the 10-year UK gilt yield fell 0.05 percentage point to 1.91 percent.
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