By Will Horner
Rising shares of Netflix and other streaming companies led the
S&P 500 higher Wednesday, reviving Wall Street's appetite for
growth stocks.
Shares of the streaming giant jumped 14% by Wednesday afternoon,
putting Netflix stock on pace for its biggest single-day gain in
more than four years. The gains came after Netflix reported
better-than-expected results for the most recent quarter, showing
that it had more than 200 million subscribers at the end of last
year, enough cash to fund further growth without having to assume
more debt and that it is considering buying back some of its
stock.
Investors took the results as a sign that streaming companies
have been clear winners throughout the Covid-19 pandemic. With
millions of Americans spending large chunks of time at home, many
have passed the time by watching movies and series on Netflix,
Disney, Amazon.com's Prime service and others.
Shares of other streaming companies also rose, including Disney,
Amazon and Roku.
That pushed the S&P 500 up 1.1% in recent trading, while the
Nasdaq Composite gained 1.7%. The Dow Jones Industrial Average also
rose, adding 190 points to 31120.
Earnings results so far have been better than expected, with 88%
of reporting companies beating expectations, according to FactSet.
That, along with expectations of further profit growth this year
and a rebound in economic activity, should act as a foundation for
further stock market gains, analysts said.
"Restrained inflation, low interest rates and rising earnings
provide valuation support and the basis for stocks to trend
higher," Terry Sandven, chief equity strategist at U.S. Bank Wealth
Management, wrote to clients in a recent note, adding that
favorable growth trends for communications stocks such as Netflix,
along with companies in the tech, consumer discretionary and
health-care sectors, remain intact.
The advance has so far solidified the stock market's upbeat week
leading into the inauguration of Joe Biden on Wednesday. Investors
remain optimistic that fiscal stimulus is supporting businesses
through the damage wrought by the Covid-19 pandemic, with
expectations of further spending by Democrats to keep the economy
on track.
Still, investors' are showing they are selective by punishing
companies that fail to meet the market's expectations, said Brian
O'Reilly, head of market strategy at Mediolanum Investment
Funds.
"Any company that is likely to miss or modestly disappoint on
earnings will be punished quite heavily," said Mr. O'Reilly. "A lot
of optimism has already been priced in and typically you don't get
too much room for maneuver when a stock is at a historic high."
Shares of UnitedHealth, for example, fell 1.3% after the
health-care company reported a smaller profit in the last quarter
of 2020.
Those losses were easily offset by gains elsewhere. Netflix's
rise led shares of communication companies up more than 3%. Tech
stocks rose nearly 2%, while consumer discretionary stocks added
1.7%.
Cyclical sectors fell along with companies that reported
lackluster earnings. Financial stocks in the S&P 500 slid 0.7%,
while consumer staples slipped 0.2%.
As earnings reports pick up, focus is likely to center on
sectors most exposed to the U.S. economy, such as banks and energy
companies, and those which have suffered the most during the
pandemic, such as leisure and hospitality, said Hugh Gimber, a
strategist at J.P. Morgan Asset Management.
"The most interesting thing will be how much leveling-off do we
see, how much are last year's laggards able to catch up," he
said.
Overseas, the Stoxx Europe 600 index rose 0.7%. Shares of
Pearson rose nearly 6% after the British education publisher
reported sales growth, in part due to the increase in online
learning during the pandemic.
In Asia, stocks indexes were mixed. The Nikkei 225 ended the day
down 0.4%, while the Shanghai Composite Index rose 0.5%. Chinese
internet giant Alibaba jumped 8.5% in Hong Kong after the company's
embattled owner, Jack Ma, made his first public appearance in three
months, ending concerns about his whereabouts.
In Hong Kong, the Hang Seng Index gained 1.1% to hit a 20-month
high, with stocks buoyed in recent days by hefty inflows from
mainland China.
-- Michael Wursthorn contributed to this article.
Write to Will Horner at William.Horner@wsj.com
(END) Dow Jones Newswires
January 20, 2021 12:10 ET (17:10 GMT)
Copyright (c) 2021 Dow Jones & Company, Inc.