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The Market Sum | Insight after the bell

By Caleb Silver, Editor in Chief

Tuesday's Headlines

1. Markets Bounce Back on Earnings

Markets Close

Dow
26,452.66 +0.26%

S&P
2,907.06 +0.05%

Nasdaq
8,000.23 +0.30%

VIX
12.18 -1.14%

INV Anxiety Index
103.8 High

US 10-Yr Yield
2.592 +1.53%

U.S. Markets Rebound as Earnings Pick Up

Stock markets around the world bounced back today as earnings season kicks into high gear. There's also been a wave of corporate news beyond earnings that have grabbed the headlines on a busy Tuesday.

Here are a few of them:

Apple and Qualcomm resolved their lawsuit today sending shares of Qualcomm up over 15%, Qualcomm sued Apple back in 2016 after the iPhone maker stopped using Qualcomm semiconductor modem chips in its phones citing spiking costs. The two sides agreed to a settlement today with Apple paying a fee and agreeing to a 6-year licensing deal with Qualcomm. (James has more on Qualcomm's move, below)
Hulu bought itself out from AT&T for $1.4 billion, which owned a 9.5% stake in the streaming service. That values Hulu at $15 billion and puts the remainder of the company in the hands of Comcast and Disney. Remember, Disney just launched Disney+, its own streaming service with the complete Disney library that it yanked off of Netflix. This could get interesting.
The FAA (Federal Aviation Administration) released its initial review of Boeing's 737 AirMax jet, and called it 'operationally suitable'. The 737 has been involved in two fatal crashes in the past year.
The Sprint and T-Mobile merger may be falling apart.
Wired Magazine is out with a scathing expose of Facebook and its founder and CEO Mark Zuckerberg. The article, entitled "15 Months of Fresh Hell Inside Facebook", chronicles the chaos around Facebook's handling of the Cambridge Analytica scandal and other crises around the use of user data and privacy that have dogged the original social network.

Good News Story of the Day

The Notre Dame cathedral in Paris will be rebuilt in the next 5 years, according to French President Emmanuel Macron. At least 15 companies have pledged over $700 million so far for the rebuild, including Apple, Total, and the families behind the Kering company and LVMH. Business at its best!

More News:

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5 Important Charts to Watch in April 2019

Why Is Harvard's Endowment Jumping Into Crypto?

Netflix Reports and Investors Sell

Netflix reported first quarter earnings this afternoon, and while the streaming giant exceeded analysts' forecasts in nearly every key category, the chart above may have scared some investors. The stock fell 2% after-hours after trading higher throughout the day.

First, the key stats:

Earnings: $0.76 vs. $0.57 forecast
Revenue: $4.52 billion vs. $4.50 forecasts
U.S. paid subscriber additions: 1.74 million vs. 1.61 million forecast
Int'l paid subscriber additions: 7.86 million vs. 7.31 million forecast

That's an excellent quarter by any measure. Netflix was able to add subscribers even as it raised prices. The problem is that Netflix did not provide a lot of guidance for 2019. Investors don't like uncertainty, and they own the stock based on what it will do, not what it has done. The chart above, from Netflix, shows that its forecast for adding more subscribers does not feel as strong as the pace in which it did so over the past 2 years.

Add to that new competition from Apple and Disney - and now Hulu - and prospects for the next year look daunting. Netflix executives addressed the crowded competitive landscape in the earnings release. Here is an excerpt:

"We don't anticipate that these new entrants will materially affect our growth because the transition from linear to on demand entertainment is so massive and because of the differing nature of our content offerings. We believe we'll all continue to grow as we each invest more in content and improve our service and as consumers continue to migrate away from linear viewing (similar to how US cable networks collectively grew for years as viewing shifted from broadcast networks during the 1980s and 1990s)."

Basically, Netflix says streaming video is in its early days and there is plenty of market share to be had if it has the right content offerings. Netflix is investing over $12 billion in content this year and has proven to be able to make high quality programming. That said, it just lost the Disney library and now it has to deal with Apple and its endless pockets. Here's the chart Netflix included to make its argument.

Top Movers

Charts courtesy of Koyfin

Health Care is Suffering

Health care has been the worst-performing sector in the U.S. stock market so far this year, rising by just 4.17% as of the close of the market on Monday.

Medical insurance companies have been the hardest hit as several 2020 Democratic presidential candidates have been calling for "Medicare for All" proposals. The Trump Administration has also vowed to repeal former President Barack Obama's signature health insurance law, the Affordable Care Act.

A federal appeals court in New Orleans said last week that it will hear arguments in July on a lawsuit backed by President Donald Trump to overturn Obamacare. Repealing the Affordable Care Act would lead to 32 million more uninsured people in the U.S. by 2026, according to an estimate from the Congressional Budget Office.

Global Markets

Here's how global markets ended the day on Monday, courtesy of koyfincharts.com:

What's the Word?

Melt Up

Given the news that BlackRock CEO Larry Fink said the U.S. stock market is on 'the brink of a melt up', we've chosen that as our word for the day.

A melt up is a dramatic and unexpected improvement in the investment performance of an asset class, driven partly by a stampede of investors who don't want to miss out on its rise, rather than by fundamental improvements in the economy. Gains that a melt up creates are considered to be unreliable indications of the direction in which the market is ultimately headed. Melt ups often precede melt downs.

Here's why Fink thinks that a melt up is in store:

Fed more dovish than ever
Shortage of good assets
Investors holding record amounts of cash
Huge underinvestment in stocks as investors rushed to fixed-income
Investors anticipated rising interest rates which is not happening

Fink's BlackRock manages $6 Trillion in assets, so he knows where the money is moving.

Chart of the Day: Qualcomm Stock Skyrockets on Apple Dispute Settlement

Shares of Qualcomm Inc. (QCOM) soared on Tuesday to their highest levels since early October. In all, the stock closed Tuesday more than 26% higher than the previous day's close, on exceptionally high trading volume. In the process, the stock price shot far above its 200-day moving average. The sharp and sudden surge occurred after the company announced the broad-based settlement of a longstanding legal dispute with Apple Inc. over patent royalties surrounding the iPhone's internet connectivity. Among other stipulations, Tuesday's agreement requires Apple to pay Qualcomm both a one-time amount as well as recurring licensing fees. While some investors may have expected such a settlement, the announcement was sudden and resolute, with little in the way of advance notice.

Judging by Qualcomm's stock move, it was quite evident that investors immediately recognized the benefits of the settlement for Qualcomm's business. In contrast, Apple's stock (AAPL) closed Tuesday flat, on low volume, which clearly underscores the market's judgment that the settlement was much more beneficial to Qualcomm than Apple. Even in the market's after-hours on Tuesday, Qualcomm's stock dramatically extended its rise to new highs as investors continued to cheer Qualcomm's unforeseen victory.

photo courtesy https://arago.si.edu/category_2029579.html

Today in Financial History

On April 16th, 1900, the U.S. Postal Service issued the first book of postage stamps. Stamps had already been around for 60 years by that time, with the first postage stamps being issued in Great Britain in 1840. The one pence stamp was nicknamed the 'Penny Black', and had a picture of Queen Victoria.

The first two U.S. stamps were printed by Rawdon, Wright, Hatch and Edson and were issued July 1, 1847. The five cent red brown pictured Benjamin Franklin, the first U.S. postmaster general, and the ten cent black depicts George Washington.

The stamp depicted above is the $1 Cattle in the Storm stamp, first issued in 1895, according to the Smithsonian. Many philatelists consider it to be the most beautiful stamp ever issued.