Dow Jumps 200 Points: Stocks Fend Off Third Day Of Losses Despite Biotechs, Netflix Falling

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Topline

Overcoming early morning losses, stocks are set to rise for the first day this week despite Netflix unraveling some of its pandemic gains following a disappointing earnings report, reigniting concerns that the tech industry’s massive rally last year may be unsustainable as the economy reopens. 

Key Facts

As of 10:45 a.m. Eastern, the Dow Jones Industrial Average was climbing 180 points, or 0.5%, while the S&P 500 climbed 0.3% and the tech-heavy Nasdaq, which is down 2.5% from a February high, ticked up 0.2%.

Leading the Dow’s increases, chemicals company Dow, computer hardware firm IBM and apparel giant Nike jumped 3%, 2.5% and 2%, respectively.

Heading up market losses, on the other hand, Netflix shares are plunging 7% on the back of a first-quarter earnings report that disappointed investors with lighter-than-expected subscriber growth despite revenue in-line with estimates of $7.2 billion.

Biotech stocks, which have largely underperformed after rallying at the start of the pandemic, are also tacking on losses, as Indiana-based Bioanalytical Systems plummets 15% after the firm said Wednesday morning it’s raising $45 million from investors to help fund two acquisitions.

Other former pandemic darlings are similarly falling: Peloton Interactive, Tesla and Zoom Video Communications are down about 3%, 0.5% and 0.3%, respectively.

Chief Critic

“The weakness in technology stocks is undeniable, but it likely won’t be a straight line down for the sector and there will be zigs and zags along the way,” David Bahnsen, the chief investment officer of $3 billion advisory The Bahnsen Group said in a recent note, though he said he likes “old tech companies” like IBM that “don’t get as much attention” from investors. “The declines are due to excessive valuations that were exacerbated by a zero percent risk-free rate.”

Crucial Quote 

“A market stuck near record highs isn’t a bad thing,” Callie Cox, a senior investment strategist at Ally Invest, said Tuesday of the recent week’s minor losses, adding that she’s bullish of defensive investments like consumer staples stocks (such as Walmart and Johnson & Johnson) as opposed to big-tech companies. “The last two weeks have been the lowest volume weeks of the year, too, and as long as volume stays low, we may see this wandering market continue to search for direction.” 

What To Watch For

By the end of this week, about half of the Dow’s 30 companies will have reported earnings, Cox notes, saying that the storied index has outperformed the S&P this year because its stocks are “generally more sensitive to economic expectations, which have been high.” Additionally, about half of companies reporting this week are in financials and industrials—two sectors heavily dependent on the economy’s health.

Tangent

A sign travel could snap back this year, American Airlines (down 1% Wednesday) said late Tuesday that it plans to once again hire pilots this fall given heightened travel expectations. Shares are up 80% over the past year, but still about 30% below their pre-pandemic levels.

Further Reading

After Roaring In 2020, Biotech Stocks Now Weighed Down By Merger Scrutiny, FDA Approval Delays And Possible Drug Pricing Legislation (Forbes)

Stocks Fall Again As Experts Worry About ‘Extremely Bullish’ Market Indicators (Forbes)

JPMorgan, Goldman And Wells Fargo Post ‘Monster’ $69 Billion In Sales—Shattering Expectations As Stocks Extend Highs (Forbes)