Company Focus
Netflix Inc’s. (NFLX) share price has plunged in January 2022, slipping 36% since the new year. This comes as a contrast to its recent performance in which it has been a strong performer with constant expansion alongside the growth of the streaming sector. Analysts speculate that this slowdown is primarily down to the levels of gains in subscribers due to the COVID-19 pandemic proving only temporary and, as the world begins to return to normal, many customers are returning to other leisure activities rather than streaming TV and films. This was evidenced by the Q4 2021 subscriber additions of 8.3 million which missed the company’s own forecasts of 8.5 million. This miss is expected to only be the beginning of this decrease in subscriber growth with the company only expecting to add 2.5 million new subscribers this coming quarter, a huge slowdown considering the company were able to add 40 million subscribers in the year of 2020 alone. Netflix are also failing to take advantage of emerging markets, specifically India in which their subscription is costlier than rivals Disney and Amazon’s streaming offerings.
US – S&P 500
The US markets have, similarly to Netflix, started the year poorly with the S&P currently having its worst January since 2009. The index closed at 4,432 after opening the year near an all-time high of 4,778. This has primarily been driven by a general slowdown in growth expectations due to the Federal Reserve signalling that in March they plan to raise interest rates from their current level of 0.25% to control inflation surges currently occurring in the US. They have also announced a halt of quantitative easing in March, creating a bleaker outlook for market growth.
Many experienced investors believe that the sell off in the US markets may continue as many newer investors who only began investing after the pandemic panic and sell when experiencing a bear market for the first time. This would be likely as it seems this slowdown may be longer term due to the increased tightening of monetary policy as Fed chairman Jerome Powell prioritises stabilising the economy rather than the markets. In the coming week there will be a large number of earnings reports emerging from big tech companies such as Meta and Alphabet and if these companies hit their earnings, then this may provide some path to recovery for the index, however this is not a guarantee. Apple’s earnings released last week have provided a baseline for optimism as its earnings per share far exceeded analysts’ expectations.
UK – FTSE 100
In contrast to the US markets, UK markets have been relatively stable as we have entered 2022 having opened at 7,420.69 and even rising into the 7,600 range before dipping earlier this week to a similar level as the start of 2022. Despite the global market turmoil, oil prices have been rising which has boosted the FTSE as BP and Shell have profited off this rise in the commodity. There may also be potential for further growth this year for these energy companies as they put more money into renewable energy with Shell opening green hydrogen production in China recently.
Vodafone have also been a strong performer within the index up around 3.5% on 31st January as it announced its collaboration with Intel along with other chip manufacturers in creating its own chip architecture to operate its own OpenRAN network technology which will give the company more influence in the telecom equipment supply market. This has prompted interest from activist investors and consequently caused a bump in the share price.
Last week the Bank of England’s interest rate rose to 0.5%, with the BoE looking to control inflationary pressure, much like the Fed. This could play a significant role in the performance of the FTSE 100 over the weeks ahead.
Japan – Nikkei 225
The Nikkei has had a tough start to the year dropping 6% after opening at 29,301 before dropping to 27,001 at the end of January. This has primarily been due to fresh COVID worry in Japan as Omicron cases began to surge in the new year. This has prompted fresh concerns over the country’s ban on non-resident immigrants which is hurting foreign investment into the country and causing global companies to question their presence in Japan.
Overall
Overall markets have had a bleak start to the year with the tightening of monetary policy in the US having a knock-on effect into the rest of the world alongside geopolitical tensions such as the escalation between Russia and Ukraine causing uncertainty within European markets. Both factors are likely to have long term effects with central banks indicating that they will continue to accelerate their interest rate hikes to control rising inflation globally as the world begins to see the fallout of the COVID-19 pandemic on global economies.