Since Thursday’s weaker than expected June CPI Report, the market has undergone quite the transformation. Megacap Tech – The Magnificent 7 – which have accounted for most of this bull market’s gains have taken a breather. On the other hand, The Russell 2000 (IWM) index of small cap stocks has exploded higher along with the Equal Weight S&P (RSP) on the premise that coming rate cuts will help them most. Bulls interpret this as a healthy broadening of the rally. Bears wonder whether megacap tech might be exhausted. And without megacap tech, the market cap weighted indexes can’t go higher no matter how well the smaller stocks perform.
The first test of the appetite for megacap tech stocks comes on Thursday afternoon when Netflix (NFLX) reports 2Q24 earnings. NFLX has been on quite a tear for the last couple of years as you can see in the chart above. Analysts have NFLX earnings $18.34 EPS in 2024 for a 36x multiple on Monday’s closing price of $656.45. My personal bias is that this is too expensive for a stock that is maturing but I’m most interested in the reaction to Thursday afternoon’s report.