Raphael Stevens

The Netflix logo is shown on one of their Hollywood buildings in Los Angeles, California, July 12, 2023.
Mike Blake | Reuters

Check out the companies making headlines before the bell.
Netflix — The streaming giant shed nearly 7% after reporting mixed quarterly results. Netflix posted earnings of $3.29 a share on $8.19 billion in revenue. Analysts surveyed by Refinitiv anticipated earnings o of $2.86 per share and $8.30 billion in revenue. Netflix also said it’s too early to break down revenue from its new ad-supported tier and password crackdown.

Tesla — Shares lost about 4% before the bell. The electric vehicle maker reported second-quarter earnings that topped Wall Street’s expectation on the top and bottom lines, and record quarterly revenue. Operating margins, however, fell to the lowest level in at least the past five quarters as a result of recent price cuts.
IBM — The tech stock dipped about 1% after the company reported a revenue miss for the second quarter, caused partly by a slump in the infrastructure division. However, IBM reported earnings that topped analysts’ estimates as the company expanded its gross margin. 
Johnson & Johnson – The pharmaceutical giant saw shares rise more than 1% after it posted better-than-expected earnings and hiked its full-year guidance after seeing a surge in sales in its medtech division, which provides devices for surgeries, orthopedics and vision. J&J posted adjusted earnings of $2.80 per share on revenue of $25.53 billion, beating the Refinitiv estimate of $2.62 per share on revenue of $24.62 billion.
Las Vegas Sands — The resort-and-casino stock fell 2% despite beating analyst expectations for its second quarter. Las Vegas Sands posted 46 cents in adjusted earnings per share on $2.54 billion in quarterly revenue, while analysts polled by Refinitiv forecasted 46 cents in earnings per share and revenue at $2.39 billion.
Taiwan Semiconductor – Shares of the chipmaker slid more than 2% after the company posted its first profit drop in four years as demand for consumer electronics continued to slump. Taiwan Semi posted net income of 181.8 billion New Taiwan dollars, which was higher than the Refinitiv estimate of NT$172.55 billion. Revenue for the quarter beat expectations too.

Discover Financial — The financial services company shed more than 12% after reporting second-quarter results that fell short of Wall Street’s expectations on both the top and bottom lines. Discover Financial reported earnings of $3.54 a share on $3.88 billion in revenue. Analysts expected earnings of $3.67 per share on revenue of $3.89 billion.
United Airlines — Shares rose 3% after United Airlines reported record quarterly earnings and said it expects a strong third quarter as travel demand surges.
Zions Bancorp — The regional bank jumped more than 7% after posting second-quarter earnings. During the period, the company reported a rebound in customer deposits. Earnings came in line with analyst expectations at $1.11 a share.
American Airlines — The airline stock lost 1% even after posting second-quarter results that surpassed analyst expectations. American Airlines also lifted its profit forecast for the year amid the ongoing travel boom.
D.R. Horton — The homebuilding stock rose 4% as strong demand in new home construction helped it top quarterly expectations. D.R. Horton reported earnings of $3.90 per share on $9.73 billion in revenue. Analysts polled by Refinitiv expected earnings of $2.79 per share on revenue of $8.39 billion.
Blackstone — Blackstone lost 3% after second-quarter revenue fell short of expectations. The company reported earnings of 92 cents a share on $2.35 billion in revenue. Analysts polled by Refinitiv expected earnings per share of 92 cents and $2.43 billion in revenue.
Anheuser-Busch – Shares of the beleagured beermaker rose less than 1% in premarket trading after Morgan Stanley upgraded Anheuser-Busch to overweight. The stock presents a “very favourable risk reward” after a controversy around Bud Light caused shares to slide, according to Morgan Stanley.
— CNBC’s Tanaya Macheel, Alex Harring, Jesse Pound and Yun Li contributed reporting More

America’s financial plumbing is overdue a spot of maintenance. The current payment “rails”—built by a group of the country’s biggest banks to replace paper cheques—are more than half a century old and run on antiquated code. Although robust, the system is painfully slow. American payments are less sophisticated than those in the rest of the rich world, and indeed those in much of the poor world, too.It is a problem the Federal Reserve is trying to fix with a centralised instant-payments system. Aptly called FedNow, this will soon allow Americans to ping money to their compatriots, via their existing financial institutions, and for payments to settle straight away. The Fed is gearing up for the launch of its new scheme in late July, with 41 banks and 15 payment providers all set to use the service once it goes live. At the moment, bank transfers are cheap but processed in batches, often taking days to settle. Peer-to-peer networks, like Cash App, appear much quicker to customers but, beneath the surface, rely on the old system. Regulators have warned that funds held on such apps might not qualify for deposit insurance in the event of a failure. Credit cards, which offer juicy rewards at the cost of even juicier fees, also use existing rails. According to the San Francisco Fed, nearly a third of payments last year were made using plastic.Typically, Americans use different methods for different types of payment: a water bill is paid via bank transfer; $100 owed to a friend is sent through a payment app; a purchase on Amazon is made with a credit card. A single, real-time payments solution could improve the quality of all.JPMorgan Chase and Wells Fargo, two heavyweight banks, have signed up to FedNow. But Wall Street is not entirely on board: a longer list of institutions, including Bank of America, Citigroup and Goldman Sachs, is absent. Although the current system is slow, it is also profitable for those involved. Financial institutions can take advantage of slow settlements to park cash in interest-bearing short-term securities overnight, or merely keep the money at the Fed to accrue interest. They also pocket late-payment fees and some make money from their own instant-payment systems, such as The Clearing House, which is run by a group of banks.Some observers, recalling the banking turmoil this spring, worry that FedNow might destabilise the financial system. A report by Moody’s, a credit-ratings agency, warns that the new scheme could make bank runs more likely by making it easier for depositors to flee. Such worries are likely to prove overblown, however. The current system, where weekends are closed for business, provided little relief to Silicon Valley Bank and others a few months ago. Moreover, since FedNow is a back-end system, participating institutions are able to set limits in line with their risk appetite. They can, for instance, cap payments or limit transactions. Other countries are also light years ahead of America—and do not appear more vulnerable to bank runs. In India, for example, instant payments are the norm, accounting for 81% of domestic electronic transactions last year (see chart). In Thailand and Brazil they accounted for 64% and 37% respectively. Emerging markets have embraced instant payments in part because of demography (consumers are younger and more open to change), in part because of a crackdown on cash (policymakers are keen to shrink the size of grey markets, and increase tax takes) and in part because, unlike in America, new payment systems did not have to push aside existing ones, and those who benefited from them.FedNow is unlikely to transform payments immediately. The scheme will only support “push” transfers—ones that consumers initiate themselves. By contrast, FedNow’s counterparts in Europe and India also have “pull” capabilities that businesses may use when given permission (which enable, say, regular payments for electricity). Fed officials claim to have no plans to extend the system for such uses, but bankers suspect it is the next step. Mass adoption will face one more hurdle: the American consumer, over whom paper-based payments retain a particular hold. According to aci Worldwide, a payments firm, around a fifth of all cash transfers in the country happen via cheque. Still, it will be nice for them to have the option, just like the rest of the world. ■For more expert analysis of the biggest stories in economics, finance and markets, sign up to Money Talks, our weekly subscriber-only newsletter. More

America’s financial plumbing is overdue a spot of maintenance. The current payment “rails” on which it is based—built by a group of the country’s biggest banks to replace paper cheques—are more than half a century old and run on antiquated code. Although robust, the system is painfully slow. American payments are less sophisticated than those in the rest of the rich world, and indeed those in much of the poor world, too.Listen to this story. Enjoy more audio and podcasts on More

“Don’t look for the needle in the haystack. Just buy the haystack!” So wrote Jack Bogle, who founded Vanguard Asset Management in 1975 and brought index investment to a mass market. Subsequent decades proved him right. “Passive” strategies that track market indices, rather than trying to beat them, now govern nearly a third of the assets managed by global mutual funds. Since a stockmarket index weighted by company size is just the average of underlying share owners’ performance, it is impossible for investors, in aggregate, to beat it. In the long run, even professional fund managers do not.Yet today’s haystack has grown unusually top-heavy. Since the start of the year, America’s seven biggest corporate behemoths—Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia, and Tesla—have left the rest of the stockmarket in the dust. Giddy on ai optimism, investors have raised these firms’ combined value by 69%, a much larger increase than that seen in broader indices. The “magnificent seven” now account for 29% of the market value of the s&p 500, and a whopping 61% of the Nasdaq 100, up from 20% and 53%, respectively, at the start of the year.That leaves index investors in a tight spot. On the one hand, owning shares that have done so blisteringly well that they dominate your portfolio is a nice problem to have. On the other, it is somewhat awkward. After all, part of the buy-the-haystack logic’s appeal lies in the risk-lowering benefits of diversification. Now, buying the Nasdaq 100 appears less like spreading your bets and more like placing them on a few hot companies whose prices have already soared. A supposedly passive investment strategy has come to feel uncomfortably similar to stock-picking.Nasdaq is therefore stepping in to alleviate the discomfort. As Cameron Lilja, who runs its indexing operations, notes, the Nasdaq 100 is a “modified market-capitalisation weighted” measure. This means the weights assigned to firms’ shares are usually in proportion to each company’s total market value, but that those of the biggest firms can be scaled back if they come to represent too much of the index.In particular, if the combined weight of shares that each account for more than 4.5% of the index exceeds 48%, as is now the case, Nasdaq’s methodology prescribes a “special rebalance” to cut this to 40%. This is designed, says Mr Lilja, to ensure funds tracking the index comply with regulatory diversification rules. And so on July 24th Nasdaq will reduce the sway of its seven biggest firms (and, conversely, increase that of the other 93 constituents).The result will be a more balanced index, but also some difficult questions about just how passive “passive investing” really is. The biggest fund tracking the Nasdaq 100, Invesco’s “qqq Trust”, invests more than $200bn (roughly the value of Netflix, the index’s 14th-largest firm). Following the rebalancing, it will need to quickly sell large volumes of shares in its biggest holdings and buy more in its smaller ones. It is hard to argue that such a move simply tracks the market rather than—at the margins, at least—influencing it.The need for rebalancing also highlights a criticism of index investing: that it is really a form of momentum play. Putting money into a fund that allocates it according to firms’ market value necessarily means buying more of the shares that have done well. Conversely, keeping money in such a fund means not taking profits from the outperformers, but continuing to hold them as they grow bigger. Even if chasing winners is often a lucrative strategy, it is not an entirely passive one.Meanwhile, as America’s stockmarket grows ever more concentrated, some spy an opportunity. On July 13th Invesco announced an “equal-weight” nasdaq 100 fund, investing 1% of its assets in each of the index’s constituents. This sort of strategy will mainly appeal to private investors, who, unlike professional fund managers, can afford to be “index agnostic”, says Chris Mellor, one of those overseeing the launch. This year, the outperformance of the biggest companies would have left investors lagging behind. But trends like this periodically reverse—as in 2022, when the giants plunged (see chart). Mr Mellor guesses that the new fund could garner perhaps a tenth of the assets of its mainstream counterpart. Its administrators, at least, will still be making hay. ■For more expert analysis of the biggest stories in economics, finance and markets, sign up to Money Talks, our weekly subscriber-only newsletter. More

The ENDLESS queues, filled with American accents, outside Dishoom, a chain of upmarket British curry houses that has gained international fame thanks to TikTok, tell a story which anyone who has recently visited Paris, Rome or Tokyo can confirm: the dollar is mighty. American tourists are rushing to take advantage of bargain sterling-, euro- and yen-denominated holidays. Those who booked early will have scored the biggest bargains, however. The dollar is still strong by the standards of the past two decades. But since its peak in September, it has dropped by 13% against a basket of currencies. The sell-off accelerated last week, when the dollar fell by 3%—a big move for a currency. The dxy index, which measures the currency against six others, is at its lowest since April 2022, just after the Federal Reserve started to raise interest rates.The recent weakening is welcome news for those parts of the world, particularly developing countries, which rely on financing in foreign currencies. Emerging-market issuance of dollar bonds hit an 11-year low in 2022. Frontier markets—the smallest, least liquid and often poorest such markets—issued less than $10bn of dollar bonds last year, down from $30bn in 2021. Sadly for these countries, there is reason to doubt the dollar’s dip is the start of a new phase. To understand why, consider what caused the fall. The recent sell-off was prompted by American inflation data, released on July 12th, which showed consumer prices rose by just 3% year-on-year in June—still above the Fed’s 2% target, but the lowest rate in over two years, and below analysts’ expectations. Investors now wonder if the Fed is about to declare victory in its fight against inflation.Another reason for the recent decline is that inflation is falling more slowly outside America, particularly in Britain and the euro zone. Even in the land of low inflation, Japan, consumer prices rose by 3.2% year-on-year in May—higher than America’s figures a month later. Central bankers in such countries may have more fighting ahead. Higher rates would drag investment from dollar-denominated assets into higher-yielding currencies.The third reason for the decline is middling American growth. The country’s gdp is expected to increase by a modest 1.3% this year. Stephen Jen, now of Eurizon Capital, an asset-management firm, first posited the idea of a “dollar smile” a couple of decades ago. The theory suggests that when America is powering ahead of the world, the dollar strengthens as investors pour in. But the currency can also strengthen when the world’s largest economy is in the doldrums, since a depressed American economy is a threat to global financial stability. That paradoxically adds to demand for the country’s safe Treasury bonds. Mr Jen today sees the American economy’s lukewarm growth, which puts it in the middle of the smile, as a sign of dollar weakness to come.Yet these driving forces are hardly guaranteed to continue. Each could suddenly reverse, causing the dollar to strengthen once more. If inflation proves to be stickier than expected in America, for instance, and stops dropping quite so rapidly, Fed policymakers have made clear that they would be willing to keep raising interest rates aggressively. Moreover, it is still possible that America’s economy will slow under the weight of higher interest rates, despite the remarkable resilience it has so far displayed.Indeed, it may transpire that other rich economies are simply running a few months behind America. American prices rose more rapidly than those elsewhere in 2021, and the Fed began raising interest rates earlier than most central banks the next year. Britain’s latest inflation figures, released on July 19th, showed prices rising by 7.9% year-on-year in June, below the 8.2% forecast. Whether an investor believes the surge in inflation was caused by a transitory burst of supply-side factors, or is the result of monetary and fiscal largesse, they will think there is a good chance inflation elsewhere will follow America’s downwards trend. If this does happen, monetary policy in America and the rest of the world would look more similar. The global situation would also look similar to that found—with the exception of recent years—since the dollar’s sharp rally in late 2014 and throughout 2015. Now, as then, the American economy is stronger than its competitors and American stocks are more favoured than those elsewhere. With these two pillars of strength in place, it is difficult to imagine a markedly weaker dollar.■Read more from Buttonwood, our columnist on financial markets:The mystery of gold prices (Jul 13th)Can anything pop the everything bubble? (Jul 4th)Americans love American stocks. They should look overseas (Jun 26th)Also: How the Buttonwood column got its name More