Martin Gamble on US markets: Netflix and IBM disappoint while banks star

US markets took a step back amid escalating military exchanges between the US and Iran near the Strait of Hormuz which sent Brent crude oil prices back above $85 per barrel.

The major indices fell, led by a pullback in technology and semiconductor stocks which prompted a rotation into more defensive areas of the market like consumer staples and healthcare.

Consumer price inflation for June came in better than expected with headline CPI falling 0.4%, its biggest monthly decline since April 2020. Year-on-year inflation dropped to 3.5% from 4.2% in May.

Core prices, which exclude food and energy were unchanged month-on-month, which is a relatively rare occurrence, leaving the annual rate at 2.6%.

Producer prices also came in better than expected, falling 0.3% month-on-month, while core price grew by 0.2%.

The cooler than anticipated inflation readings gave a boost to bond prices with yields falling, calming lingering concerns over a July interest rate hike.

Online payments group PayPal was one of the biggest gainers after Reuters reported that private equity group Advent and payments rival Stripe had offered to buy the company for around $53 billion or $60.50 per share.

Memory chip makers continued to see profit taking, with Sandisk and Western Digital falling by 26% and 20%, respectively.

Netflix’ weak outlook adds to growth concerns

Streaming giant Netflix dropped 9% despite squeezing past analysts’ second quarter earnings estimates, as a soft outlook disappointed, raising growth concerns. The shares have now almost halved over the last year.

On a positive note, management executed its largest share buyback on record after returning $4.7 billion to shareholders during the quarter. The company also confirmed it remains firmly on track to double 2026 advertising revenues to around $3 billion.

Netflix projected revenue in the current quarter at $12.9 billion and earnings per share of $0.82 compared with analysts’ expectations of $13 billion and EPS of $0.84.

Viewing hours eclipsed 97 billion in the first half, a new record for the company, despite competition from big events like the Winter Olympics and Fifa World Cup.

Netflix will begin reporting viewing hours annually instead of twice a year from 2027, as live events muddy the waters. Live events are expected to account for 5% of Netflix’s 2026 content budget, while making up 1% of viewing hours.

IBM loses out to AI spending

The adage that as a manager of money you can’t get fired buying IBM seems quaint considering this week’s market reaction to the software giant’s preliminary second-quarter results which saw the shares sink 25%, the biggest single day drop since the stock market crash in 1987.

It was not just that earnings missed analysts’ estimates but the surprising drop in client demand for IBM’s latest mainframe architecture.

CEO Arvind Krishna admitted the company misjudged the speed at which customers were shifting spending patterns.

In a shareholder letter Krishna wrote: “In the last few weeks of June, we saw clients shift their quarterly capital expenditures spend toward servers, storage, and memory purchases to secure supply-constrained infrastructure ahead of expected price increases.”

“We did not adapt and move quickly enough, and numerous large deals failed to close on the timelines we expected, driving the majority of our shortfall,” lamented Krishna.

Meanwhile, IBM dangled the quantum computing ‘carrot’ saying it is no longer decades away, but “upon us” today. It said it remains on track to deliver the first ‘fault free’ quantum computer by 2029.

Banks enjoy another record quarter

Bank earnings came in ahead of analysts’ expectations for the eighth consecutive quarter, driven by record trading activity and robust dealmaking.

JPMorgan shares scaled new all-time highs, putting it on track to become the first trillion-dollar bank. Its market value is now roughly equivalent to the next three largest banks combined.

The bank’s chief financial officer Jeremy Barnum explained: “What’s going on in equities is a booming environment with a ton of activity, big IPOs, the AI theme, a very active environment.”

However, he also offered a note of caution: “It would be naive not to be worried – but it's easy to be worried and the market keeps going up.”

Goldman Sachs was the clear winner in share price gains with the shares rising 9% while Citigroup shares fell 4%.

Goldman’s equity trading desk posted the biggest ever quarterly revenue haul of $7.4 billion, surging 72% from the same period in 2025. For context, that exceeded the revenue Goldman generated for the whole of 2019.