Rebound continues

Stocks continue to recover from an early-week selloff that was prompted by fears surrounding the rapidly spreading Delta variant. The major averages rose about 1.6% on Tuesday, as investors jumped back into equities, while futures climbed again overnight. At the time of writing, contracts linked to the Dow are up 0.6%, while the S&P 500 and Nasdaq are ahead by 0.5% and 0.2%, respectively.

Quote: "A lot of our client conversations have really been people trying to look to find time to put money to work," said Mike Stritch, chief investment officer at BMO Wealth Management. "People step in, and they don't want to get caught missing an opportunity to buy at a few points lower."

Treasury yields, which also sunk at the beginning of the week, are climbing again after the 10-year rate hit a five-month low below 1.2%. The note's yield tacked on another 5 bps overnight to 1.26% as investors continue to assess their views on COVID variants and inflation. Elsewhere, a $1.2T bipartisan infrastructure bill will face an initial procedural floor vote in U.S. Senate today, which aims to upgrade roads and bridges, water systems and expand broadband Internet.

On the calendar: Corporate earnings are yet another area traders continue to size up as quarterly results pour in, including beats/misses, revisions and upcoming forecasts. This morning, we'll get prints from Coca-Cola (KO), Verizon (VZ) and Johnson & Johnson (JNJ). About 85% of S&P 500 firms that reported have so far beaten estimates, according to FactSet, with around 8% of companies in the index publishing results over the past week.

Challenges ahead

Netflix (NFLX) is finding it getting harder to live up to Wall Street's expectations. Evidence of that was seen late Tuesday, as the company forecast Q3 streaming TV subscriber gains that fell far short of analysts' expectations (3.5M vs. 5.9M). While Netflix did add 1.54M subscribers for the period that ended June 30 - compared to estimates of 1.12M new paid members - total first-half subscriber growth was the worst since 2013. Profit also came in at $2.97 a share, missing analysts' expectations of $3.14, though revenue of $7.34B inched ahead of consensus estimates for $7.32B.

Comparisons could be difficult: "We hope we are at the tail end of this COVID choppiness," Netflix CFO Spence Neumann said on a conference call. He also noted that during the second quarter of 2020, Netflix added more than 10M new members as pandemic stay-at-home policies went into effect, which "distorts year-over-year comparisons." "If we deliver on our [third-quarter] guide, our growth pattern in our business is remarkably steady [and] averaging 27M [new subscribers] a year over the last two years," Neumann added, helping shares rise slightly in AH trading.

However, for a company that depends on subscriber fees in order to fuel its ongoing forays into original and exclusive content, Netflix's results hint at possible rough road ahead. The company lost 430K subscribers in the U.S. and Canada during Q2, and added just 190K paid members in Europe, the Middle East and Africa. "Combined, they shrunk in their two most-profitable markets," said Wedbush analyst Michael Pachter. "That suggests [market] saturation to me. All the recent moves by Peacock, Disney, Hulu and HBO suggest that competition for content will become more fierce."

Outlook: Netflix confirmed it was in the "early stages" of expanding into video games, viewing it as "another content category for us, similar to our expansion into original films, animation and unscripted TV." Last week, Netflix even hired a former Electronic Arts and Facebook executive to lead the effort. While a time frame wasn't given for launching the new vertical, games will be included in current subscription plans at no additional cost. (44 comments)

Antitrust victory lap

President Biden has nominated Jonathan Kanter to be Assistant Attorney General for the Antitrust Division at the Department of Justice, the top position in the DOJ's antitrust unit. The move is being hailed as a major win for progressives, who accuse the agency of failing to aggressively pursue the anti-competitive behavior of Big Tech. If confirmed by the Senate, Kanter would head the DOJ division that filed a suit against Google (GOOG, GOOGL) in October, which was the first federal complaint against a tech giant since action against Microsoft (MSFT) in the '90s.

Backdrop: Kanter, a longtime critic of Google, is currently a partner at The Kanter Law Group LLP, a boutique antitrust law firm that advocates in favor of federal and state antitrust law enforcement. He has also served as an attorney for the U.S. Federal Trade Commission’s Bureau of Competition and was co-chair of the antitrust practice at Paul, Weiss, Rifkind, Wharton, and Garrison LLP.

"At this critical time, the DOJ must be equipped to take on giant tech companies and monopolistic corporations in any sector that," Senator Elizabeth Warren (D-Mass) said in a statement. "Jonathan will reinvigorate antitrust enforcement - both civil and criminal - and strengthen the DOJ’s scrutiny of the anti-competitive abuses that threaten our economy, our society, and our democracy."

Go deeper: Big Tech critic Lina Khan took the reigns as chair of the FTC in June, and earlier this month, Biden signed a new antitrust executive order aimed at strengthening antitrust authority over U.S. technology giants. Progressive tech critic and former Columbia University law professor Tim Wu also joined Biden's National Economic Council back in May, influencing the administration's policies with regards to large tech firms. (56 comments)

Today's Markets

In Asia, Japan +0.6%. Hong Kong flat. China +0.7%. India closed.
In Europe, at midday, London +1.7%. Paris +1.3%. Frankfurt +1.9%.
Futures at 6:20, Dow +0.6%. S&P +0.5%. Nasdaq +0.2%. Crude +1% at $67.90. Gold -0.4% at $1804.20. Bitcoin +3.4% at $30847.
Ten-year Treasury Yield +5 bps to 1.26%

Today's Economic Calendar

7:00 MBA Mortgage Applications
10:30 EIA Petroleum Inventories
1:00 PM Results of $24B, 20-Year Bond Auction