These 2 Dangerous Rallies Could Fade: ROKU, PARA

Last week, the market interpreted the Federal Reserve’s repeated interest rate pause as a sign that hikes are over. In September, the Fed communicated a highly hawkish tune: it planned to raise rates once more by 25 bps in 2023.

That extra rate hike is potentially off the table. The S&P 500’s huge rally lifted speculative companies. Those firms posted weak and uninspiring Q3 results. Be wary of them: their rally could fade.

Roku (ROKU) posted a GAAP loss of $2.33. Revenue rose by 19.8% Y/Y as active accounts increased by 2.3 million to 75.8 million. Buyers saw Roku’s potential that legacy outlets for television advertising will move to Roku’s platform. The firm needs revenue growth to translate to positive EPS and operating margin.

Paramount (PARA) bottomed at $10.51 and closed at $13.76 on Nov. 3. The firm posted revenue of $7.13 billion, up by 3% Y/Y. PARA stock gained because subscription revenue grew by 46% to $1.3 billion. Subscriber growth and pricing increases from Paramount+ are two tailwinds. Pluto TV grew on a global viewing hour measure.

Your Takeaway

The S&P 500’s abrupt rally is a potential relief-inspired rebound. Sentiment may quickly reverse if investors take profits. Interest rates are still over 5%, with money market funds paying more than that.

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