Before the bell: rising rates put pressure on markets

US technology stocks lost ground, with some Magnificent Seven names falling by as much as 4%. Netflix also failed to impress with its results.

In the United States, investors were only able to react yesterday to President Trump’s latest trade tariffs on Europe. As a result, the S&P 500 (-2.1%) and the technology-heavy Nasdaq (-2.4%) only moved lower on Tuesday. What stood out was that rising US interest rates put particular pressure on technology stocks and the Magnificent Seven. The ten-year US Treasury yield rose by 6 basis points to 4.29%, dealing a blow to stocks such as Apple (-3.5%), Amazon (-3.4%) and Nvidia (-4.4%). After the close, Netflix announced disappointing quarterly figures for the current quarter, which could unsettle investors. Rising gold prices, however, allowed investors in gold miners to celebrate, with the VanEck Gold Miners ETF gaining 5.7%.

In Japan this morning, bond markets are calming down. The yield on 40-year government bonds fell by 22 basis points after a call for calm from Japan’s finance minister. Japanese yields have risen sharply in recent weeks. The Japanese Topix index is down 0.9% this morning. Chocolate group Barry Callebaut sees its CEO step down, with Dutchman Hein Schumacher set to take over. In the fourth quarter, the group saw sales volumes fall by 9.9%, but thanks to higher chocolate prices, revenue still rose by 6.4%. Today, Johnson & Johnson will report its results, along with fracking company Halliburton and the Bank of California.

Netflix works for its creditors from 2026

More than 100 billion dollars. That is how much Netflix will spend in 2026 on the acquisition of Warner Bros. Discovery and on content production. These are substantial investments that will also weigh on profits. Netflix announced that the takeover bid will no longer be partly paid in shares, but entirely in cash. As a result, after the merger Netflix’s debt will increase roughly sixfold to around 85 billion dollars. The streaming giant will also halt its share buyback programme in order to conserve cash. That is necessary, as growth in new subscriber numbers is slowing. While reported figures exceeded analysts’ expectations, the problem lies with forward-looking numbers for the current quarter. Due to the costs associated with the Warner Bros. acquisition, earnings per share for the current quarter are expected to come in at 0.76 dollars, or 6 cents below expectations. That could trigger profit-taking. Netflix has already announced substantial price increases in 2026 to help finance the deal and is aiming to double advertising revenues. Those revenues already amounted to a hefty 1.5 billion dollars in 2025, but will need to reach at least 3 billion dollars in 2026.

Sofina dilutes shareholders

The downside of a capital increase carried out well below a share’s intrinsic value is shareholder dilution. This is how it works. Anyone reading Sofina’s latest shareholder letter might initially think the group had a solid half year. Since June, the value of the portfolio rose by 8% to 10.6 billion euro. That is certainly not bad, but the increase is largely due to a capital increase of 545 million euro. Adjusting for that, intrinsic value per share rose by “only” 1% to 299 euro per share. Without the capital increase, intrinsic value would have been 305 euro, implying dilution of 6 euro per share. This does not concern us much at Spaarvarkens, as we have no doubt that Sofina will create significant shareholder value with that capital. Sofina remains an attractive holding, with its largest position currently being ByteDance, the owner of TikTok. This week, I actually bought items for the first time via TikTok in the Philippines. Creators here massively promote products through videos that you can then buy directly via TikTok Shop for small amounts. Once you get used to it, it becomes hard to resist the temptation to make purchases when opening the TikTok app to watch videos. Watch out, Belgium, because according to TikTok, you’re next in 2026. And that will also be good news for Sofina.

Did you know…

that US technology stocks are among the most interest-rate-sensitive equities? This is because a large part of their valuation consists of profits that lie far in the future. The higher the interest rate, the lower the present value of those future profits.

This article was translated from Dutch and was originally published on Spaarvarkens.be.