Dow Jones futures rose Sunday night along with S&P 500 futures and Nasdaq futures. Tesla and CEO Elon Musk stayed in the news over the weekend.
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The stock market rally suffered severe damage last week in the wake of a dovish Fed outlook and weak economic data that raised concerns that the Federal Reserve will push the economy into recession. The Nasdaq and S&P 500 indexes ended the week below their 50-day moving averages.
Megacap stocks remain a drag, especially for the major indices Apple (AAPL) and Tesla (TSLA), with TSLA stock plunging to new bear market lows. Amazon.com (AMZN) and Google parent company alphabet (GOOGL) are not too far off their lows. Microsoft hasn’t lost all that much this week but fell back from the 200-day moving average. NVIDIA (NVDA), which had been part of a chip rebound, reversed down, back below key support.
But the megacaps don’t hide the underlying strength. Most stocks that had flashed buy signals over the past few days and weeks turned down. Leading sectors also suffered.
Island (PODD), Commercial Metals (CMC), elf beauty (ELEVEN), Peabody energy (BTU) and Dow Jones giant Caterpillar (CAT) are holding up relatively well. However, none are currently actionable.
Investors should be wary of buying in the current market but focus on reducing exposure and building watch lists.
The video embedded in this article took an in-depth look at what’s happening in the market while also analyzing shares of Insulet, Elf Beauty, and CAT.
defense agreement
L3Harris (LHX) confirms it will buy Aerojet Rocketdyne (AJRD) for $4.7 billion in cash, including debt. LH3 Harris is paying $58 per share per AJRD share. Lockheed Martin (LMT) scrapped a $4.4 billion deal for Aerojet in February despite regulatory opposition.
Dow Jones futures today
Dow Jones futures were just above fair value. S&P 500 futures were up 0.1% and Nasdaq 100 futures were up 0.2%.
The 10-year government bond yield rose 3 basis points to 3.51%.
Crude oil futures rose 1%.
Keep in mind that overnight action in Dow futures and elsewhere doesn’t necessarily translate to actual trading in the next regular trading session.
Join IBD experts as they analyze actionable stocks in the stock market rally on IBD Live
stock market rally
The stock market rally surged Tuesday morning but then sold off sharply, ending the week with sharp losses.
The Dow Jones Industrial Average fell 1.7% in trading last week. The S&P 500 Index lost 2.1%. The Nasdaq Composite fell 2.7%. Small cap Russell 2000 fell 2.4%.
The 10-year government bond yield fell 9 basis points to 3.48%. Despite the Fed’s hawkish talk, markets expect a quarter-point hike in February and March, but with a growing likelihood of no action in March.
US crude oil futures rose almost 5% last week to $74.29 a barrel.
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ETFs
Among growth ETFs, the iShares Expanded Tech-Software Sector ETF (IGV) erased large early gains to finish the week down 0.5%, with MSFT shares a key position. The VanEck Vectors Semiconductor ETF (SMH) staged its own outer downward reversal week, shedding 2.9%. Nvidia stock is a top SMH component.
Mirroring more speculative story stocks, ARK Innovation ETF (ARKK) slipped 4% last week, just above a five-year low. ARK Genomics ETF (ARKG) is down 0.4%. Tesla stock remains a key position in Ark Invest’s ETFs.
The SPDR S&P Metals & Mining ETF (XME) is down 2.6% last week. The Global X US Infrastructure Development ETF (PAVE) lost 2.6%. The US Global Jets ETF (JETS) fell 3.6%. SPDR S&P Homebuilders ETF (XHB) edged up 0.4% but closed near weekly lows. The Energy Select SPDR ETF (XLE) rallied 2% and the Financial Select SPDR ETF (XLF) fell 2.5%. The Health Care Select Sector SPDR Fund (XLV) lost 1.8% after hitting record highs on Tuesday.
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The Dow Jones tech titan’s Apple stock was sold down 5.4% on the week to 134.51. AAPL undercut the October-November lows, next was the June bear market low of 129.04. Other Dow constituent Microsoft fell 0.3% to 244.69 after pulling back from 263.92 on Tuesday morning when it hit the 200-day moving average. Amazon shares fell just 1.4% to 87.66 but fell off the weekly high of 96.25 and closed near the November 9 bear market low of 85.87. Google shares fell 2.8%, rebounding from Tuesday’s highs. Nvidia surged above its 50-day moving average earlier in the week but ended up down 2.5%.
Tesla stock was the big loser, plunging 16.1% to 150.23, its lowest since November 2020. It was its worst weekly decline since the Covid crash in March 2020. Concerns about demand in China, Elon Musk’s recent TSLA stock sales and Musk’s Twitter focus all weigh on stocks.
Tesla will build a new auto plant in northeastern Mexico, Bloomberg reported Friday night, with an announcement likely in the coming days. It is unclear which vehicles the factory will produce. A plant in Mexico would offer relatively lower costs compared to Tesla’s plants in Fremont, Austin and Berlin, while still being close to the US
On Sunday night, Tesla CEO Elon Musk launched a Twitter poll asking him if he should step down as Twitter CEO, which has been urged by many high-profile TSLA bulls. Musk said he will stick to the results.
Tesla and other EV makers in China could benefit from newly announced year-end special incentives in Shanghai and Shenzhen. That will continue to drive demand from 2023, as China’s EV subsidies end on December 31.
Tesla vs BYD: Which EV Giant is the Better Buy?
Analysis of the market rally
Within a few days, the stock market rally abruptly switched from moving above a trading range to falling below it. The weekly percentage losses across the major indices have been large, but the damage has been far worse.
Shortly after Tuesday’s open, all major indices hit rally highs on a tame inflation report, with the S&P 500 back above its 200-day moving average and the Dow Jones at its best levels in almost eight months. But indices pared gains and the S&P 500 closed below the 200-day level. On Wednesday, key indices turned lower as the US Federal Reserve and Fed Chair Jerome Powell announced several more rate hikes.
Selling strengthened on Thursday amid weak economic data that fueled recession fears. The Nasdaq and Russell 2000 fell below their 50-day moving averages, while the S&P 500 and Dow Jones broke below their 21-day moving averages. All fell to their worst levels in over a month, undercutting week-long ranges.
The S&P 500 fell below its 50-day moving average on Friday. The Dow is almost there.
It was a major negative outside week for all major indices, with highs and lows exceeding the previous four week range.
Leading stocks have been thrashed with few exceptions. Industrials, solar, medical, travel and various chip and networking stocks are all coming under mild to severe pressure.
Overall, megacap stocks remain clear laggards. Tesla stock continues to plunge to new two-year lows. Amazon stock is just above bear market lows as Google moves in that direction. AAPL stock fell to its lowest level in almost six months, with bear lows on the horizon.
Microsoft stock and Nvidia may not be laggards, but they’re not leaders either. Both are below their 200-day moving average.
Perhaps this uptrend is a bear market rally running its course, with indices returning to their October lows. Perhaps the S&P 500 will recover quickly or remain range bound for an extended period of time.
The only thing that is clear is that the market is not behaving well at the moment.
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What now
Investors should reduce their exposure due to the deteriorating overall market and the performance of most individual stocks.
Even though it’s under pressure, it’s still a market rally. A good couple of days could boost confidence in the uptrend and push more stocks back into buying territory. Even in this scenario, given the rally’s pattern of pulling back and erasing solid gains, investors should of course be cautious about new purchases.
So stay engaged. Keep working on watch lists. Focus on stocks that hold key moving averages and support levels and generally show strong relative strength, such as: B. Caterpillar, Insulet and ELF stocks.
Read The Big Picture every day to keep up to date with market direction and leading stocks and sectors.
Please follow Ed Carson on Twitter at @IBD_ECarson for stock market updates and more.
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