Dow Jones futures edged higher Monday morning, along with S&P 500 futures and Nasdaq futures, even as the 10-year Treasury yield neared the 4% mark. Tesla Investor Day and Elon Musk’s “Masterplan 3” will be the focus of what has been a busy week for EV news.
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The stock market rally suffered significant losses last week, with major indices breaking through and testing key support as US Treasury yields surged, capped by Friday’s hot PCE inflation report. The uptrend is coming under increasing pressure. The major indices and leading stocks could still gain traction, but investors should be more defensive.
Berkshire Hathaway reported fourth-quarter earnings on Saturday morning. Li car (LI) reported gains early Monday amid a big week for China EV news.
Pfizer (PFE) is in early purchase talks blessings (SGEN), the Wall Street Journal reported Sunday night. SGEN stock closed Friday with a market cap of $30.1 billion but was up 13% before the open. Pfizer shares fell slightly. note (MRK) held late-stage talks with the biotech late last year but failed to reach an agreement.
Union Pacific (UNP) said on Sunday CEO Lance Fritz would step down this year after hedge fund Soroban Capital Partners called for it to replace him. UNP stock jumped ahead of the open.
The video embedded in this article discussed and analyzed the weekly market action Tesla (TSLA), wing stop (WING) and MELI bearings.
MercadoLibre (MELI) was the IBD stock of the day on Friday, signaling a buy signal for strong gains. The MELI share is also included in the IBD 50.
Dow Jones futures today
Dow Jones futures rose 0.4% versus fair value. S&P 500 futures were up 0.5% and Nasdaq 100 futures were up 0.6%.
Futures are suggesting that the Nasdaq will retake the 200-day moving average at the open, with the S&P 500 hovering just above its 50-day moving average.
The 10-year government bond yield rose 2 basis points to 3.97%, very close to the 4% mark.
Crude oil futures fell while natural gas prices skyrocketed. Copper prices trended higher.
Keep in mind that overnight action in Dow futures and elsewhere doesn’t necessarily translate to actual trading in the next regular trading session.
China EV sales, profits
Electric vehicle manufacturer from China Li car (LI) reported Q4 adjusted earnings per share that came in well ahead of expectations on revenue growth of 66%. In particular, the manufacturer of SUV hybrids expected deliveries of 52,000 to 55,000 vehicles in the first quarter. This suggests that Li Auto will deliver 36,859 to 39,859 vehicles in February and March.
on Wednesday morning, No (Nio) to release Q4 financials, featuring Nio, Li Auto and XPeng (XPEV) also reports deliveries in February. Electric and battery giant from China BYD (BYDDF) should release February sales by Friday.
Tuesday’s weekly Chinese EV registration numbers will provide a strong indication of BYD, Li Auto, Nio and Xpeng sales for the month, as well as Tesla deliveries.
Chinese EV shares have plummeted again after a strong January. BYD stock and Li Auto sharply pared earnings in 2023, while Nio and XPEV stock are now down for the year.
But LI stock was up 6% Monday morning, with shares of Nio and XPEV also gaining. BYD shares have not yet traded.
Tesla vs. BYD: EV giants vie for the crown, but which is the better buy?
Tesla Investor Day
But the big event will be Tesla Investor Day on Wednesday, March 1st. Tesla (TSLA) has announced it will offer details of a next-generation EV platform for a lower-cost model. But when will this go into production? The EV giant could also finally confirm plans for a long-awaited Model 3 refresh and provide details on the “Highland” upgrade.
Tesla is likely to unveil HW4.0, the latest driver assistance hardware including better chips, more cameras and the return of radar. Elon Musk said that all Tesla electric vehicles as of 2016 will be “hardware capable” for full autonomous driving.
The EV giant will certainly be discussing its own battery production efforts, including a major plant expansion in Nevada to produce 4680 cells.
Battery storage expansion plans and “capital allocations” are also key issues.
Elon Musk may also release his third “master plan,” even if there are still some big points left on his second vision statement from 2016. Musk has been hinting at Master Plan 3 for almost a year.
Meanwhile, price cuts at Tesla at the beginning of January caused an initial boost in orders worldwide. But apart from the Model Y in the USA, Tesla demand seems to be waning again and inventories are growing.
China is particularly difficult because many post-Tesla electric vehicle makers have cut prices. BYD prices are also falling on a number of models, although the EV giant said these are discounts from some retailers, not a move by the company. Meanwhile, a number of new or refreshed models are on the horizon over the next few months, including from Nio, Li Auto, XPeng, and most notably BYD.
Tesla shares enjoyed a six-week winning streak, falling 5.5% to 196.88. But stocks are pausing just above the 21-day moving average and slightly below the 200-day moving average. A decisive move above the recent highs would also propel Tesla stock above its 200-day moving average. That would be a possible entry, but it would be aggressive, especially in the current market. Tesla Investor Day could be a big catalyst up or down, but in which direction?
TSLA shares were up 2% early Monday.
Berkshire Earnings
Warren Buffett Berkshire Hathaway (BRKB), operating profits fell 8% year over year to $6.7 billion. Excluding currency effects, operating profit increased by 13%.
Berkshire Hathaway was a net seller of shares in the fourth quarter. But it bought back $2.855 billion worth of Berkshire stock, up from about $1 billion in the fourth quarter but down from $6.9 billion a year earlier.
Berkshire’s cash balance increased to $128.651 billion from nearly $109 billion in the third quarter.
Warren Buffett said in his annual letter to shareholders that Berkshire Hathaway will continue to hold a “boatload” of cash and Treasury bills. He also labeled critics of share buybacks as “economically illiterate or articulate demagogues.”
BRKB stock was little changed prior to the opening.
BRKB shares fell 1.4% last week to 304.02. That’s not far from a buy point of 321.42 from a flat base within a major consolidation. Berkshire stock edged up Friday after hitting a 2023 low, but is below its 50-day moving average.
Join IBD experts as they analyze actionable stocks in the stock market rally on IBD Live
stock market rally
The stock market rally had a rough week, with major indices looking increasingly damaged.
The Dow Jones Industrial Average fell 3% in trading last week, its fourth straight weekly loss. The S&P 500 index fell 2.7%. The Nasdaq Composite slipped 3.3%. Small-cap Russell 2000 fell 2.9%.
The 10-year government bond yield rose 12 basis points to 3.95%, the highest level since November 10. That’s 62 basis points higher than the intraday low of 3.33% on Feb. 2, when the current stock market rally peaked.
The US dollar rose for the fifth straight week.
US crude oil futures fell 0.3% last week to $76.32 a barrel. Copper prices slipped 3.9% to end Friday at their lowest level since Jan. 6.
ETFs
Among growth ETFs, the innovator IBD 50 ETF (FFTY) fell 1.6% last week. The iShares Expanded Tech-Software Sector ETF (IGV) fell 2.2%. The VanEck Vectors Semiconductor ETF (SMH) is down 1.9% NVIDIA (NVDA) provides direct and indirect support.
The SPDR S&P Metals & Mining ETF (XME) fell 4.25% last week. The Global X US Infrastructure Development ETF (PAVE) lost 2.3%. The US Global Jets ETF (JETS) fell 2.8%. SPDR S&P Homebuilders ETF (XHB) is down 3.2%. The Energy Select SPDR ETF (XLE) was up slightly 0.2% and the Financial Select SPDR ETF (XLF) was down 2%, with BRKB stock taking the top spot in XLF. The Health Care Select Sector SPDR Fund (XLV) slumped 2.6%, its biggest loss in a nine-week losing streak.
Mirroring more speculative story stocks, ARK Innovation ETF (ARKK) plunged 8.2% and ARK Genomics ETF (ARKG) 8.4% last week. Tesla stock is a key position in Ark Invest’s ETFs.
Cathie Woods Ark Invest also owns a small stake in BYD. Berkshire still has a large position in the Chinese electric-vehicle giant, but has reduced its long-standing stake in BYD by over 40% since last August.
The five best Chinese stocks to watch right now
Analysis of the market rally
The pullback in stock markets no longer looks like just a normal pause in an ongoing stock market rally. On Tuesday, the S&P 500, Nasdaq Composite and Russell 2000 fell below their 21-day moving averages, while the Dow Jones fell below its 50-day moving average. That pushed the stock market rally under pressure into an uptrend.
After two days of modest market action, Friday’s hot inflation gauge hit the major indices again. The S&P 500 closed below its 50-day moving average and is testing its 200-day moving average. The Nasdaq closed just below its 200-day moving average, with its 50-day moving average not far off. The Dow Jones fell to its worst level of 2023. The Russell 2000 is still above its 50-day price but is also falling and testing its 10-week moving average.
All of these indices are back below their late 2022 highs.
Leading stocks, which had flexed over the previous two weeks as the market rally eased slightly, began to deteriorate significantly.
Just a few weeks ago, inflation appeared to be declining while the economy remained relatively healthy. Markets were betting that a quarter-point rate hike in March would end the Fed’s tightening cycle. Now January inflation reports, including December revisions, suggest that inflation remains too hot and is even picking up. Investors expect at least three more quarter-point hikes, with a growing chance of more or faster tightening.
Those prospects for a Fed rate hike could be changing, although the February jobs report is still a few weeks away and the next round of inflation data is further away. Equities may also eventually price in the Fed’s revised macroeconomic and monetary policy forecasts. But as long as yields and the dollar are rising fast, it’s hard to see stocks holding up, let alone making progress.
The market rally is not over yet but has yet to show some strength. The S&P 500 regaining its 50-day moving average and the Nasdaq reclaiming its 200-day moving average would be a minimal first step, with the 21-day moving average being another key level. It wouldn’t take much to turn uptrend under pressure into market in correction. In any case, many leading stocks can take time to rebuild, whether it’s a few days or several weeks.
Yes, some stocks declined against gains last week, most notably Nvidia. But some of those gaps quickly faded. WING stock rose nearly 17% shortly after Wednesday’s open but pared intraday gains and even fell slightly over the week.
Housing-related stocks continue to hold up well, including home builders, some retailers and building materials companies. Heavy construction machinery and various machine names are also doing well.
But there are still a number of stocks across sectors that would look a lot more promising with a few good days ahead.
Time the market with IBD’s ETF market strategy
What now
The strong stock market rally in January is in the past. Investors need to adapt to the current reality. Right now, the major indices and leading stocks are trending down.
It’s time to take an increasingly defensive stance and significantly reduce overall exposure by trimming winners and losers. Investors should largely avoid entering into new positions, at least in the short term. Don’t get too excited about stocks making big earnings moves or other news. In a weak market, daily gains often don’t hold up.
As the market rally resumes, a number of stocks present buying opportunities with higher odds. So keep your watchlists up to date. Relative strength is key, so follow these strong performers even if they don’t have a clear buying case right now.
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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