Dow Jones futures will open Sunday night, along with S&P 500 and Nasdaq futures. Even with a strong close in Friday’s sawtooth session, the stock market rally suffered significant damage last week as major indexes tumbled following hawkish comments from Fed chief Jerome Powell.
The Nasdaq had its worst week since January as megacaps plunged and cloud software crashed.
Apple (AAPL), Amazon.co.uk (AMZN) and parent company of Google Alphabet (GOOGL) all lost more than 10% for the week, with parent Facebook Metaplatforms (META), Tesla stock and Microsoft stock are not far behind. Google Stocks, Meta, Amazon.co.uk (AMZN) and Microsoft (MSFT) all hit bear market lows. Apple broth and You’re here (TSLA) didn’t, but they’re close.
Meanwhile, Twilio (TWLO) and Atlassian (TEAM) crashed out on disappointing results and guidance on Friday, losing more than 40% for the week. A host of other software names have dropped, with or without revenue.
A market rally trying to fight the Fed with the fall of the major tech sector? It’s a big challenge. So while some stocks and sectors are showing strength, investors should be extremely cautious in the current environment.
In other news, Warren Buffett Berkshire Hathaway (BRKB) on Saturday announced a 20% increase in operating profit. The conglomerate suffered a net loss as the continued bear market hit investments.
Dow Jones Futures Today
Dow Jones futures open at 6 p.m. ET, along with S&P 500 and Nasdaq 100 futures.
Goldman Sachs now expects S&P 500 earnings to be flat in 2023, down from its previous target of 3%.
Remember that overnight action on futures contracts on Dow Jones and elsewhere does not necessarily translate into actual trading in the next regular trading session.
Join the experts at IBD as they analyze actionable stocks in the stock market rally on IBD Live
Stock market rally
The stock market rally started the week decently, but then ended on Wednesday afternoon with hawkish comments from Fed chief Jerome Powell. The major indexes lost more ground on Thursday. Shares fell on Friday following a mixed jobs report, but ultimately closed strong higher on the day.
The Dow Jones Industrial Average fell another 1.4% in stock trading last week. The S&P 500 index fell 3.3%. The Nasdaq composite plunged 5.7%, its worst loss since the week ended Jan. 21. The small-cap Russell 2000 fell 2.4%.
The 10-year Treasury yield jumped 15 basis points to 4.16%. The 10-year yield resumed its advance after posting a 12-week winning streak and briefly trading around 4%.
The dollar edged up 0.2% for the week, but plunged 1.9% on Friday, the biggest one-day drop in years. This likely contributed to Friday’s stock market advance.
Markets now see a 61.5% chance of a 50 basis point hike at the Fed’s December meeting. The October consumer price index is due Thursday. The November jobs and CPI reports will be released ahead of the Fed’s rate hike decision on Dec. 14.
U.S. crude oil futures jumped 5.4% last week to $92.61 a barrel. Natural gas jumped almost 13%.
Apple stock, which hit its 200-day line the previous week, plunged 11.15% to 138.38 last week. AAPL stock came within a dime of its October low, though it still has a bit more distance from its bear market lows in June. Microsoft slipped 6.1%, Google 10.1%, Amazon 12% and META stock 8.5%, all to multi-year lows. Tesla stock fell 9.2% for the week, closing in on its Oct. 24 intraday low on Friday. This is after starting the week strong, hitting 237.40 intraday on Tuesday.
Meanwhile, these are dark days for cloud software. Here are a few examples: Atlassian stock plunged 29% on Friday and 38% for the week. Twilio stock slumped almost 35% on Friday and 43.5% for the week. Snowflake (SNOW), which won’t report for a few weeks, plunged 17% for the week.
Meanwhile, Fortinet (FTNT) fell 17.5% for the week after weak billing guidance offset strong earnings and a bullish revenue outlook. Paycom (PAYC) plunged 10.3% despite strong earnings and guidance.
Businesses looking to cut costs can limit software spending when setting budgets for 2023.
Among the top ETFs, the Innovator IBD 50 ETF (FFTY) fell 1.2% last week, while the Innovator IBD Breakout Opportunities ETF (BOUT) lost 2%. The iShares Expanded Tech-Software Sector ETF (IGV) plunged 10.2%, with MSFT stock a key holding. ETF VanEck Vectors Semiconductor (SMH) fell just 0.7%, after jumping 4.65% on Friday, closing at the top of the weekly range.
The SPDR S&P Metals & Mining (XME) ETF climbed 2% last week. The Global X US Infrastructure Development ETF (PAVE) edged down 0.1%. The US Global Jets ETF (JETS) edged up 0.3%. The SPDR S&P Homebuilders ETF (XHB) fell 5%. ETF Energy Select SPDR (XLE) climbed 2.4%, just below an eight-year high. The Financial Select SPDR ETF (XLF) fell 0.9%. The Health Care Select Sector SPDR Fund (XLV) fell 1.5%.
Reflecting more speculative historical stocks, ARK Innovation ETF (ARKK) fell 9.4% last week and ARK Genomics ETF (ARKG) fell 4.65%. Tesla stock is a major holding in Ark Invest’s ETFs.
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Market rally analysis
The stock market rally had a bad week, with a hawkish Fed and often weak earnings weighing on major indexes. The Dow, which led the uptrend in the market, saw the slightest decline, but fell back below the 200-day moving average. The Russell 2000 hit resistance near the 200-day line but rallied on Friday to close above the 50-day line. The S&P 500 has gone through 50 days.
The Nasdaq composite, which has never reached the 50-day moving average, fell the most, closing below its tracking day low on Wednesday, a bearish signal.
Major indexes extended losses on Thursday, then slumped on Friday on a mixed jobs report.
Negative market action and large reversals in many stocks triggered a shift to “market under pressure”.
The big driver of the market was Fed chief Powell, who pulled the rug out from under the market rally by signaling a shift to smaller hikes but a higher peak fed funds rate.
Meanwhile, megacap technologies including Apple, Tesla and Amazon suffered huge losses. Cloud software names such as Atlassian and Twilio have slumped, with recent earnings and forecasts being important factors.
The chips haven’t had a terrible week, relatively, but only a few names are trading near the highs.
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There are several resilient market areas. The healthcare sector appears strong overall. Energy names, including a wide range of oil stocks, LNG fields and coal miners, as well as a few solar stocks, are doing well.
Lithium and some steel games are doing well. Infrastructure companies for the energy, utilities and telecommunications sectors are a promising area. Networking businesses in general are a rare technology field that is leading the way. Some restaurants and discount retailers are showing strength. Various financials, including brokers and brokerages, made solid gains.
Still, it’s hard to see a strong market rally with such huge tech sectors reeling. It would be hard enough for the major indices to move forward with Apple, Google, Tesla and the cloud software names lagging behind. But trying to move forward with these dipping or crashing areas?
If inflation reports show a clear and significant decline, leading to lower Fed rate hikes, then perhaps megacaps and cloud software can bottom. However, a return to technology leadership could be a long way off. On the other hand, if the October CPI report from Nov. 10 shows that inflation is still elevated, tech stocks could lead major sectors to complete the market rally.
Tuesday is election day. The stock market tends to do better with a divided government, and Republicans are poised to regain control of the House and possibly the Senate. But political forecasters have predicted at least one House GOP victory all year, so it’s unclear if Tuesday’s actual results will be a big catalyst.
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What to do now
The stock market rally is under pressure. The Fed is moving from fast and furious to slow and long, but it remains hawkish. The tech industry is a shipwreck. Major indices undercut some key levels. Indices and major stocks are subject to strong intraday and daily fluctuations.
This is not a good environment to buy stocks. Investors should seek to reduce their exposure, either explicitly or simply by reducing losses on various positions.
If the market rally shows renewed strength, with the S&P 500 and possibly the Nasdaq breaking above their 50-day moving averages, investors could start to increase their exposure. But that will likely require technology to stabilize and inflation data to show some cooling.
If conditions improve, you’ll want to be prepared. There are a number of stocks setting up shop, with many more not too far away. So build your watchlists, be patient and stay engaged.
Read The Big Picture every day to stay in tune with market direction and top stocks and sectors.
Please follow Ed Carson on Twitter at @IBD_ECarson for stock market updates and more.
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