Dow Jones futures were little changed early Monday, along with S&P 500 futures and Nasdaq futures. Berkshire Hathaway (BRKB) earnings, Apple iPhone 14 Pro production issues and reports from Metaplatforms (META) layoffs headlined weekend news.
Even with a solid close in Friday’s whipsaw session, the stock market rally suffered significant damage last week, with major indices tumbling amid aggressive comments from Fed chief Jerome Powell.
The Nasdaq had its worst week since January as megacaps plummeted and cloud software crashed.
Apple (AAPL), Amazon.com (AMZN) and Google parent Alphabet (GOOGL) all lost more than 10% for the week, with Facebook parent Metaplatforms (META), Tesla stock and Microsoft stock not far behind. Google stock, Meta, Amazon.com (AMZN) and Microsoft (MSFT) all hit bear market lows. Apple supply and Tesla (TSLA) not, but they are close.
In the meantime, Twilio (TWLO) and Atlassian (TEAM) crashed Friday after disappointing results and guidance, losing more than 40% for the week. A whole host of other software names tumbled, with or without revenue.
A market rally that the Fed is trying to fight as the major tech sector plummets? That is quite a task. So while there are some stocks and sectors that show strength, investors in the current environment should be extremely cautious.
Dow Jones Futures Today
Dow Jones futures were flat against fair value. S&P 500 futures had changed little and Nasdaq 100 futures retreated 0.1%. Futures were well outside of Sunday night’s lows.
China’s exports fell unexpectedly in October, while the country’s Covid cases hit a six-month high. Hong Kong’s Hang Seng Index rose sharply overnight, extending recent gains. Investors still hope the Chinese government will ease its zero-covid policy, as speculated on social media.
Crude oil fell more than 1%, while natural gas futures rose 9%.
The dollar, which plunged Friday, rose slightly.
Keep in mind that an overnight action in Dow futures and elsewhere does not necessarily lead to actual trading in the next regular trading session.
Meta Platforms will cut thousands of jobs, The Wall Street Journal reported Sunday. An announcement could come as soon as Wednesday, the WSJ said. At the end of September, Meta had more than 87,000 employees. On Oct. 26, Meta reported a 49% decline in EPS in the third quarter and cut guidance amid a metaverse spending splurge. META shares plunged 25% the next day, as shares continued to fall.
Late last week, new Twitter owner Elon Musk cut half of that social media workforce of 7,500.
Apple said on Sunday that “we now expect lower deliveries of iPhone 14 Pro and iPhone 14 Pro Max than we previously expected.” That’s because of Covid restrictions at a Foxconn factory in Zhengzhou, China. Apple’s disclosure isn’t a shock given Foxconn’s published woes. Foxconn warned Monday that the Covid disruptions will hit Q4 earnings.
Apple said 14 Pro and Pro Max remain strong, but shipments will take longer.
Warren Buffett’s Berkshire Hathaway reported a 20% increase in corporate profits on Saturday. The conglomerate suffered a net loss as the ongoing bear market hit investments.
Goldman Sachs now expects S&P 500 earnings to be flat in 2023, compared to its previous target of 3%.
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stock market rally
The stock rally started the week on a decent note, but sold off on Wednesday afternoon after the aggressive comments from Fed chief Jerome Powell. Major indices lost ground on Thursday. Shares rose on Friday after a mixed jobs report, but eventually closed solidly higher that day.
The Dow Jones Industrial Average was still down 1.4% in stock trading last week. The S&P 500 index fell 3.3%. The Nasdaq composite collapsed 5.7%, its worst loss since the week ending Jan. 21. The small-cap Russell 2000 fell 2.4%.
Ten-year government bond yields rose 15 basis points to 4.16%. The 10-year yield resumed its rally after breaking a 12-week win streak and trading briefly back around 4%.
The dollar rose 0.2% this week, but fell 1.9% on Friday, the largest one-day drop in years. That likely contributed to Friday’s stock market rally.
Markets now see a 61.5% chance of a 50 basis point gain at the December Fed meeting. The October consumer price index is expected on Thursday. November’s jobs and CPI reports will come out before the Fed’s Dec. 14 decision to hike rates.
US crude oil futures rose 5.4% last week to $92.61 a barrel. Natural gas shot up almost 13%.
Apple shares, which had risen to its 200-day line, fell 11.15% to 138.38 last. AAPL stocks came within a penny of the October low, although it is still a short distance from the bear market low in June. Microsoft slipped 6.1%, Google 10.1%, Amazon 12% and META stock 8.5%, all to multi-year lows. Tesla shares fell 9.2%, approaching the October 24 intraday low on Friday. That’s after TSLA started the week strong, reaching 237.40 within the day on Tuesday.
Meanwhile, it’s dark days for cloud software. Atlassian shares plunged 29% on Friday and 38% for the week. Twilio stock crashed nearly 35% on Friday and 43.5% for the week. Snowflake (SNOW), who won’t report for a few weeks, plunged 17% that week.
In the meantime, fortinet (FTNT) crashed 17.5% for the week as weak billing outlook offset strong earnings and optimistic earnings outlook. paycom (PAYC) fell 10.3% despite robust results and guidance.
Companies 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 stocks in a leading position. The VanEck Vectors Semiconductor ETF (SMH) fell just 0.7%, after jumping 4.65% on Friday, closing high in the weekly range.
SPDR S&P Metals & Mining ETF (XME) climbed 2%. The Global X US Infrastructure Development ETF (PAVE) fell 0.1%. The US Global Jets ETF (JETS) rose 0.3%. SPDR S&P Homebuilders ETF (XHB) fell 5%. The Energy Select SPDR ETF (XLE) climbed 2.4%, just below its eight-year high. The Financial Select SPDR ETF (XLF) fell 0.9%. The Health Care Select Sector SPDR Fund (XLV) lost 1.5%.
As a result of more speculative story stocks, ARK Innovation ETF (ARKK) fell 9.4% last week and ARK Genomics ETF (ARKG) fell 4.65%. Tesla stocks are a major holding in Ark Invest’s ETFs.
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Market rally analysis
The stock market rally had a bad week, with an aggressive Fed and often weak gains weighing on major indices. The Dow Jones, which led the market’s uptrend, saw the slightest decline, but fell back below the 200-day moving average. The Russell 2000 encountered resistance near the 200-day line but recovered Friday to close above 50 days. The S&P 500 broke through the 50 days.
The Nasdaq, which never hit the 50-day moving average, fell the most, closing below the low of its follow-up day on Wednesday, a bearish signal.
Major indices extended losses Thursday and rose Friday on a mixed jobs report.
The negative market action and major reversal in many stocks led to a shift towards ‘market under pressure’.
The big driver was Fed chief Powell, who pulled the rug out of the market rally by signaling a shift towards smaller rate hikes but higher Fed fund rates.
Meanwhile, mega-cap tech companies including Apple, Tesla, Amazon and Meta stocks suffered huge losses. Cloud software names like Atlassian and Twilio have melted down, with recent earnings and guidance being key factors.
Chips hadn’t had a bad week in relative terms, but only a few names traded near highs.
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There are several resilient market areas. The healthcare sector generally looks strong. Energy names, including a wide range of oil stocks, LNG plays and mining companies, plus some solar stocks, are doing well.
Lithium and some steel games are doing well. Infrastructure companies for the energy, utilities and telecom industries are a bright spot. Network companies in general are a rare tech area that is leading the way. Some restaurants and discount stores are showing strength. Several financial institutions, especially brokers and brokers, have posted strong gains.
Still, it’s hard to see a strong market rally with such massive tech sectors teetering. It would be hard enough for the major indices to make headway with the names of Apple, Google, Tesla and cloud software lagging behind. But to try and get ahead with those areas that plummet or crash?
If inflation reports show a clear and meaningful decline, encouraging a pullback in Fed rate hikes, megacaps and cloud software may be bottoming out. However, a return to technology leadership can be a number of ways. On the other hand, if the October 10 CPI report shows that inflation is still high, technology stocks could drag leading sectors down to end the market rally.
Tuesday is election day. The stock market tends to do better with a divided government, and Republicans will regain control of the House and perhaps the Senate. But political forecasters are predicting at least a House GOP win all year round, so it’s not clear 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 is still hawkish. The technical sector is a train wreck. Major indices have undercut a number of key levels. The indices and leading stocks are subject to large intraday and daily fluctuations.
This is not a good environment to buy stocks. Investors should try to reduce 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 above their 50-day moving averages, investors could start adding exposure. But that will likely require technology to stabilize and inflation data to show some cooling.
When conditions improve, you want to be ready. There are a number of stocks building up, and many more not too far away. So build your watchlists, be patient and stay involved.
Read The Big Picture every day to stay up to date on market direction and leading stocks and sectors.
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