Dow Jones futures were little changed early Monday morning, along with S&P 500 futures and Nasdaq futures. Berkshire Hathaway (BRKB) earnings, Apple iPhone 14 Pro production difficulties and reports Meta platforms (TARGET) weekend news of layoffs.
X
Despite a solid close to Friday’s whiplash session, the stock market rally took a significant hit last week, with major indexes falling on hawkish comments from Fed chief Jerome Powell.
The Nasdaq had its worst week since January as megacaps tumbled and cloud software crashed.
apple (AAPL), amazon.com (AMZN) and Google relative Alphabet (GOOGLE) all lost more than 10% for the week with their Facebook relative Meta platforms (TARGET), Tesla shares and Microsoft shares are not far behind. Google stock, Meta, amazon.com (AMZN) and Microsoft (MSFT) all hit bear market lows. Apple shares and Tesla (TSLA) did not, but they are close.
In the meantime, Twilio (TWLO) and Atlasian (TEAM) crashed on Friday with disappointing results and guidance, losing more than 40% for the week. Many other software titles have collapsed, profitable or not.
A market rally trying to fight the Fed with a sharp decline in the big tech sector? That’s a tall order. So, while there are some stocks and sectors showing strength, investors should be extremely cautious in the current environment.
Dow Jones Futures today
Dow Jones futures were flat. fair value. S&P 500 futures were little changed and Nasdaq 100 futures were down 0.1%. Futures were at their lowest levels on Sunday evening.
China’s exports unexpectedly fell in October as the country’s Covid cases hit a six-month high. Hong Kong’s Hang Seng index rose strongly overnight, extending recent gains. Investors are still hoping that the Chinese government will ease its zero Covid policy as social media chatter has speculated.
Crude oil fell more than 1%, while natural gas futures rose 9%.
The dollar, which fell on Friday, rose slightly.
Don’t forget that it’s a one night stand Dow futures and elsewhere does not necessarily become the actual trade on a regular basis Stock market session.
News
Meta Platforms will cut thousands of jobs, The Wall Street Journal reported on Sunday. The announcement could come as early as Wednesday, the WSJ said. At the end of September, Meta had more than 87,000 employees. Where on Oct. 26, Meta reported a 49% EPS decline in Q3 and cut guidance amid metaverse spending. The next day, META shares lost 25%, and the stock continued to slide.
Late last week, Twitter’s new owner, Elon Musk, laid off half of the social media’s 7,500 workforce.
Apple said on Sunday “We now expect iPhone 14 Pro and iPhone 14 Pro Max shipments to be lower than we previously expected.” This is due to Covid restrictions at the Foxconn factory in Zhengzhou, China. Apple’s announcement isn’t a shock given Foxconn’s publicized woes. Foxconn warned on Monday that Covid disruptions will hit Q4 earnings.
Apple said the 14 Pro and Pro Max remain strong, but shipping will take longer.
Warren Buffett’s Berkshire Hathaway reported on Saturday 20% increase in operating profit. The conglomerate suffered a net loss as the ongoing bear market hit investments.
Goldman Sachs now expects S&P 500 earnings to fall short of its previous target of 3% in 2023.
Join IBD’s experts as they analyze the stocks that made the most of the stock rally on IBD Live
Stock market rally
The stock market rallied off to a decent start to the week, but then sold off on Wednesday afternoon with hawkish comments from Fed chief Jerome Powell. Major indexes were higher on Thursday. Stocks rallied on Friday after a mixed jobs report, but ended up closing firmly on the day.
The Dow Jones Industrial Average was still down 1.4% last week stock trading. The S&P 500 index fell 3.3%. The Nasdaq composite fell 5.7%, its worst loss since the week ending January. 21. The small-cap Russell 2000 fell 2.4%.
The 10-year Treasury yield rose 15 basis points to 4.16%. The 10-year yield resumed its advance after snapping a 12-week winning streak and briefly trading back about 4%.
The dollar rose 0.2% for the week but fell 1.9% on Friday, its biggest one-day decline in years. That likely helped the stock market move higher on Friday.
Markets now see a 61.5% chance of a 50 basis point hike at the Fed’s December meeting. The consumer price index for October is due on Thursday. The November jobs and CPI reports will be released before December. 14 Fed rate hike decision.
US crude oil futures rose 5.4% last week to $92.61 per barrel. Natural gas increased by about 13 percent.
Technical Accident
Apple shares, which rose to their 200-day line, fell 11.15% to 138.38. AAPL shares are within a penny of October’s lows, though they’re still some distance from June’s bear market lows. Shares of Microsoft fell 6.1%, Google 10.1%, Amazon 12% and META 8.5%, all hitting multi-year lows. Tesla shares closed down 9.2% in October. Minimum for 24 days on Friday. That’s after TSLA had a strong start to the week, reaching 237.40 on Tuesday.
Meanwhile, these are dark days for cloud software. Atlassian shares fell 29% on Friday and 38% for the week. Twilio shares fell nearly 35% on Friday and 43.5% for the week. Snowflake (SNOW), which won’t report for several weeks, fell 17% for the week.
In the meantime, Fortinet (FTNT) lost 17.5% for the week as weak estimates guidance offset strong earnings and a bullish revenue outlook. Paycom (PAY) fell 10.3% despite solid results and guidance.
Businesses looking to cut costs can limit software spending when setting budgets for 2023.
ETFs
between the best ETFsInnovator IBD 50 ETF (FFTY) fell 1.2% last week, while the Innovator IBD Breakout Opportunities ETF (ABOUT) lost 2%. iShares Expanded Tech Software Sector ETF (IGV) lost 10.2%, MSFT stock is a key holding. VanEck Vectors Semiconductor ETF (SMH) was down just 0.7% after jumping 4.65% on Friday to close at the high of its weekly range.
SPDR S&P Metals & Mining ETF (XME) rose 2%. Global X US Infrastructure Development ETF (PEACE) decreased by 0.1%. US Global Jets ETF (JETS) increased by 0.3%. SPDR S&P Homebuilders ETF (XHB) lost 5%. Energy Select SPDR ETF (XLE) rose 2.4%, just below an eight-year high. Financial Select SPDR ETF (XLF) was 0.9%. Healthcare Select Sector SPDR Fund (XLV) declined 1.5%.
Reflecting more speculative story stocks, the ARK Innovation ETF (ARKK) fell 9.4% last week and the ARK Genomics ETF (ARKG) retreated 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 the major indexes. The Dow Jones, which led the market higher, had the softest decline, but slipped below its 200-day moving average. The Russell 2000 held resistance near the 200-day line, but recovered on Friday to close above the 50-day. The S&P 500 has failed for 50 days.
The Nasdaq, which never reached its 50-day moving average, fell the most, closing below the low. follow-up day Wednesday, bearish signal.
Major indexes pared losses on Thursday, then turned higher on Friday on a mixed jobs report.
Negative market action and large reversals in many stocks have led to a transition to a “market under pressure.”
The big driver was Fed chief Powell, who pulled the rug out from the market rally by signaling a shift to smaller hikes but a higher peak fed funds rate.
Meanwhile, megacap tech, including shares of Apple, Tesla, Amazon and Meta, suffered big losses. Cloud software names like Atlassian and Twilio, recent earnings and guidance have melted by significant factors.
Chips haven’t had a relatively terrible week, but only a few names are trading near highs.
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There are several sustainable market areas. The healthcare sector looks strong overall. Energy names are doing well, including a wide range of oil stocks, LNG plays and coal miners, plus a few solar stocks.
Lithium and some steel plays are doing well. Infrastructure firms for the energy, utilities and telecommunications industries are a bright spot. It’s a rare tech field that networking companies are generally leading. Some restaurants and discount retailers are showing strength. Various financials, especially brokerages and brokerages, posted strong gains.
Still, it’s hard to see a strong market rally with such huge tech sector shakeups. With Apple, Google, Tesla and cloud software names lagging behind, it would be difficult for the major indexes to advance. What about trying to move forward with these areas dipping or collapsing?
If inflation reports show a clear and meaningful decline, prompting a downward slide in the Fed’s rate hikes, then megacaps and cloud software could fall. However, a return to technological leadership may be in some ways. On the other hand, the October CPI report in November. 10 shows that inflation is still hot, tech stocks could drag down leading sectors to end 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 predict at least a House GOP win every year, so it’s unclear whether Tuesday’s current results will be a big catalyst.
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What to do now
The stock market rally is under pressure. The Fed is transitioning from fast and furious to slow and long, but it’s still hawkish. The technology sector is a train wreck. Major indices have moved lower at some key levels. Indices and leading stocks are subject to large intraday and daily fluctuations.
This is not a favorable environment for buying stocks. Investors should try to reduce risk by outright or simply reducing losses on various positions.
If the market rally shows renewed strength with the S&P 500 and possibly the Nasdaq moving above their 50-day moving averages, investors may begin adding risk. But this will probably 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, with more not too far away. So create your watch lists, be patient and get busy.
Read it The Big Picture daily to stay in sync with market direction and leading stocks and sectors.
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