Dow Jones futures will open on Sunday evening, along with S&P 500 futures and Nasdaq futures. Even with a solid close in Friday’s whipsaw session, the stock market rally suffered significant damage last week, with the major indexes tumbling on 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.com (AMZN) and Google parent Alphabet (GOOGL) all lost more than 10% for the week, with Facebook parent Meta platforms (META), Tesla stock and Microsoft stock not far behind. google stock, meta, Amazon.com (Amzn) and Microsoft (MSFT) all hit bear market lows. Apple stock and Tesla (TSLA) didn’t, but they were close.
Meanwhile, Twilio (TWLO) and Atlassian ( TEAM ) crashed Friday on disappointing results and guidance, losing more than 40% for the week. A lot of other software names tumbled, with or without earnings.
A market rally trying to fight the Fed with the major tech sector plummeting? That’s a tall order. So while there are some stocks and sectors showing strength, investors should be extremely cautious in the current environment.
In other news, Warren Buffett Berkshire Hathaway (BRKB) on Saturday reported a 20% jump in operating profit. The conglomerate suffered a net loss as the ongoing bear market hit investments.
Dow Jones futures today
Dow Jones futures open at 6 p.m. ET on Sunday, along with S&P 500 futures and Nasdaq 100 futures.
Remember that overnight action in Dow futures and elsewhere does not necessarily translate into actual trading in the next regular stock market session.
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Stock market meeting
The stock market rally started the week in decent fashion, but then sold off Wednesday afternoon on Fed chief Jerome Powell’s hawkish comments. The major indexes gave up more ground Thursday. Stocks took a hit on Friday after a mixed jobs report, but ultimately closed solidly higher for the day.
The Dow Jones Industrial Average still fell 1.4% in last week’s stock market trading. The S&P 500 index slumped 3.3%. The Nasdaq composite plunged 5.7%, its worst loss since the week ended January 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 snapping a 12-week winning streak and briefly trading back around 4%.
The dollar was up 0.2% for the week, but plunged 1.9% on Friday, the biggest one-day drop in years. That likely contributed to Friday’s stock market advance.
Markets now see a 61.5% likelihood of a 50 basis point hike at the December Fed meeting. The October Consumer Price Index is due on Thursday. The November jobs and CPI reports will be released before the December 14 Fed rate hike decision.
Crude oil futures jumped 5.4% last week to $92.61 a barrel. Natural gas shot up nearly 13%.
Apple stock, which rolled up to its 200-day line in the previous week, plunged 11.15% to 138.38 last week. AAPL stock was within a penny of its October low, though it still has some distance to its June bear market lows. Microsoft skidded 6.1%, Google 10.1%, Amazon 12% and META stock 8.5%, all to multi-year lows. Tesla stock tumbled 9.2% for the week, coming close to its Oct. 24 intraday low on Friday. That’s still starting the week strong, hitting 237.40 intraday Tuesday.
Currently, there are dark days for cloud software. Here are just a few examples: Atlassian stock plunged 29% on Friday and 38% for the week. Twilio stock crashed nearly 35% on Friday and 43.5% for the week. Snowy (Snow), which won’t report for a few weeks, dived 17% for the week.
Meanwhile, Fortinet (FTNT) crashed 17.5% for the week after weak billing guidance offset strong earnings and a bullish revenue outlook. Paycom (PAYC) plunged 10.3% despite healthy results and guidance.
Businesses looking to cut costs may curb spending on software as they set 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. 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% last week. The Global x US it. Infrastructure Development ETF (PAVE) was down 0.1%. US Global Jets ETF (JETS) is up 0.3%. SPDR S&P Homebuilders ETF (XHB) tumbled 5%. The Energy Select SPDR ETF (XLE) climbed 2.4%, just below an eight-year high. The Financial Select SPDR ETF ( XLF ) fell 0.9%. The SPDR fund for health care Select Sector ( XLV ) rose 1.5%.
Reflecting more speculative stock history, ARK Innovation ETF ( ARKK ) slowed 9.4% last week and ARK Genomics ETF ( ARKG ) retreated 4.65%. Tesla stock is a major holding across Ark Invest’s ETF.
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Market rally analysis
The stock market rally has had a bad week, with a hawkish Fed and many weak earnings weighing on the major indexes. The Dow Jones, which led the market uptrend, had the mildest decline, but has moved back below the 200-day moving average. The Russell 2000 hit resistance near the 200-day line but recovered on Friday to close above the 50-day line. The S&P 500 broke through the 50-day.
The Nasdaq composite, which never got to the 50-day moving average, fell the most, closing below the low of its follow-through day on Wednesday, a bearish signal.
The major indexes extended losses Thursday, then flipped Friday on a mixed jobs report.
The negative market action and large reversals in many stocks triggered a shift to “market under pressure.”
The big market driver was Fed Chairman Powell, who pulled the rug out from the market rally by signaling a shift to smaller hikes but a higher top Fed funds rate.
Meanwhile, megacap techs, including Apple, Tesla and Amazon, suffered huge losses. Cloud software names such as Atlassian and Twilio melt down, with recent earnings and guidance relevant factors.
Chips didn’t have a terrible week, relatively, but only a few names were trading near highs.
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There are several resilient market areas. The health care sector looks strong overall. Energy names, including a wide range of oil stocks, LNG plays and coal miners, plus some solar stocks, are doing well.
Lithium and some steel plays are good. Infrastructure firms for the energy, utilities and telecom industries is a bright area. Networking firms in general are a rare tech area that is leading the way. Some restaurants and discount retailers are showing strength. Various financials, notably brokers and brokerages, have made strong 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 indexes to advance with Apple, Google, Tesla and cloud software names lagging. But to try to advance with the areas plunging or crashing?
If inflation reports show a clear and meaningful decline, spurring a downshift in Fed rate hikes, perhaps megaphones and cloud software can bottom out. However, a return to tech leadership can take several forms. On the flip side, if the October CPI report on November 10 shows inflation still running 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 divided government, and the Republicans will regain control of the House and possibly the Senate. But political forecasters have been predicting at least one House GOP win all year, 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 switching from fast and furious to slow and long, but it’s still hawkish. The tech sector is a train wreck. The major indexes have undercut several key levels. The indexes and leading stocks are subject to large intraday and daily swings.
This is not a good environment for buying stocks. Investors should seek to cut exposure, either explicitly or simply by cutting 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 to add exposure. But that will likely require tech to stabilize and inflation data to show some cooling.
If conditions improve, you’ll want to be ready. There are a number of stocks setting up, with many more not too far away. So build your watchlists, be patient and stay engaged.
Read the big picture every day to be in sync with the 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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