Dow Jones futures tilted higher in overnight trade, along with S&P 500 futures and Nasdaq futures. Software giant Adobe rose late on an earnings beat, while big Cathie Wood holding Exact Sciences (EXAS) skyrocketed on a rival’s clinical trial.
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The stock market rally suffered damaging losses Thursday, with the major indexes breaking below key levels to one-month lows.
Blame a second-day reaction to the hawkish Fed rate hike outlook, weak U.S. and China economic data, various corporate news for Netflix (NFLX) and Nucor (NUE) and a bearish analyst call for Nvidia (NVDA).
Leading stocks, including from the industrial, infrastructure, chip and solar sectors, fell back modestly and sometimes sharply.
But the dark clouds do contain a silver lining: The market is no longer tempting investors into taking new positions.
Apple (AAPL) suffered its worst one-day loss since late September, while Amazon.com (AMZN) is nearing its bear market bottom. Microsoft (MSFT) pulled back, but to a key support area. Nvidia stock fell back below its 200-day line on a grim day for chip stocks.
Tesla (TSLA) did hit a fresh bear-market low Thursday, but closed slightly higher. Elon Musk disclosed yet another round of Tesla stock sales late Wednesday.
Earnings, Other News
Adobe (ADBE) reported better-than-expected Q4 2022 earnings late Thursday on in-line revenue growth. The business software giant guided slightly lower on fiscal Q1 revenue, but up on earnings. ADBE stock popped nearly 5% after hours. Shares closed down 3.3% to 328.71. Adobe stock has rebounded from late September lows, but is still well below its 200-day line.
Guardant Health (GH) reported key results for its blood test for colorectal cancer in average-risk adults. While Guardant Health noted the results were high enough to win Medicare reimbursement, GH stock crashed 35%. Meanwhile, EXAS stock shot up more than 20%. Exact Sciences makes Cologuard, a stool-based DNA test for colorectal cancer.
Global IT and consulting giant Accenture (ACN) reports early Friday. ACN stock closed down 3.4%, but found support at its 50-day line, a day after falling back below its 200-day.
Darden Restaurants (DRI) earnings also are due Friday morning. DRI stock dipped 0.7% to 142.95 on Thursday, but rebounded from near its 50-day line. The Olive Garden parent has a 149.90 buy point from a cup-with-handle base.
Dow Jones Futures Today
Dow Jones futures edged up vs. fair value. S&P 500 futures climbed 0.1% and Nasdaq 100 futures rose 0.15%.
The 10-year Treasury yield rose 3 basis points to 3.48%.
Remember that overnight action in Dow futures and elsewhere doesn’t necessarily translate into actual trading in the next regular stock market session.
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Stock Market Rally
The stock market rally sold off sharply Thursday.
Before the open, November retail sales showed an unexpected 0.6% decline. The Philly Fed and New York Fed regional surveys for December also pointed to contraction. But jobless claims declined significantly, exactly what the Fed doesn’t want to see.
That’s all followed weaker-than-expected Chinese industrial production and retail sales figures. Fast-easing Covid restrictions may offer a boost, but China is likely beginning a massive wave of infections that could deter activity.
The Dow Jones Industrial Average sank 2.3% in Thursday’s stock market trading, its worst performance in three months. The S&P 500 index slumped 3.2%. The Nasdaq composite tumbled 3.5%. The small-cap Russell 2000 skidded 2.5%.
U.S. crude oil prices retreated 1.5% to $76.11 a barrel. Gasoline futures slumped 3.5%. Natural gas prices leapt 8.4%.
The 10-year Treasury yield fell 5 basis points to 3.45%, just a bit from last week’s three-month low of 3.4%. But that likely reflects recession fears more than easing inflation. The two-year Treasury yield, more closely tied to Fed policy, was little changed Thursday. The two-year yield is down sharply since early November.
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ETFs
Among growth ETFs, the iShares Expanded Tech-Software Sector ETF (IGV) slumped 3.5%, with MSFT stock a major holding. The VanEck Vectors Semiconductor ETF (SMH) tumbled 3.8%, back below its 200-day line. NVDA stock is a big SMH component.
Reflecting more-speculative story stocks, ARK Innovation ETF (ARKK) sold off 4.9%, just above November’s five-year low. ARK Genomics ETF (ARKG) retreated 3.5% to a six-month closing low. Tesla stock is a major holding across Ark Invest ETFS. Cathie Wood added to Ark’s overall TSLA stake on Wednesday. EXAS stock also is a top 10 Ark Invest holding.
SPDR S&P Metals & Mining ETF (XME) gave up nearly 4%. U.S. Global Jets ETF (JETS) descended 2.55%. SPDR S&P Homebuilders ETF (XHB) edged down 0.6%, with some strong performers. The Energy Select SPDR ETF (XLE) dipped 0.6%. The Health Care Select Sector SPDR Fund (XLV) gave up 1.8%
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Megacap Stocks
Apple stock tumbled 4.7% to 136.60, its worst one-day loss since Sept. 29. Shares are close to their October-November lows, with the June bear-market low of 129.04 not much further.
AMZN stock sank 3.4% to 88.45. That’s approaching the Nov. 9 bear-market low of 85.87.
Microsoft stock retreated 3.2% to 249.01, but found support at its 21-day line. Shares had tested the 200-day line in the prior two sessions.
Nvidia stock fell back 4.1% to 169.52, tumbling below its 200-day line after retaking that key level on Monday. HSBC initiated Nvidia stock with a reduce rating and a 136 price target. The Nvidia sell-off, as well as a Western Digital (WDC) downgrade, helped lead a chip sell-off.
Tesla stock dipped Thursday morning to a fresh two-year low of 153.28 before rebounding to close up 0.5% at 157.67. Shares are still down 12% this week. Late Wednesday, CEO Elon Musk disclosed selling 22 million TSLA shares on Dec. 12-14 for $3.6 billion, adding to Tesla investors’ frustrations. But, that likely means Musk’s latest selling is over.
Meanwhile, Tesla is offering 10,000 free Supercharger miles for anyone buying a Model 3 or Y in the U.S. before year-end, on top of a $3,750 discount. Tesla is encouraging people to take delivery now, boosting Q4 figures, rather than wait for Jan. 1 for new EV tax credits.
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Market Rally Analysis
The stock market rally had a clear-cut bad day. The Nasdaq composite and Russell 2000 tumbled below their 50-day moving averages for the first time in just over a month. The S&P 500, which had been hitting resistance at the 200-day line, gapped below the 21-day line. The Dow Jones also is well below its 21-day, heading toward its 50-day and 200-day lines.
All the major indexes are at their lowest levels since Nov. 10, when they gapped up on the October consumer price index. The Nasdaq is about where it was on the Oct. 21 follow-through day.
Most leading stocks came under pressure, some finding support and others not. There were a few winners, such as Lennar (LEN) and Nordson (NDSN) on earnings, but those are the exception.
Megacap stocks such as Apple, Amazon and Tesla are in serious trouble. Microsoft’s 200-day line resistance isn’t a good sign. Nvidia stock and the VanEck Semiconductors ETF falling below the 200-day line is definitely discouraging.
Is the market uptrend, from the Oct. 13 low to the Dec. 13 high, just a bear market rally coming to a close? It’s too soon to say. It’s also possible that the market will rebound, or now trade in a sideways manner.
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What To Do Now
A choppy market rally is dangerous because it lures investors into stocks that are flashing buy signals, then immediately reverses lower.
But let’s say you bought on relative weakness in the market, such as pullbacks to the 21-day line, over the past few weeks? Well, the indexes are all undercutting their recent lows. So even those trades are likely struggling unless you took quick profits.
Investors should probably be reducing exposure, if only because individual stocks aren’t working.
The silver lining? Few stocks are flashing buy signals while the market is clearly weakening. It’s easier to stay out in that environment.
But stay engaged. A couple good days could revive the market rally and buoy stocks back into buy areas. So run your screens and update your watchlists. Look for stocks holding key support levels, such as the 21-day or 50-day lines. Some big recent winners are now pulling back to the 50-day/10-week lines.
Read The Big Picture every day to stay 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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Read More: Dow Jones Futures: Nasdaq Breaks Key Level, Apple Dives; Here’s The Silver Lining