Dow Jones futures rose slightly early Wednesday, along with S&P 500 futures and Nasdaq futures. Super Micro Computer (SMCI), Celsius Holdings (CELH) and Upstart Holdings (UPST) were notable earnings movers overnight.
The stock market rally retreated Tuesday, with the S&P 500 and Nasdaq composite sliding toward the 50-day moving averages before paring losses significantly. Weak China economic data, bank credit rating concerns and earnings-related sell-offs took a toll, with Datadog (DDOG) among the many software casualties.
On the plus side, weight-loss drug leaders Eli Lilly (LLY) and Novo Nordisk (NVO) skyrocketed on news. Lilly easily beat Q2 views and raised guidance, while Novo Nordisk said its weight-loss drug Wegovy cut heart disease risks by 20%.
Three of the “Magnificent Seven” stocks — Apple (AAPL), Microsoft (MSFT) and Tesla (TSLA) — have fallen below their 50-day lines. Nvidia (NVDA) fell modestly Tuesday as it announced a new AI chip. It’s still above the 50-day line, which could be an important test for NVDA stock and thus the ailing market rally.
Winners: CELH stock spiked over 15% before the open, signaling a record high. Duolingo and Akamai also were solid earnings winners, while Azek rose modestly. Rivian edged higher.
Losers: UPST stock and SMCI skidded over 15%. Both are touted as AI plays.
Dow Jones Futures Today
Dow Jones futures were 0.2% above fair value. S&P 500 futures rose 0.25% and Nasdaq 100 futures climbed 0.3%.
The 10-year Treasury yield edged up to 4.03%.
Crude oil futures rose about 1%.
Stock Market Rally
The stock market rally saw further losses Tuesday, though the major indexes closed near session highs.
The Dow Jones Industrial Average fell 0.4% in Tuesday’s stock market trading. The S&P 500 index also slid 0.4%, with LLY stock easily the top performer. The Nasdaq composite declined 0.8%. The small-cap Russell 2000 gave up 0.6%.
Weak China trade and inflation data — along with a default by China’s largest property developer — weighed on stocks and industrial commodities. Financials fell on a Moody’s downgrade or ratings watch for many smaller or midsize banks.
U.S. crude oil prices rose 1.2% to $82.92 a barrel, after being down more than 2% early Tuesday. Copper futures fell 1.7%, or 3.3% over the past three sessions.
The 10-year Treasury yield declined 5 basis points to 4.02%, slipping to 3.98% intraday. The 10-year yield hit a 2023 high of 4.21% Friday morning.
While Treasury yields fell, the dollar bounced as the U.S. economy looks better than alternatives.
Among growth ETFs, the Innovator IBD 50 ETF (FFTY) gave up 1.8%. The iShares Expanded Tech-Software Sector ETF (IGV) slid 1.6%, with Microsoft stock a major IGV holding. The VanEck Vectors Semiconductor ETF (SMH) gave up 1.65%, with Nvidia stock the No. 1 holding.
The SPDR S&P Metals & Mining ETF (XME) lost a fraction. U.S. Global Jets (JETS) climbed 0.7%. SPDR S&P Homebuilders (XHB) dipped 0.2%. The Energy Select SPDR ETF (XLE) climbed 0.5%, and the Health Care Select Sector SPDR Fund (XLV) advanced 0.8%.
The Industrial Select Sector SPDR Fund (XLI) slipped 0.5%.
Not So Magnificent Stocks
Apple stock edged up 0.5% to 179.80 on Tuesday. The iPhone titan snapped a five-session losing streak. Shares plunged through the 50-day line on Friday following Apple’s lackluster earnings and guidance.
MSFT stock sank 1.2% to 362.05, hitting a two-month low. The cloud-computing and AI leader tumbled through its 50-day line in late July following weak guidance and a prediction of “gradual” AI revenue growth.
Tesla stock dipped 0.7% to 249.70, an inside day. On Monday, shares fell as low as 242.76 on news that Tesla’s CFO had stepped down, but did close off just under 1% to 251.45. Still, TSLA stock closed below its 50-day line for the first time since May. A decisive move above the 50-day line, which would involve clearing at least the 21-day line, could offer an early entry.
NVDA stock fell 1.7% to 446.64, continuing to trade around the 21-day moving average. Nvidia on Tuesday unveiled the GH200 Grace Hopper Superchip Platform, which it says is “built for the era of accelerated computing and generative AI.”
Nvidia has been consolidating for a few weeks, with its relative strength line holding at highs. Shares are still modestly above their 50-day and 10-week moving averages. A test of those levels could offer a buying opportunity for Nvidia stock and bolster confidence in the broader market. A decisive break would deal a serious blow to many chipmakers and the overall AI-led rally. Nvidia earnings for fiscal Q2 2024 are due on Aug. 23.
Market Rally Analysis
The market rally is under increasing pressure.
After hitting resistance at the 21-day line for a few sessions, the Nasdaq tumbled toward its 50-day moving average and briefly undercut its 10-week line. The S&P 500 is slightly above both key levels.
The Dow Jones found support at its 21-day line Tuesday. The Russell 2000 gapped below the 21-day but closed not far from that level.
Many tech growth leaders are struggling, especially highly valued names. Nvidia stock is holding strong, though. Financials and mining stocks have retreated after showing some promising action. Medical products and systems makers are tumbling, amid disappointing results and perhaps negative repercussions from the Eli Lilly and Novo Nordisk weight-loss drugs.
Other sectors — including housing, industrials and oil and gas plays — are faring well. Travel is somewhat mixed.
A decisive fall below the 50-day line by the S&P 500 and Nasdaq would likely signal a shift from “uptrend under pressure to “market correction.”
What To Do Now
Investors need to be increasingly defensive, especially with tech stocks. The major indexes are piling on losses while growth plays are slumping. Earnings season has had some major losers, with fallout for a number of rivals.
It’s possible that the market rally will find its footing, but it could buckle further.
Stepping back, the ongoing pullback could be constructive, even if it turns into a modest market correction. So investors want to be working on their watchlists. Look for stocks and sectors showing relative strength.
But with your portfolio right now, curbing exposure makes sense, even if that just involves cutting losses and taking some partial profits on individual holdings.
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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