Dow Jones futures rose sharply early Wednesday, along with S&P 500 futures and Nasdaq futures, as Microsoft whipsawed higher following its earnings report and guidance. A new stock market rally attempt had a disappointing session on Tuesday, especially growth names, as an afternoon rebound off lows faded into the close.
Looking ahead, a crucial Federal Reserve meeting wraps up Wednesday afternoon. Tesla earnings are due after the close with Apple looming Thursday.
Microsoft Earnings
Microsoft earnings and revenue topped fiscal Q2 views. Initially, Microsoft stock fell 5% after hours, then reversed higher on strong guidance. Now up 4.5% in premarket action, shares are set to rebound back above their 200-day line. MSFT stock fell 2.7% at 288.49 on Tuesday, an inside day after Monday's big reversal off lows to slim gains.
Microsoft earnings and guidance are important for cloud-computing rivals such as Amazon.com and Google parent Alphabet, as well as business software giants and even PC makers such as HP Inc.
F5 Networks and Texas Instruments also reported late Tuesday. Both beat views, but F5 guided low on 2022 revenue, while Texas Instruments gave bullish guidance. FFIV stock dived overnight, while TXN stock rallied solidly.
Boeing reported a huge loss early Wednesday, taking another big charge, while revenue fell short, even as cash flow turned positive. The Dow Jones aerospace giant gave no financial guidance for 2022, but is ramping up 737 Max production. BA stock rose slightly in up-and-down premarket trade.
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Fed Meeting
The two-day Fed meeting concludes Wednesday afternoon, with a policy announcement due at 2 p.m. ET. There is some speculation that Fed policymakers could speed up the bond taper yet again, ending asset purchases by mid-February instead of mid-March. That would signal an even-faster shift to outright tightening, with Fed rate hikes and balance sheet reductions expected to start in the coming months.
Fed chief Jerome Powell will give his customary post-meeting press conference at 2:30 p.m. ET. His comments will be crucial in understanding how aggressive the central bank will be in the coming months.
In late 2018, rate hikes and balance sheet cuts helped trigger a bear market. The Fed quickly reversed course in early 2019, but inflation was tame back then. With inflation at multi-decade highs now, the Fed may feel compelled to keep tightening even if the stock market continues to sell off.
In any case, the Fed announcement and Powell's commentary will likely spur big moves in stock prices and Treasury yields.
Tesla stock and Microsoft are on IBD Leaderboard. MSFT stock is on IBD Long-Term Leaders.
The video embedded in this article looked at volatile market action and analyzed American Express, Mosaic and Ovintiv.
Dow Jones Futures Today
Dow Jones futures climbed 1.1% vs. fair value. S&P 500 futures advanced 1.5%. Nasdaq 100 futures jumped 2.1%. All had been solidly lower Tuesday evening — with Nasdaq futures tumbling nearly 2% at one point. Microsoft stock is a major weight in the Dow Jones, S&P 500 and Nasdaq 100. Several other big tech stocks rose overnight in sympathy with MSFT, including Apple.
U.S. crude oil prices rose 1% before the open, extending strong gains. Natural gas futures jumped.
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 Attempt
The stock market rally attempt stepped back Tuesday, with the Nasdaq closing in the lower half of its range.
The Dow Jones Industrial Average came well off lows, briefly turning positive before closing down 0.2% in Tuesday's stock market trading, boosted by earnings-related gains in AXP stock, IBM and Johnson & Johnson, with Chevron rallying with crude oil prices. The S&P 500 index slumped 1.2%. The Nasdaq composite retreated 2.3%. The small-cap Russell 2000 gave up 1.3%.
The 10-year Treasury yield rose 3 basis points to 1.78%. U.S. crude oil futures jumped 2.8% to $85.60 a barrel.
Among the best ETFs, the Innovator IBD 50 ETF fell 1.6%, while the Innovator IBD Breakout Opportunities ETF gained 1.3%. The iShares Expanded Tech-Software Sector ETF skidded 3.7%, with MSFT stock a major IGV holding. The VanEck Vectors Semiconductor ETF tumbled 4%.
Reflecting more-speculative story stocks, ARK Innovation ETF retreated 3.7% and ARK Genomics ETF 2.8%. Tesla stock remains the No. 1 holding across ARK Invest's ETFs.
SPDR S&P Metals & Mining ETF edged up 0.3% and Global X U.S. Infrastructure Development ETF sank 1.9%. U.S. Global Jets ETF ascended 0.4%. SPDR S&P Homebuilders ETF gave up 1.9%. The Energy Select SPDR ETF popped 3.9%, with CVX stock a major holding. The Financial Select SPDR ETF edged up 0.4%, with American Express a key component. The Health Care Select Sector SPDR Fund declined 0.6%.
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Tesla Stock
Meanwhile, Tesla stock fell 1.3% to 918.40 on Tuesday. Shares tumbled below its December lows on Monday before slashing losses. TSLA stock no longer has a double-bottom base, but is still in a consolidation. The official buy point is 1,243.59, though 1,208 would offer an early entry. But Tesla stock is well below its 50-day line.
Shares rallied 4% before Wednesday's open.
The Tesla stock reaction to earnings and guidance on deliveries, output and new products could drive EV stocks and high P-E stocks broadly.
CEO Elon Musk Tuesday evening tweeted that he was driving a new Cybertruck prototype around the new Austin plant. The Cybertruck reportedly will not enter production until early 2023.
The National Highway Traffic Safety Administration on Tuesday sought additional information regarding Tesla's decision to let passengers play video games using the center touchscreen.
Apple Stock
Apple stock fell 1.1% to 159.78, close to round-tripping a November breakout and closing in on their 200-day line. Last week, Apple stock flashed a sell signal as it tumbled through its 10-week line decisively. Still, the relative strength line for AAPL stock has held up near highs, a reflection of just how weak the S&P 500 and broader market has been.
Shares rose 2% early Wednesday.
Apple stock by itself could move markets, but its earnings and guidance also will likely fuel or sink a number of chipmakers and other names in the broad iPhone ecosystem.
Market Rally Analysis
Tuesday marked day two of a stock market rally attempt. The major indexes again pared steep morning losses, especially the Dow Jones Industrial Average. But ultimately, the major indexes all lost ground, especially the Nasdaq. The S&P 500 and Nasdaq composite are down so far this week, while the Dow Jones is just fractionally higher.
If the major indexes can hold above Monday's lows, a follow-through day could occur later this week. An FTD would confirm the new uptrend. Confirmed market rallies don't always work — the late 2018 bear market had two confirmed uptrends that failed almost immediately — but they indicate institutional support for a nascent rally.
The Dow's outperformance and the Nasdaq trailing makes sense. Real-economy sectors are holding up better than growth stocks.
Energy stocks led the way Tuesday with crude oil prices up solidly. Fertilizer stocks did well, with MOS stock rebounding and new Leaderboard holding CF Industries flashing an early buy signal. Some shipping stocks are holding up reasonably well.
Financials sold off last week, but haven't broken down, with a few names such as AXP stock and fellow Dow component Travelers looking healthy.
Meanwhile, growth stocks continue to struggle, including chips, software and ARK-type story stocks. Perhaps techs and growth stocks won't lead the next confirmed market rally, but they'll need to stop losing ground for a broad advance.
The Microsoft stock reaction, ultimately, was good news for Dow Jones futures but especially etchs. Wednesday's Fed meeting decision and Powell comments may be decisive. Meanwhile, Tesla, Apple and other big earnings will play key roles.
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What To Do Now
A market rally attempt is underway. But with the Fed meeting on tap, Tesla and Apple earnings looming and many other big news swirling, the current market environment is extremely dangerous. Investors have the chance to get quick gains if you catch a rebound, but those bounces may not last. On the downside, you could see substantial losses in minutes.
If you feel compelled to play, keep your positions small and consider a broad market ETF vs. an individual stock. Have your exit strategy in advance, and raise your stops if your position gets a modest gain. But cash is still a smart strategy until there's a confirmed market rally.
When there is an FTD, there may not be many good-looking stocks in position to buy. For now, keep working on those watch lists, focusing on stocks with strong relative strength.
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