Dow Jones futures turned lower Monday morning, along with S&P 500 futures and Nasdaq futures, reversing from modest premarket gains. Warren Buffett cut Berkshire Hathaway buybacks in Q1 as he decried "gambling parlor" investing. Nio, Xpeng and Li Auto reported April deliveries plunged. But all eyes will on this week's Fed meeting.
The stock market correction intensified last week, as the major indexes sold off again, plunging into Friday's close. Two market rally attempts failed almost as soon as they started. Investors should stay nearly or entirely on the sidelines until the market offers clear signals of a sustained uptrend.
Nutrien and Mosaic report late Monday, with CF Industries due Wednesday.
NTR stock fell 5.4% to 98.25 last week, but is finding support around its 50-day line after a big run. MOS stock skidded 6.5% last week, but closed around its 50-day line as well. CF stock rebounded to end the week down just 0.2%, slightly above its rising 50-day line.
EV giant BYD will report April sales soon. Tesla China production and sales will be released later in May.
Tesla stock is on IBD Leaderboard. CF stock is on the IBD 50. CF, Mosaic and NTR stock are all on the IBD Big Cap 20.
The video embedded in this article discusses the volatile market action and analyzes BRKB stock, Exxon Mobil and Nutrien.
Fed Meeting
The big event this week for investors is the Federal Reserve meeting on May 3-4. Policymakers almost certainly will hike interest rates by 50 basis points and are expected to agree to start cutting the central bank's massive balance sheet. Wall Street will key in on the Fed statement and Fed chief Jerome Powell's news conference for clues about future rate hikes.
Markets have priced in at least two more 50-point Fed rate hikes, but there's a chance that policymakers could go ahead with a 75-basis point increase in the near future. Policymakers are worried about inflation becoming entrenched, even if year-over-year increases may be peaking. But aggressive rate hikes could derail the economy, especially with China's Covid shutdowns and the ongoing Russia-Ukraine war.
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Dow Jones Futures Today
Dow Jones futures fell less than 0.1% vs. fair value. S&P 500 futures dipped 0.2% and Nasdaq 100 futures lost 0.4%. All are off modest premarket gains.
The 10-year Treasury yield rose 3 basis points to 2.92%, close to a recent three-year high.
U.S. crude oil prices fell nearly 4%. Gold and copper also declined significantly. China demand is a growing concern.
A China manufacturing index fell to 47.4, signaling the sharpest contraction since early 2020, when Covid first hit China. The nonmanufacturing gauge also was at a two-year low. Lockdowns in Shanghai and elsewhere have taken a huge toll on China's economy.
Remember that overnight action in Dow futures and elsewhere doesn't necessarily translate into actual trading in the next regular stock market session.
Join IBD experts as they analyze actionable stocks in the stock market rally on IBD Live
Stock Market Last Week
The stock market suffered a week of big ups and downs, but sold off hard for the week. Friday's losses accounted for all of the major indexes' losses and then some.
The Dow Jones Industrial Average sank 2.5% in last week's stock market trading. The S&P 500 index skidded 3.3%. The Nasdaq composite tumbled 3.9%. The small-cap Russell 2000 slumped 3.9% as well.
The 10-year Treasury yield fell 2 basis points to 2.89%, but after falling to 2.72% during the week.
U.S. crude oil futures rose 2.6% to $104.69 a barrel last week.
ETFs
Among the best ETFs, the Innovator IBD 50 ETF tumbled 5.4% last week, while the Innovator IBD Breakout Opportunities ETF lost 2.5%. The iShares Expanded Tech-Software Sector ETF retreated 1.9%. The VanEck Vectors Semiconductor ETF shed 2.1%.
SPDR S&P Metals & Mining ETF slumped 3.8% last week. The Global X U.S. Infrastructure Development ETF fell 2.8%. U.S. Global Jets ETF descended 3.9%. SPDR S&P Homebuilders ETF dipped 0.1%. The Energy Select SPDR ETF slipped 1.35% and the Financial Select SPDR ETF retreated 4.4%. The Health Care Select Sector SPDR Fund gave up 2.5%.
Reflecting more-speculative story stocks, ARK Innovation ETF dived 10% last week and ARK Genomics ETF 11.15%, both to two-year lows. Tesla stock is still the No. 1 holding across Ark Invest's ETFs. Cathie Wood also has stakes in Nio stock, Xpeng and BYD.
BYD stock is also owned by Buffett's Berkshire.
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China EV Sales
On Sunday, Nio, Xpeng and Li Auto reported sharp declines in April deliveries.
Nio delivered 5,074 vehicles in April, down 49% from 9,985 in March and off 29% vs. a year earlier. Nio production was shut down for part of the month as Covid shutdowns hit suppliers' output and shipments.
Xpeng delivered 9,002 vehicles, down 42% vs. 15,414 in March and up 75% vs. a year earlier.
Li Auto delivered 4,167 Li One hybrid SUVs, down 62% vs. March's 11,034 and 25% below a year earlier. Many suppliers are shut down, severely affecting Li's production.
BYD, which makes its own batteries and chips, appears to have been less affected. The EV giant will certainly report huge year-over-year growth, but will it match or top March's record sales of 104,878 vehicles?
In the latest week, BYD reported first-quarter net income soared 241% vs. a year earlier.
Nio stock fell 2.8% last week to 16.70. Xpeng stock rose 3.1%. Li stock edged up 0.45%. Chinese stocks initially rallied Friday on regulatory hopes, but gave up gains. China signaled Friday it may back off tech crackdowns. Also, Chinese and U.S. regulators reportedly are close to an auditing deal that would remove the risk that U.S.-listed Chinese stocks would be delisted.
Nio, Xpeng and Li Auto fell modestly before the market open.
BYD stock, which trades over the counter in the U.S., is not yet active. Shares edged down 0.85% last week. Unlike its smaller peers, BYD stock is above its 50-day line.
Tesla Vs. BYD: China EV Giant Set To Seize EV Crown
Tesla China Sales
Tesla China sales for April will be released later in May as part of overall industry trade data. The Tesla Shanghai plant was closed from March 28 to about April 21. It's now operating with limited staff living on site. It's unclear when output could return to normal.
Tesla Shanghai production is expected to be down well more than 50% vs. March.
Tesla will likely lose its EV sales crown in in Q2 to BYD, though the Chinese firm will do so with EVs and plug-in hybrids.
Tesla stock tumbled 13.4% to 870.76 last week. CEO Elon Musk sold 9.6 million shares on Tuesday-Thursday worth about $8 billion, tweeting late Thursday that he was done for now. That came after he pledged a lot of TSLA stock as part of his $44 billion deal to buy Twitter. Tesla stock tried to bounce Friday, but hit resistance at the 50-day line and closed lower, stuck below the 200-day line.
Tesla stock has a cup-with-handle base with an 1,152.97 buy point, according to MarketSmith analysis, but the chart has flaws.
Tesla stock fell 2% before Monday's open.
Berkshire Earnings
Berkshire operating earnings rose a fraction to $7.04 billion. Net income plunged 53% to $5.46 billion. Berkshire earnings from its insurance business plummeted 94%. Railroad and utility earnings rose slightly. Income from Berkshire's manufacturing, service and retailing division climbed 15.5% to $3.03 billion.
Berkshire lost $1.58 billion on its investments in Q1 amid the broad stock market sell-off.
Buffett Curbs Berkshire Buybacks
Buffett spent $3.2 billion on Berkshire stock in Q1, down from $6.9 billion in Q4. The conglomerate had spent heavily on its shares in recent quarters as Buffett saw few promising opportunities elsewhere. But in Q1, Berkshire agreed to buy insurer Alleghany Corp. for $11.6 billion. It also took a big stake in Occidental Petroleum.
Berkshire disclosed Saturday that its Chevron stake jumped to $25.9 billion vs. $4.5 billion at the end of last year. CVX stock is now Berkshire's fourth-largest position, behind Apple ($159 billion), Bank of America ($42.6 billion) and American Express ($28.6 billion).
Buffett Decries Stock Market 'Gambling Parlor'
At the Berkshire annual shareholder meeting, Buffett said stock market has turned into a "gambling parlor," with U.S. companies turned into "poker chips." Vice Chairman Charlie Munger also decried the "mania" on Wall Street. He singled out Robinhood for its "disgusting" practices, saying the investing app's "unraveling" is well-deserved.
BRKB Stock
BRKB stock cleared a flattish consolidation in early March with a buy point around 325, rising to 362.10 on March 29. But shares have pulled back. Last week, Berkshire stock fell 4.1% to 321.90, breaking below the 50-day line and round-tripping the March breakout.
Shares edged higher early Monday.
The relative strength line has held at multiyear highs, as BRKB stock retreated in line with the S&P 500 index. So Berkshire stock is still worth watching.
Market Rally Analysis
Last week had some big daily swings, including some positive sessions. But ultimately, the major indexes sold off again, extending their weekly losing streaks.
After Thursday's big jump, the Nasdaq, S&P 500 index and finally the Dow Jones, undercut Wednesday's intraday lows, ending their short-lived rally attempts.
The Nasdaq is at its worst levels since late 2020. The S&P 500 is still above its February lows, but had its worst close since last June.
Market breadth is anemic, with losers outpacing winners and new lows trouncing new highs.
The market correction could be on the verge of a new leg down. The Nasdaq is in a full-fledged bear market.
Fear gauges such as the CBOE Volatility S&P 500 Index are trending higher, but have yet to break above peaks from earlier this year. The CBOE Nasdaq Volatility Index, or VXN, is getting close.
Energy and fertilizer stocks still look OK, but with a slew of earnings reports for both sectors this coming week. Defense giants are not far from buy points with earnings largely out of the way. Some drug stocks are showing strength, but others are struggling.
Some travel stocks are doing OK, but like most groups need a positive market tailwind to make serious headway.
REITs, which had been holding up in the market correction, sold off late in the week.
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What To Do Now
Investors shouldn't try to guess a market bottom. Don't get sucked into morning rallies or even big daily gains like Thursday's.
So, what should you do? Stay on the sidelines. If you're going to dip your toe into a stock flashing buy signals amid a correction, be ready to get right back out. Being entirely in cash still makes a lot of sense.
But stay engaged. If the market rally suddenly stages a follow-through day, you want to be ready to gradually increase your exposure. So keep working on watchlists, focusing in on a select group of names that are at the top of your potential buy lists.
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.
