Dow Jones futures edged higher early Thursday, while S&P 500 futures and Nasdaq futures fell modestly. Tesla and Netflix headlined earnings overnight.
The stock market rally closed off Wednesday's best levels, but the major indexes finished in positive territory after hitting fresh 52-week highs in the market. Market breadth was strong once again, but a number of leading stocks erased gains or reversed lower. The Nasdaq remains extended.
Apple hit a record high Wednesday on a Bloomberg report that it's built an internal generative AI chatbot for its employees, known as Ajax. AAPL stock backed off but still closed slightly higher. The midday news knocked fellow Dow Jones giant Microsoft and Google parent Alphabet, though the chatbot leaders came off intraday lows.
TSLA stock fell solidly in overnight trading after Tesla EPS and sales topped views, though operating profit missed. Shares lost ground during the earnings call as Elon Musk said that concerns about falling profit margins will "look silly" as Tesla achieves full self-driving.
NFLX stock tumbled in premarket trading as Netflix subscriber growth easily beat views but revenue came in light.
Las Vegas Sands, Discover Financial, IBM and United Airlines also reported Wednesday night. United Air and Las Vegas Sands beat views while Discover and IBM stock missed on earnings. UAL stock popped, signaling a move to the top of the buy range. IBM stock edged lower. DFS stock dived, signaling a drop well below a buy point. LVS stock fell, back toward the 50-day.
Early Thursday, Taiwan Semiconductor, D.R. Horton, Johnson & Johnson and American Airlines topped views. TSM stock fell modestly and American Air dipped, while JNJ stock and D.R. Horton rose.
Tesla stock is on IBD Leaderboard, with UAL stock on the Leaderboard watchlist. Microsoft stock is on IBD Long-Term Leaders.
Dow Jones Futures Today
Dow Jones futures rose 0.1% vs. fair value, with JNJ stock providing a slim lift. S&P 500 futures retreated 0.1%. Nasdaq 100 futures fell 0.5%. Tesla stock and Netflix are notable S&P 500 and Nasdaq 100 components.
The 10-year Treasury yield rose 6 basis points to 3.79%.
Crude oil prices just edged higher, but copper futures jumped nearly 2%.
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 closed off highs but slightly higher.
The Dow Jones Industrial Average rose 0.3% in Wednesday's stock market trading. The S&P 500 index climbed 0.2%. The Nasdaq composite ended just above break-even. The small-cap Russell 2000 gained 0.45%.
Apple stock edged up 0.7% to 195.10, after hitting a record 198.23 shortly after midday on the chatbot report. MSFT stock fell 1.2%. Shares popped 4% Tuesday, clearing a short consolidation, as Microsoft announced pricing for enterprise AI tools. Google stock sank 1.4%, moving back toward the 50-day line in a flat base.
Market breadth was strong, as financials continued to rally and telecoms rebounded for a second straight day.
The Invesco S&P 500 Equal Weight ETF rose 0.5%, closing in on its 2023 highs.
The First Trust Nasdaq 100 Equal Weighted Index ETF edged up 0.1% while the Nasdaq 100 was fractionally lower.
The Nasdaq is 8.2% above its 50-day moving average with the Nasdaq 100 8.7%. Those are stretched, raising the odds of a market pullback. A lot of highly speculative growth names surging in recent days points to increasing froth.
U.S. crude oil prices fell 0.5% to $75.35 a barrel.
The 10-year Treasury yield slid 5 basis points to 3.73%, testing the 50-day line.
ETFs
Among growth ETFs, the Innovator IBD 50 ETF fell 1.3%. The iShares Expanded Tech-Software Sector ETF edged up 0.1%, with MSFT stock a major IGV component. The VanEck Vectors Semiconductor ETF lost 1.05%.
Reflecting more-speculative stocks, ARK Innovation ETF climbed 1.6% and ARK Genomics ETF 1.1%. TSLA stock is the No. 1 holding across Ark Invest's ETFs.
SPDR S&P Metals & Mining ETF and the Global X U.S. Infrastructure Development ETF both dipped 0.3%. U.S. Global Jets ETF ascended 0.8%, with UAL stock and American Air major holdings. SPDR S&P Homebuilders ETF closed fractionally lower. The Energy Select SPDR ETF rose 0.6% and the Health Care Select Sector SPDR Fund climbed 0.5%.
The Industrial Select Sector SPDR Fund edged lower.
The Financial Select SPDR ETF advanced 0.4%. The SPDR S&P Regional Banking ETF jumped 3.1%
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Tesla Earnings
Tesla earnings came in at 91 cents a share, up 20% vs. a year earlier while comfortably beating views for 80 cents. That was helped by a 9-cent non-operating gain, largely favorable currency swings. Operating income of $2.4 billion missed views for $2.7 billion and fell 2.6% vs. a year earlier.
Revenue jumped 47% to $24.93 billion, slightly topping. In Q2 2022, Tesla Shanghai was shut for Covid lockdowns for several weeks while the Berlin and Austin plants were slowing picking up production.
Free cash flow was just over $1 billion, far short of consensus for $1.88 billion.
While deliveries hit a record high in Q2, inventories increased as production once again exceeded sales.
Gross margin fell to 18.2% from 19.3% in Q1 and 25% a year earlier, as Tesla continued to cut prices and offer other incentives to push up vehicle sales.
On the Tesla earnings call, investors wanted signs that gross margins would bottom out soon.
But on the call, CEO Elon Musk "short-term variances in gross margins" aren't important when "autonomy" vastly expands Tesla's profitability. That suggests Musk isn't concerned about further margin declines. Despite Musk's year forecasts, most autonomy experts say Tesla Full Self-Driving is far from achieving full self-driving.
Tesla said it's in talks to license FSD to a major automaker.
Tesla said in the earnings report that the "Cybertruck remains on track to begin initial production later this year at Gigafactory Texas." On Saturday, Tesla showed a photo of an Austin-made Cybertruck, but the Q2 earnings release suggests that it wasn't made on the production line.
Potential buyers still don't know what Cybertruck prices, battery range and other key specs will be. The Tesla earnings call had nothing on that.
There was also scant information about an upcoming Model 3 upgrade and possibly real hints on a future, next-generation model.
Musk did say Tesla will cut production over the summer for factory upgrades. Output has exceeded deliveries for several quarters, even with production already well below capacity.
He expects 1.8 million deliveries in 2023, the first such forecast for the EV maker.
Musk also said that the Optimus Bot should perform some meaningful work in Tesla factories next year.
Tesla stock fell more than 3% in overnight trade.
Shares reversed lower on Wednesday to close down 0.7% to 291.26. But shares are up 3.5% so far this week. TSLA stock has surged 137% in 2023, and is working toward a 313.80 buy point from a very deep cup base going back nearly 10 months.
Netflix Earnings
Netflix subscribers grew by 5.9 million in Q2, easily beating estimates of 1.8 million, as a password-sharing crackdown takes hold. The internet streaming giant now has 238.39 million paying customers worldwide.
Netflix earnings topped views but revenue came in light. The company also guided to mixed Q3 results.
Analysts expect Netflix earnings to fall 12% vs. a year earlier, with revenue up 4% to $8.27 billion
NFLX stock slumped more than 5% early Thursday. Shares rose 0.6% to 477.59 on Wednesday after popping 5.5% on Tuesday. Hollywood production is shut down with writers and now actors on strike.
But Netflix is well positioned with a deep content library, offering customers plenty of shows and movies to watch even as rivals face shrinking pipelines in the coming months. It raised its free cash flow evidence, citing reduced spending due to the strike.
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What To Do Now
The past few days have been a good time to let your existing positions work. The major indexes keep rising, with leading stocks outperforming. Some are still flashing buy signals, but the odds of a market pullback are growing.
An extended, frothy market heading into the full force of earnings season carries heightened risks, especially for growth stocks.
A pullback might not be a big deal for positions held for weeks or months, but new buys could quickly come under pressure.
When a market rally has been doing well for weeks and your portfolio is racking up big gains, it's easy to get cocky. Remember, you're not any smarter than you were a month ago. Keep your ego and emotions in check.
Keep working on watchlists and pay attention to key earnings for your 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.
