Dow Jones futures and S&P 500 futures rose slightly early Friday, while Nasdaq futures edged lower with the Federal Reserve's favorite inflation report, the PCE price index, due before the open.
Aehr Test Systems tumbled in premarket trade despite beating views. The IRS on Friday could limit U.S. tax credits for the entry-level Tesla Model 3, with Tesla releasing first-quarter deliveries over the weekend
The stock market rally extended Wednesday's strong gains with modest gains. The Nasdaq closed above 12,000 while the big-cap Nasdaq 100 hit a seven-month high.
Leading stocks rose, though many pared intraday gains substantially. MercadoLibre, Analog Devices, ASML and Ulta Beauty made bullish price moves.
The market rally is now a confirmed uptrend, so investors should be taking advantage, gradually adding exposure.
Bank stocks fell modestly Thursday, with Charles Schwab down solidly. While banking fears have ebbed, that remains an elevated risk for investors at least in the short run.
MELI stock is on IBD Leaderboard. ADI stock is on SwingTrader. MercadoLibre and Analog Devices are on the IBD 50 list. ASML and ADI stock are on the IBD Big Cap 20.
PCE Inflation Report
The February PCE price index is due out at 8:30 a.m. ET. Analysts expect the PCE index and the core PCE index to show 0.4% gains after January's 0.6% increases.
Wall Street expects the PCE inflation rate to cool slightly to 5.1% from January's 5.4%. But core PCE inflation is likely to hold at 4.7%.
The Fed has long favored the PCE inflation data over the consumer price index. Recently, Fed chief Jerome Powell has highlighted services prices excluding energy and housing as a key inflation gauge right now.
The inflation figures will influence market expectations for Fed rate hikes. Investors are split over whether there will be another quarter-point hike on May 3.
The PCE inflation data is part of the monthly income and spending report. Personal income should rise 0.3% after January's 0.6% gain. Spending should edge up 0.2% after jumping 1.8% in January.
Dow Jones Futures Today
Dow Jones futures rose 0.2% vs. fair value. S&P 500 futures climbed 0.2% and Nasdaq 100 futures edged lower.
The 10-year Treasury yield was flat at 3.55%. The 2-year yield climbed 6 basis points to 4.16%.
Crude oil prices rose slightly while copper fell 1%.
The PCE inflation report will be sure to swing Dow futures and Treasury yields shortly before the open.
A New York grand jury has indicted former President Donald Trump related to hush money payments to a porn star.
Remember that overnight action in Dow futures and elsewhere doesn't necessarily translate into actual trading in the next regular stock market session.
Aehr Earnings
AEHR stock fell 5% early Friday after Aehr Test Systems earnings and revenue modestly beat views late Thursday. The chip-testing firm, with heavy exposure to EV markets, reported booming bookings and backlogs. Shares fell 1.7% to 37.22 in Thursday's regular session. AEHR stock closed just below a 37.67 buy point, but 10% above its 50-day line.
On Semiconductor, Aehr Test Systems' largest customer, edged lower in extended trade. In Thursday's session, ON stock rose 2.45% to 81.83, flirting with a trendline entry after reclaiming its 50-day line on Wednesday. Also known as Onsemi, On Semiconductor has an 87.65 official consolidation buy point. ON stock is on the IBD 50 and Big Cap 20 as well.
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Tesla Model 3 Tax Credits
The Internal Revenue Service is expected to release guidelines on battery production and material sourcing rules on Friday.
The IRS tax credit language requires battery production in North America and battery materials from countries that have free trade deals with the U.S. But the IRS initially waived those provisions until it gave detailed guidance.
The upshot is that the cheapest Model 3 presumably will no longer be eligible for the full $7,500 tax credit after a grace period. The base Model 3 uses LFP batteries from China's CATL. Other Tesla vehicles in the U.S. use batteries from the Nevada gigafactory, with some Model Ys getting 4680 batteries from Tesla's Keto Road facility.
Ultimately, Tesla would presumably switch to more-expensive 2170 battery packs. But in the short run, the IRS news could spur a rush to buy the cheapest Model 3. Tesla has been noting the expected IRS move to push Model 3 sales.
Tesla is looking to build a U.S. battery plant with China's CATL, Bloomberg reported Thursday. That could provide a long-term answer to tax credit eligibility. In February, Ford Motor announced plans to build a battery plant with CATL in Michigan.
CEO Elon Musk plans a trip to China as early as April, seeking a meeting with new Chinese Premier Li Qiang, Reuters reported, citing sources.
Tesla deliveries and production figures for the first quarter should be released this weekend, likely on Sunday, April 2. Analysts expect Tesla to report record deliveries of around 430,000, fueled by big price cuts and the U.S. tax credits. That would be up 39% vs. a year earlier and up modestly from Q4's 405,278.
Production will likely exceed deliveries yet again.
Tesla stock rose 0.7% to 195.28 on Thursday, holding above the 21-day and 50-day lines. After Friday, Tesla will have a bottoming base with a 217.75 buy point. The daily chart does suggest a handle with a 200.76 entry. However, the handle is not on track to appear on a weekly chart. More importantly, the 200-day line, now slightly below the 217.75 entry, looms large as potential resistance.
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Stock Market Rally
The stock market rally opened solidly higher Thursday, faded to mixed intraday, before rebounding again in the afternoon.
The Dow Jones Industrial Average rose 0.4% in Thursday's stock market trading. The S&P 500 index advanced 0.6%, with SCHW stock the biggest loser. The Nasdaq composite climbed 0.7%. The small-cap Russell 2000 fell 0.2%.
U.S. crude oil prices rose 1.9% to $74.37 a barrel, up 11.4% from its 52-week low set on March 17.
The 10-year Treasury yield fell 1.5 basis points to 3.55%. The 2-year Treasury yield climbed 2 basis points to 4.1%.
The dollar fell, but did come off early lows.
ETFs
Among growth ETFs, the Innovator IBD 50 ETF edged up 0.3%. The iShares Expanded Tech-Software Sector ETF advanced 0.6%. The VanEck Vectors Semiconductor ETF gained 1.4%, with Analog Devices and ASML stock notable holdings.
Reflecting more-speculative story stocks, ARK Innovation ETF edged down 0.3% and ARK Genomics ETF fell 0.8%. TSLA stock is a major holding across Ark Invest's ETFs.
SPDR S&P Metals & Mining ETF climbed 0.3%. U.S. Global Jets ETF ascended 1.3%. SPDR S&P Homebuilders ETF dipped 0.1%. The Energy Select SPDR ETF gained 0.4% and the Health Care Select Sector SPDR Fund advanced 0.5%.
The Financial Select SPDR ETF dipped 0.2%. SCHW stock, an XLF component, fell 5% to 52.47 on a second analyst downgrade in two days. The SPDR S&P Regional Banking ETF sank 2%.
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Market Rally Analysis
The stock market rally came off early highs but still rose modestly, following up on Wednesday's big gains.
The Nasdaq got above 12,000, topping the March 22 high. The Nasdaq 100 hit its highest level since late August.
The S&P 500 added a little more distance from the 50-day line and 4,000 level, after clearing both levels on Wednesday.
The Dow Jones is moving toward its 50-day line.
The Russell 2000 rose to the 21-day line and reversed slightly lower. A key reason: Bank stocks fell modestly Thursday.
Banks aren't plunging. But banks, especially regional banks, have a long road back. The bank crisis may have receded but risks remain.
Of course, bank stocks could continue to struggle even if banks stabilize. Banks are likely to pay more for deposits as account holders realize they can get much higher returns elsewhere, squeezing profitability. Midsize banks, those with $100 billion-$250 billion in assets, likely face tougher regulatory oversight. Meanwhile, if there is a revived crisis, bank deposits will likely be protected, but not bank stock or debt holders.
Many leading stocks closed off Thursday morning's highs, but most held onto Wednesday's gains. Rambus, payments processor Shift4 and Skyline Champion added to recent gains, but now are extended.
MELI stock and ASML rose Thursday, extending strong weekly gains and offering aggressive entries. But volume was light. Ulta Beauty and ADI stock topped early entries on above-average trade.
Just because the stock market rally staged a follow-through day Wednesday doesn't mean a major advance is underway. The indexes and leading stocks could quickly reverse lower. Or, this could be a tradable rally that soon hits resistance.
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What To Do Now
Wednesday's FTD was a signal to add a little more exposure. But there's no need to rush headlong into the market. The major indexes have key resistance levels. Banks and Fed policy are still big potential risks.
If the market rally and your positions fare well, you can keep making new buys. But be ready to take at least partial profits relatively early, and cut losses quickly. Make sure that you aren't too exposed to one particular sector, such as chips.
Work on your watchlists, casting a wide net.
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.
