Dow Jones futures fell slightly early Thursday, while S&P 500 futures rose and Nasdaq futures jumped. Nvidia skyrocketed late on booming artificial intelligence demand for its high-powered chips, lifting a variety of chip and AI plays. The U.S. government's credit rating is under threat due to the debt-ceiling standoff, Fitch warned.
ELF Beauty, Snowflake UiPath and Splunk also were big earnings movers.
The stock market rally retreated for a second straight session, amid ongoing debt-ceiling talks. The Nasdaq is still above key levels, but the S&P 500 is back in its sideways range after retreating from 2023 highs. The Dow Jones tested its 200-day line and is now down for the year.
Investors should be cautious in the current environment, ready to cut losses quickly.
Nvidia stock is on IBD Leaderboard, with ELF stock on the Leaderboard watchlist. SNOW stock is on the IBD 50.
AAA Credit Rating In Doubt Over Default Risks
Late Wednesday, Fitch Ratings placed the U.S. government's AAA credit rating on a negative watch. Fitch cited "the increased political partisanship that is hindering reaching a resolution to raise or suspend the debt limit." The credit ratings agency added, "The brinkmanship over the debt ceiling, failure of the U.S. authorities to meaningfully tackle medium-term fiscal challenges that will lead to rising budget deficits and a growing debt burden signal downside risks to U.S. creditworthiness."
On Wednesday, negotiators for the White House and House Republicans continued debt-ceiling talks. A default looms in early June without a deal to raise the debt limit.
House Speaker Kevin McCarthy said there is still "time" for a debt-ceiling deal. But House lawmakers will leave town for the Memorial Day weekend.
Dow Jones Futures Today
Dow Jones futures fell 0.2% vs. fair value. S&P 500 futures climbed 0.7%. Nasdaq 100 futures leapt 2.2%. NVDA stock is a big S&P 500 and Nasdaq 100 component. AMD, Google and MSFT stock also buoyed techs overnight in the wake of Nvidia results.
The 10-year Treasury yield rose 2 basis points to 3.74%.
Crude oil fell 2%.
At 8:30 a.m. ET Thursday, the Labor Department will release weekly jobless claims data.
Remember that overnight action in Dow futures and elsewhere doesn't necessarily translate into actual trading in the next regular stock market session.
Nvidia Earnings
Nvidia earnings fell 20% vs. a year earlier and revenue declined 13%, but both comfortably beat views. The graphics-chip maker sees $11 billion in Q2 sales, far above consensus for slightly over $7 billion.
"The computer industry is going through two simultaneous transitions — accelerated computing and generative AI," Nvidia founder and CEO Jensen Huang said in the earnings statement.
NVDA stock surged 30% in extended trade, signaling a move above the November 2021 record high of 346.47. Shares fell 0.5% to 305.38 on Wednesday, their fourth straight slim decline after hitting a 52-week high.
Nvidia rival Advanced Micro Devices rose sharply overnight as well. Shares edged up 0.15% to 108.28 on Wednesday. AMD stock closed near the edge of a buy zone after a breakout last week. But it's extended from the 50-day line.
Nvidia earnings also were good news for other AI plays.
Palantir Technologies and C3.ai both rallied sharply overnight. Google parent Alphabet and Microsoft rose modestly.
Other Earnings
SNOW stock plunged more than 10% overnight. Snowflake earnings topped views but the data analytics software firm cut its full-year product revenue forecast. Snowflake stock rose 1.1% on Wednesday to 177.14. SNOW stock, which had rallied strongly over the past month, now could test its 200-day and 50-day lines on Thursday.
ELF stock vaulted more than 10% in premarket trade. ELF Beauty earnings crushed views again, with revenue growth accelerating for a fifth straight quarter, to 78%. Shares climbed 1.7% to 86.45 on Wednesday, retaking the 50-day line. ELF stock has been pulling back for the past few weeks after surging 372% from its May 2022 low to its April 24 peak of 97.03. The budget cosmetics maker could offer an entry with a bullish post-earnings move. It had been on track to forge a flat base by the end of the week, if it doesn't hit a new before then.
PATH stock tumbled in extended action. UiPath earnings beat but the automation software maker guided slightly lower on Q2 revenue. PATH stock had been working on an 18.22 cup base, but could undercut its 50-day line Thursday morning.
SPLK stock rose solidly early Thursday. Splunk reported a surprise profit while revenue also topped. The database and security software play edged up 0.2% to 96.69 on Wednesday. Splunk stock is moving toward a 110.05 consolidation buy point after clearing the 50-day and 200-day lines last week.
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Stock Market Rally
The stock market rally extended Tuesday's heavy losses until late Wednesday morning, but came off lows somewhat.
Negotiators for House Republicans and the White House resumed talks to lift the U.S. debt ceiling, with a possible sovereign default looming in early June. Earlier, House Speaker Kevin McCarthy said he was "hopeful we can make progress" on Wednesday. He said the two sides are apart on spending caps.
Fed minutes from the May meeting reinforced market views that policymakers are undecided about future moves. A late-afternoon rebound cooled at the close as Microsoft warned China-backed hackers have infiltrated key U.S. cyber infrastructure.
The Dow Jones Industrial Average slumped 0.8% in Wednesday's stock market trading. The S&P 500 index shed 0.7%. The Nasdaq composite retreated 0.6%. The small-cap Russell 2000 slumped 1.1%
U.S. crude oil prices climbed nearly 2% to $74.34 a barrel, the highest since May 1, following a big drop in U.S. crude inventories.
Copper prices slumped 2.4%, the lowest in nearly 7 months.
The 10-year Treasury yield rose 2 basis points to 3.72%. The two-year Treasury yield popped 6 basis points to 4.34%.
The U.S. dollar continued to rise, hitting its best levels since mid-March. Credit stronger Treasury yields and weaker overseas economic data. Another factor? Debt-ceiling default fears, which is counterintuitively spurring a safe-haven flow into the dollar.
ETFs
Among growth ETFs, the iShares Expanded Tech-Software Sector ETF slipped 0.5%. Microsoft stock is a major IGV component, with Splunk and AI stock also in the ETF. The VanEck Vectors Semiconductor ETF retreated 1.5%. Nvidia stock is a major SMH holding, along with AMD.
Reflecting more-speculative story stocks, ARK Innovation ETF slipped 0.6% and ARK Genomics ETF fell 1.5%. PATH stock is the No. 2 holding across Ark Invest's ETFs. Cathie Wood's Ark also owns some NVDA and PLTR stock.
SPDR S&P Metals & Mining ETF slumped 2.5% and the Global X U.S. Infrastructure Development ETF gave up 1.7%. U.S. Global Jets ETF descended 1.9%. SPDR S&P Homebuilders ETF edged down 0.3%. The Energy Select SPDR ETF rose 0.4% and the Health Care Select Sector SPDR Fund declined 0.7%.
The Financial Select SPDR ETF, which includes banking giants but also financials such as Berkshire Hathaway and Visa, slid 1.3%, back below its 50-day line. The SPDR S&P Regional Banking ETF sank 1.8% after hitting resistance at its 50-day line Tuesday.
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Market Rally Analysis
The stock market rally fell again Wednesday. The major indexes pared losses for much of the afternoon, but faded in the final minutes after Microsoft's China cyberattack warning.
The Nasdaq is still above its February and April peaks.
The S&P 500 slid below its 21-day line, though it did find some support near its 50-day line. Last week's move to 2023 highs now looks like a failed breakout, however.
The Dow Jones fell to its worst level since late March, testing its 200-day line after falling below its 50-day on Tuesday. The Dow is slightly negative for the year.
The Russell 2000 tested its 50-day line after reversing lower from the 200-day in the prior session.
The First Trust Nasdaq 100 Equal Weighted Index ETF slid 0.6% after Tuesday's 1.4% loss. QQEW, which hit a three-month high on Monday, just closed above its 21-day line after finding support near its 50-day.
The Invesco S&P 500 Equal Weight ETF fell 1.1%, hitting its lowest level since late March. RSP has tumbled back after just getting above its 200-day line late last week. The equal-weight S&P 500 ETF is down for the year and is closer to its October low than its early February peak.
Chips were notable losers heading into Nvidia earnings and following weak Analog Devices guidance.
But they should get a boost Thursday on Nvidia's strong results and stunning guidance.
Biotechs overall had a tough session, with PTC Therapeutics, Sarpeta Therapeutics and Argenx big losers.
More broadly, while some leading stocks and groups held up on Wednesday, others did not. And the vast majority lost significant ground since Monday.
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What To Do Now
The major indexes are pulling back, with the S&P 500 and Dow Jones falling below key levels. Leading stocks are struggling. A debt-ceiling deal could give markets a lift, but don't count on a massive rally.
Stock futures are signaling a bounce on Nvidia earnings, but also point to a continued divide between some growth stocks and the broader market.
There aren't many stocks that are actionable, with recent buy signals faltering or failing.
Investors should have low-to-modest exposure. Make sure to cut losses quickly and consider taking partial profits in winners, especially if they're breaking below key levels or in danger of round-tripping solid gains.
At some point, the stock market rally will go on a lengthy advance. But Wednesday was not that day.
But you want to be ready. Keep working on your watchlists.
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