Dow Jones futures fell solidly early Friday, along with S&P 500 futures and Nasdaq futures, even as Apple rallied on earnings. Treasury yields continue to trend higher, with Fed rate hike expectations continuing to ratchet higher.
The stock market opened Thursday solidly higher, but the major indexes reversed to close lower as Tesla stock and a few other techs sold off following quarterly results.
On the upside, Microsoft extended its post-earnings bounce above the 200-day line.
In the current rising interest-rate environment, with the Federal Reserve set on tightening policy aggressively in the coming months, stocks with high price-earnings ratios such as Tesla, Roblox and Zscaler may struggle, along with unprofitable plays such as Lucid and Rivian.
Microsoft and Apple stock, with P-Es of 33 and 28, respectively, may fare better. Meanwhile, energy, fertilizer and especially shipping stocks, areas that have held up reasonably well in the market correction, have even lower P-E ratios.
Apple earnings and revenue modestly beat views after the close. Apple stock rose modestly overnight.
Key Earnings
Meanwhile, KLA Corp., Western Digital, Visa, Atlassian, Juniper Networks and Robinhood also reported late Thursday.
Visa rose solidly overnight on strong earnings, while beaten-down TEAM stock jumped, despite weak EPS guidance. JNPR stock, which popped Thursday night, edged higher early Friday.
KLAC stock fell solidly in extended trade on weak guidance — after skidding in Thursday's session on peers' disappointing outlooks. Meanwhile, Western Digital and HOOD stock sold off overnight on weak forecasts and other issues.
Caterpillar topped EPS views early Friday. CAT declined modestly in premarket trade, after dipping below its 200-day line on Thursday.
Chevron earnings fell short, but revenue topped. The Dow Jones energy giant fell solidly before the open.
Tesla stock and Microsoft are on IBD Leaderboard. Microsoft stock and Atlassian are on IBD Long-Term Leaders. KLAC stock is on the IBD 50.
Dow Jones Futures Today
Dow Jones futures tumbled 0.9% vs. fair value. S&P 500 futures sank 0.85%. Nasdaq 100 futures declined 0.8%. All had been solidly higher Thursday night and remain in motion.
Apple stock is providing a lift to Dow Jones futures as well as S&P 500 and Nasdaq futures. Visa also is a Dow Jones and S&P 500 component, but so are Chevron and CAT stock.
However, the 10-year Treasury yield rose 3 basis points to 1.84%, not far from two-year highs. The two-year yield continues to hit new highs, up 3 basis points to 1.22%.
Bank of America economists now see "seven hikes in 2022 and a peak funds rate of 2.75%-3.00."
At 8:30 a.m. ET, the Commerce Department will get the December income and spending report, which includes the Fed's favorite inflation gauge.
Crude oil prices rose over 1%, but copper futures fell more than 1%.
Remember that overnight action in Dow futures and elsewhere doesn't necessarily translate into actual trading in the next regular stock market session. That's especially true in market corrections and rally attempts, as now.
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Stock Market Rally
The stock market rally attempt started with strong gains Thursday but reversed lower, led by small caps and growth stocks once again.
The Dow Jones Industrial Average closed just below break-even in Thursday's stock market trading. The S&P 500 index fell 0.5%. The Nasdaq composite slumped 1.4%, as Tesla stock, Teradyne and Lam Research led the way down. The small-cap Russell 2000 skidded 2.3%.
The 10-year Treasury yield fell 4 basis points to 1.81%, after surging 7 basis points on Wednesday. But the two-year Treasury yield rose 4 basis points to 1.19%. The shorter-term yield spiked 13 basis points Wednesday on the Federal Reserve's hawkish signals.
Crude oil prices reversed modestly lower from fresh multiyear highs, sinking 0.9% to $86.61 a barrel. Near-month natural gas futures skyrocketed 46.5%, while contracts further out showed solid single-digit gains.
Among the best ETFs, the Innovator IBD 50 ETF fell 1.6%, while the Innovator IBD Breakout Opportunities ETF retreated 0.7%. The iShares Expanded Tech-Software Sector ETF closed just below break-even. MSFT stock is a major holding in IGV, which also got a lift Thursday from ServiceNow. The VanEck Vectors Semiconductor ETF tumbled 4.3%, with Teradyne, Lam Research, Intel and many others selling off.
SPDR S&P Metals & Mining ETF retreated 1.6% and the Global X U.S. Infrastructure Development ETF gave up 0.75%. U.S. Global Jets ETF descended 1.45%. SPDR S&P Homebuilders ETF slumped 1.5%. The Energy Select SPDR ETF advanced 1.1% and the Financial Select SPDR ETF sank 0.9%. The Health Care Select Sector SPDR Fund edged up 0.3%.
Reflecting more-speculative story stocks, ARK Innovation ETF skidded 3.9% and ARK Genomics ETF 3.6%, both hitting fresh 19-month closing lows. Tesla stock remains the No. 1 holding across ARK Invest's ETFs.
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Apple Earnings
Apple earnings rose 25% to $2.10 a share while revenue climbed 11% to $123.95 billion. Both comfortably beat views for the holiday Q1.
Apple topped views for the iPhone, Mac computers and services, though the flagging iPad business fell short.
But the tech titan expects revenue growth to decelerate in the current quarter vs. fiscal Q1.
Apple stock rose 2% in premarket trade, well off premarket highs. Shares dipped 0.3% on Thursday to 159.22, falling for an eighth-straight session. Last week, AAPL stock broke decisively below its 50-day and 10-week lines, an obvious sell signal. But the relative strength line for Apple stock is just below record highs, according to MarketSmith analysis. That's a reflection of just how weak the S&P 500 has been amid the market correction.
In addition to AAPL stock itself, the tech giant's earnings also are a good sign for various iPhone chipmakers and other suppliers.
Tesla Stock
Tesla earnings topped Q4 views late Wednesday, showing stellar growth, though the size of the beat was smaller than in prior quarters. But the big concern was over Tesla's promised "product roadmap," or the lack thereof.
CEO Elon Musk confirmed that there will be no Cybertruck in 2022, only saying that "hopefully" production will start in 2023. He also said Tesla is not working on a $25,000 car, as some had speculated.
Instead, Musk once again said that Full Self-Driving will reach full autonomy this year, a claim he has made for several years. He also said a lot of R&D efforts will go toward the Tesla Bot, a humanoid type robot the company is developing.
Tesla stock plunged nearly 12% to 829.10, undercutting Monday's lows to hit its worst level in three months. Shares are closing in on their 200-day line, 33% off their Nov. 4 high of 1,243.49.
High P-E Stocks Tumble
Regardless of the specific reasons for the sell-off, the fact remains that TSLA stock has a triple-digit P-E ratio. By that measure, the EV giant is doing reasonably well. Shares haven't broken down. Very few other triple-digit P-E stocks are above their 200-day line.
Video game platform Roblox hit a record 141.60 in late November. But on Thursday, RBLX stock sank 9.5% to 57.05, hitting a post-IPO record low.
Zscaler stock, a huge winner in 2021, has skidded 41% from its Nov. 19 peak. The cybersecurity play is now noticeably below its 200-day line.
Robinhood stock shot up for a few days after the online trading app came public in late July and has been tumbling ever since. HOOD stock has never traded above its 50-day line.
As for unprofitable Tesla rivals Lucid and Rivian? Lucid stock plunged 14% to 28.70, closing just below its 200-day line. Intraday, LCID stock fully round-tripped a 103% run from a late October breakout. Rivian stock sank 10.5% to 53.94, a fresh all-time low and well below the $78 IPO price. RIVN stock hit a record 179.47 on Nov. 16.
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Market Rally Analysis
The stock market rally attempt isn't dead, but it's on life support. The rally attempt is valid on the major indexes as long as they don't undercut Monday's lows, which they haven't yet. The small-cap Russell 2000 did undercut Monday's lows intraday, marking a fresh 52-week low.
The Dow Jones, S&P 500, Nasdaq composite and Russell 2000 are all down for the week, hardly a positive sign. The market is once again stuck in a bearish trend of strong opens and weak closes.
The Nasdaq advance-decline line continues to plunge, while the NYSE A/D line also looks woeful. Despite Thursday's negative reversal, the CBOE Volatility Index fell modestly, suggesting market fear hasn't peaked.
It's hard to get excited about any stocks right now.
Energy has done well, but has gone on a run, with leaders extended and laggards struggling to break out. Some fertilizer and agricultural stocks are healthy. A few medicals, such AbbVie are doing well. Oceangoing shipping stocks such as Matson, with huge growth and single-digit P-E ratios, are hot again but prone to big swings.
If the market rebounds, some of those stocks and groups may be among the leaders. So might Apple stock and Microsoft, and other modest P-E tech names such as Juniper.
But Tesla stock's woes after its earnings report should put a red line under highly valued stocks' growth for now. They may not be in favor until Treasury yields stabilize. With several Fed rate hikes and balance sheet cuts coming soon, interest rates may continue to climb throughout 2022.
The RS line for the Nasdaq composite is at its lowest point since May 2020. ARKK's RS line is the weakest since late 2019, before the coronavirus crash.
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What To Do Now
Investors should continue to watch for a follow-through day to confirm a new rally attempt, but hopes are fading. The major indexes are not far from undercutting Monday's lows. Even if there is a FTD in the near future, investors shouldn't race to ramp up exposure. A confirmed uptrend could fail. Also, there aren't many good-looking stocks to buy right now.
Keep working on your watchlists, focusing on stocks that are showing relative strength. In a market correction, watchlists can be like sand castles, crumbling under fresh waves of selling. But keep working on those sand castles. When the tide turns, you'll be ready to take advantage.
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