Dow Jones futures fell early Thursday, along with S&P 500 futures and Nasdaq futures. Tesla tumbled as earnings fell solidly on big price cuts, with gross margins and free cash flow tumbling far more than expected. CEO Elon Musk said he's willing to see profits fall to zero in the short run.
Lam Research and Las Vegas Sands also reported Wednesday night, with LRCX rising slightly and LVS stock signaling a breakout. Taiwan Semiconductor nudged higher on early Thursday results, with D.R. Horton rallying on its results.
The stock market rally remained quiet on the surface Wednesday with the major indexes narrowly mixed. That's despite hardware tech stocks slumping on IT spending concerns while Netflix retreated on disappointing subscriber growth.
Megacap techs held up well. Apple rose 0.7% to 167.63, hitting an eight-month high. Apple stock cleared a three-weeks-tight entry of 166.94. Microsoft added a few cents, still in a buy zone and Google parent Alphabet edged lower, just below a buy point. Amazon.com rose nearly 2% to a two-month high, but still below the 200-day line. Meta Platforms fell 1%, but still near 11-month highs.
META stock is on IBD Leaderboard and SwingTrader. MSFT stock is on IBD Long-Term Leaders. LRCX stock is on the IBD Big Cap 20.
Dow Jones Futures Today
Dow Jones futures fell 0.6% vs. fair value. S&P 500 futures slid 0.8% and Nasdaq 100 futures retreated 1.1%. Tesla stock is a major S&P 500 and Nasdaq 100 component.
Crude oil futures declined more than 1%.
The 10-year Treasury yield fell 3 basis points to 3.57%.
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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Tesla Earnings
Tesla earnings fell 21% vs. a year earlier, in line with views. Revenue climbed 24% to $23.31, just below FactSet views for $23.73 billion. That was down sequentially from Q4's $24.3 billion.
Major price cuts boosted demand, but at the expense of earnings and profit margins.
Gross margins tumbled to 19.3% vs. 23.8% in Q4 and 29.1% a year earlier. Auto gross margins excluding regulatory credits and leases skidded to 18.3% from 23.8% in Q4.
Tesla had said 20% would be a "floor" for auto gross margins excluding credits and leasing.
Free cash flow tumbled 80% vs. a year earlier to $441 million vs. expectations for $3.2 billion. Tesla had negative cash flow excluding $521 million in auto regulatory credits.
Continued price cuts will likely keep pressuring gross margins going forward.
Tesla cut prices in the U.S. for the second time this month late Tuesday. Model Y prices were cut by $3,000, starting at $46,990. The base Model 3 price was cut by $2,000, to $39,990. Most Model 3 and Y variants are eligible for $7,500 in tax credits, but starting April 18 the base-model Model 3 only gets $3,750.
Tesla also has cut prices in Europe and some other key markets in April.
Elon Musk Signals More Margin Pain
On the Tesla earnings call, CEO Elon Musk said that he's going to stress higher production, indicating further price cuts could be ahead. He said it's better to ship a lot of cars at a lower margin now, perhaps even at zero profit, then reap higher margins when Tesla achieves full sell-driving. Musk said he expects Tesla to achieve full autonomy in 2023. He's forecast full autonomy for several years.
Musk also said there will be a Cybertruck "delivery event" in the third quarter. It's unclear when Cybertruck mass production will start.
Tesla bulls also have high hopes for the company's energy storage business. Energy generation and storage revenue leapt 148% to $1.53 billion in Q1.
Tesla Stock
TSLA stock tumbled nearly 8% in extended trade. Shares fell 2% to 180.59 on Wednesday, trading below the 50-day moving average. Tesla stock has a 207.89 buy point from a cup-with-handle base that formed just below the 200-day moving average. Investors might prefer to use a decisive break of the 200-day line, currently around 213, as a TSLA stock entry. A third possible buy point for Tesla stock would be a strong move above the 50-day line.
Other Earnings
LRCX stock edged higher early Thursday. Lam Research earnings beat fiscal Q2 views but the chip-gear giant guided low on Q3. Shares edged down 0.9% to 491.02 on Wednesday. LRCX stock has a 548.95 flat-base buy point.
LVS stock rose 5% overnight to above 62 after Las Vegas Sands earnings topped views, kicking off results for Macau-focused casinos. Shares edged up 2 cents to 59.36 on Wednesday. Las Vegas Sands stock has a 60.40 buy point from a cup-with-handle base, MarketSmith analysis shows.
TSM stock advanced 1% early Thursday. Taiwan Semiconductor earnings topped while revenue came in line. Its Q1 sales outlook disappointed, not a great demand sign for its customers, which include Apple, Nvidia and many others. Despite reports that it would slash capital spending, Taiwan Semi left 2023 capital expenditure plans unchanged, good news for chip-equipment makers like Lam Research. TSM stock fell 1% to 87.23 on Wednesday. TSM stock has a 99.09 buy point in a consolidation with possible early entries, but needs to get above its 50-day line.
DHI stock rose 5%, signaling a move out of a buy zone. Kicking off earnings for homebuilders, D.R. Horton earnings for fiscal Q2 tumbled early Thursday, but far less than expected with revenue nearly coming in break-even. The homebuilding giant also guided higher for full-year revenue. DHI stock dipped 0.3% to 101.86 on Wednesday, still in range of a 99.09 cup-with-handle entry.
Stock Market Rally Wednesday
The stock market rally opened lower and steadily improved to narrowly mixed on the major indexes
The Dow Jones Industrial Average fell 0.2% in Wednesday's stock market trading. The S&P 500 index dipped less than 1 point. The Nasdaq composite rose a fraction. The small-cap Russell 2000 edged up 0.1%.
U.S. crude oil prices fell 2.1% to $79.16 a barrel.
The 10-year Treasury yield rose 3 basis points to 3.6%. U.K. inflation cooled slightly in March, but only to 10.1% vs views. for a sub-10% reading. Markets are close to locking in a quarter-point Fed rate hike on May 3, with a decent chance of another move in late June. That partly reflects bank fears easing.
ETFs
Among growth ETFs, the Innovator IBD 50 ETF fell 1.2%, while the Innovator IBD Breakout Opportunities ETF slid 0.7%. The iShares Expanded Tech-Software Sector ETF declined 0.25%, with MSFT stock a major holding. The VanEck Vectors Semiconductor ETF gave up nearly 1%. TSM stock and Lam Research are big SMH components.
Reflecting more-speculative story stocks, ARK Innovation ETF dipped 0.1% and ARK Genomics ETF rose 1.2%. Tesla stock is the top holding across Ark Invest's ETFs.
SPDR S&P Metals & Mining ETF retreated 1.4% and the Global X U.S. Infrastructure Development ETF dipped 0.4%. U.S. Global Jets ETF ascended 1.6%. SPDR S&P Homebuilders ETF added 0.3%. The Energy Select SPDR ETF declined 0.35% and the Health Care Select Sector SPDR Fund gained 0.3%.
The Financial Select SPDR ETF edged up 0.2%. The SPDR S&P Regional Banking ETF jumped 3.9% on some solid earnings reports.
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Market Rally Analysis
The stock market rally continue to hold in a recent range but not far from 2023 highs. The major indexes continue to trade tightly, but with a glacial upside trend.
Losers slightly outpaced winners on the NYSE and Nasdaq. Market breadth has improved over the past couple of weeks, but it's not great. New highs edged past new lows on Wednesday, but have lagged generally, especially on the Nasdaq.
Many growth stocks struggled, with hardware tech plays hit on demand concerns. Tech provider CDW warned of weak IT spending. Chip-gear giant ASML beat Q1 views, but cited customer concerns. Extreme Networks plunged, hitting other networking plays, on an analyst downgrade related to IT spending. Storage firms also struggled.
Chipmakers are struggling, with SMH testing its 50-day line again as ASML weighed on the sector. That's even with Nvidia holding up.
Medical products continued to lead Wednesday. Intuitive Surgical blasted out of a base on earnings. Edwards Lifesciences broke out of a bottoming base while Dexcom also flashed early entries. But both have earnings next week.
Homebuilders and related stocks remain strong, with mostly inside moves. D.R. Horton earnings will be a heat check for the sector.
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What To Do Now
The market rally is moving sideways. Not many stocks are flashing buy signals, and some of those quickly slash gains or even reverse lower. So investors should be cautious about adding new buys right now, and ready to cut losses.
Earnings season adds uncertainty to the market, various sectors and individual stocks. Amazon, Google, Microsoft and Meta Platforms all report next week, with Apple the following week. Hundreds of other companies will be reporting as well.
So stay engaged and flexible.
If the market rally ramps up, both on the major indexes and leading stocks, buying opportunities should be numerous, and more likely to stick. That's the time to be picking up exposure. Right now is the time to be preparing, building your watchlists, looking for setups across sectors.
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