Dow Jones futures rose early Friday, along with S&P 500 futures and Nasdaq futures. The stock market rally fell Thursday morning on hawkish Fed statements, extending Wednesday's losses. But the major indexes rebounded from some key levels to close slightly lower.
Treasury yields rebounded while crude oil prices tumbled.
Apple, Microsoft and Google parent Alphabet, the only three trillion-dollar stocks on U.S. exchanges, rallied after testing support at their 50-day moving averages. Meanwhile, Tesla retreated toward its bear-market lows.
Investors should be cautious in the current market, adding exposure slowly and ready to take profits and cut losses quickly.
Earnings
Applied Materials, Palo Alto Networks, Clearfield and Ross Stores all topped EPS and sales views late Thursday, with guidance also generally strong.
AMAT stock rose solidly early Friday, poised to move back above its 200-day line. PANW stock jumped, signaling a move above its 50-day. CLFD stock surged in extended trade, looking to race above the 50-day line as it tries to build the right side of a double-bottom base. ROST stock blasted toward 2022 highs after closing in range from a bottoming base.
JD.com and Atkore reported early Friday.
JD.com earnings topped views, while revenue fell short, much like Alibaba early Thursday. JD stock rose modestly in premarket trading. On Thursday, shares jumped 7.5% on Alibaba's results, right up to the 200-day line.
ATKR stock rose solidly Friday as building products maker Atkore beat fiscal Q4 views and guided higher on Q1 and 2023 profit. ATKR stock fell 3.5% on Thursday, but was comfortably above its 200-day line as it works on the right side of a deep cup base.
Dow Jones Futures Today
Dow Jones futures rose 0.65% vs. fair value. S&P 500 futures gained 0.9%. Nasdaq 100 futures jumped 1%, with AMAT and PANW stock lifting techs.
The 10-year Treasury yield rose 3 basis points to 3.8%.
Crude oil futures fell nearly 2%, while natural gas sank more than 3%.
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 fell solidly at the open as St. Louis Fed President James Bullard and Kansas City Fed President Esther George made hawkish statements. The major indexes rebounded to close flat to slightly lower.
The Dow Jones Industrial Average was just below break-even in Thursday's stock market trading. The S&P 500 index declined 0.3%. The Nasdaq composite fell 0.35%. The small-cap Russell 2000 gave up 0.9%.
Apple stock rose 1.3%. Microsoft stock gave back two cents, Google stock dipped 0.5%. All tested their 50-day lines intraday. All are below their 200-day lines with no clear buy points. Tesla stock sank 2%, moving closer to its Nov. 9 bear market low.
U.S. crude oil prices tumbled 4.6% to $81.64 a barrel. In addition to hawkish Fed comments, blame Beijing's renewed emphasis on "zero-Covid" policies. China's State Council reportedly warned cities to avoid "irresponsible loosening" of Covid-19 measures, just a week after that high-level body backed easing rules. On Wednesday, Peking University locked down over a single case. Covid infections have surged over the past two weeks in China.
Hawkish Fed Lifts Treasury Yields
The 10-year Treasury yield rose 8 basis points to 3.77%.
St. Louis Fed's Bullard said the fed funds rate, currently at 3.75%-4%, may have to go as high as 7%, far more than consensus for around 5%. Kansas City Fed's George said a recession may be needed to bring inflation down.
One reason why policymakers are sounding hawkish is to push up market rates and curb the stock market rally. If financial conditions ease substantially on Fed pivot hopes, inflation may remain higher for longer, forcing the Fed to tighten official rates even further.
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ETFs
Among the best ETFs, the Innovator IBD 50 ETF dipped 0.1%. The iShares Expanded Tech-Software Sector ETF slumped 2.65%, even with MSFT stock a key component. PANW stock also is an IGV holding. The VanEck Vectors Semiconductor ETF dipped 0.5%, with AMAT stock a notable SMH holding.
SPDR S&P Metals & Mining ETF slumped 2.1%. SPDR S&P Homebuilders ETF retreated 2%. The Energy Select SPDR ETF shed 0.5% and the Health Care Select Sector SPDR Fund edged down 0.2%.
Reflecting more-speculative story stocks, ARK Innovation ETF gave up 2.8% and ARK Genomics ETF 3.2%. TSLA stock is a major holding across Ark Invest's ETFs.
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Stock Market Rally Analysis
The stock market rally tested some key levels at Thursday's open. The Nasdaq found support just above its 50-day moving average. The S&P 500 came down to its October short-term highs briefly. The Russell 2000 rebounded from near its 21-day line. The S&P 400 MidCap held its 200-day line.
Arguably the market was due for a pullback after a strong run and the S&P 500 nearing its 200-day line. At the same time, the market rally found support Thursday at important areas. So the past couple of days were normal and somewhat constructive for the major indexes — assuming they can hold Thursday's lows and eventually move higher.
However, the market retreat from Tuesday's intraday high to Thursday morning's low hit a number of stocks breaking out or flashing early entries in the past couple of days. Several tested those entries or outright failed. Some are rebounding while others may do so. In certain cases, the prior buy points are still valid, while others may need to set new handles or other entries. Still others may struggle for an extended period.
A wide variety of stocks and sectors are showing interesting action.
In all these cases, a healthy market rally will be key.
Apple stock, Microsoft and Google are not market leaders and may not be for some time. But if they can avoid lagging it would be a big help.
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What To Do Now
The stock market rally showed encouraging action Thursday. The overall trend has been higher over the past several weeks. But it's been a winding road for investors.
Anyone who bought stocks after the Oct. 21 follow-through day likely was underwater by early November. While the indexes spiked on Nov. 10 on the tame CPI report, the Nasdaq, S&P 500 and Russell 2000 are flat to down since then.
The stock market rally remains choppy, with sector rotation and big intraday swings complicating matters. Buying opportunities have often been the moment when the market pulls the rug out from investors.
So keep exposure light. Add exposure gradually — and be ready to cut exposure due to market conditions or individual stock sell rules.
Keep your watchlist up to date, so you can spot emerging leaders.
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Please follow Ed Carson on Twitter at @IBD_ECarson for stock market updates and more.
