Dow Jones futures and S&P 500 futures rose slightly Friday morning, while Nasdaq futures edged lower and small-cap Russell 2000 futures jumped. JPMorgan Chase, Wells Fargo and Citigroup beat headline earnings views before the open, but shares diverged.
The stock market rally saw a major rotation Thursday. Nvidia, Tesla, Meta Platforms and other megacaps fell solidly or sharply, weighing on the Nasdaq. But a soft CPI inflation report sent small caps, midcaps, homebuilders, regional banks and many other areas of the market soaring.
Tesla stock fell modestly Friday as UBS downgraded the EV giant to a sell.
KB Home, Medpace, TechnipFMC and Tesla rival BYD flashed buy signals Thursday.
Bank Earnings
JPMorgan and Wells Fargo reported better-than-expected earnings and revenue early Friday. JPMorgan's net interest income missed some views, while Wells' NII fell short.
JPM stock were steady, holding in a buy zone. Wells Fargo stock fell solidly below the 50-day line after closing near a buy point.
Citigroup also topped EPS views early Friday, despite net interest income also missing. Shares rose modestly before the open after closing in buy range Thursday.
Dow Jones Futures Today
Dow Jones futures rose 0.15% vs. fair value, with JPMorgan stock a blue chip. S&P 500 futures tilted higher and Nasdaq 100 futures edged lower. Russell 2000 futures popped 1.2%, signaling small-cap strength will continue.
The 10-year Treasury yield rose to 4.22%.
Crude oil climbed 1%.
Remember that overnight action in Dow futures and elsewhere doesn't necessarily translate into actual trading in the next regular stock market session.
PPI Inflation Data
The Labor Department will release the producer price index at 8:30 a.m.. Key elements of the consumer price index (CPI) and PPI feed into the core personal consumption expenditures (PCE) index, the Fed's favorite inflation gauge.
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Stock Market Rally
The stock market rally saw a major role reversal Thursday, with megacaps and the Nasdaq tumbling while small caps and many other parts of the market soaring.
The Dow Jones Industrial Average rose 0.1% in Thursday's stock market trading. The S&P 500 index fell 0.9%. The Nasdaq composite tumbled 1.95%.
The small-cap Russell 2000 gapped up 3.6%, hitting a three-month high and the best close since March 2022. The S&P 400 MidCap jumped 2.45%, back above its 50-day line.
The Invesco S&P 500 Equal Weight ETF popped 1.2% to the best levels since late May.
The First Trust Nasdaq 100 Equal Weighted Index ETF reversed from a record high to lose 0.4%, but easily outperforming the Nasdaq and Nasdaq 100.
As the equal-weight and sector ETFs show, there was a lot of strength outside of the chip and megacap tech arena.
Market Rotation Or Ro-Fake-Tion?
The real question is whether or not Thursday's market shifts were a one-off or more-lasting rotation.
The Nasdaq is 6.5% above its 50-day moving average. That's down from Wednesday's 9%, which was the most extended since June 2023. But the tech-heavy composite is still stretched. A modest pause or pullback, especially with Big Tech earnings starting next week, would be highly constructive. There's also the possibility that a pullback could be more substantial, especially if earnings do not go well.
The Russell 2000 has had a number of fake-outs, but Thursday's action seemed more meaningful. Homebuilders, which had ignored a general downtrend in Treasury yields and mortgage rates since late April, finally took hold.
Ideally, the market rally would settle down and have a broad-based advance.
U.S. crude oil prices rose 0.6% to $82.62 a barrel.
The 10-year Treasury yield plunged 9 basis points to 4.19%, right above three-month lows. The two-year Treasury yield fell 13 basis points to 4.5%. The yield curve is still inverted, but it's become significantly less inverted over the past several weeks.
With the tame CPI report, the odds of a September rate hike have risen to above 90%.
ETFs
Among growth ETFs, the Innovator IBD 50 ETF fell 0.6%. The iShares Expanded Tech-Software Sector ETF declined 0.3%. The VanEck Vectors Semiconductor ETF tumbled 3.6%. Nvidia stock is the No. 1 holding in SMH.
Reflecting more-speculative story stocks, ARK Innovation ETF slipped 0.5% and ARK Genomics ETF jumped 5.8%. Tesla stock is the No. 1 holding across Ark Invest's ETFs. Cathie Wood's Ark also owns a tiny stake in EV giant BYD.
SPDR S&P Metals & Mining ETF popped 2.7% and the Global X U.S. Infrastructure Development ETF gained 2.4%. The SPDR S&P Homebuilders ETF spiked 5.9%, with KBH stock a member. The Energy Select SPDR ETF climbed 1% and the Health Care Select Sector SPDR Fund advanced 0.7%.
The Industrial Select Sector SPDR Fund gained 1.3%. The Financial Select SPDR ETF rose 0.8%. The SPDR S&P Regional Banking ETF ran up 4.2%.
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Tesla Stock
Tesla stock tumbled 8.4% to 241.03. The EV giant reportedly will delay the Tesla robotaxi event from Aug. 8 to sometime in October, apparently to give more time to finish prototypes. But until Tesla has achieved actual self-driving, an EV without a steering wheel is going nowhere.
More broadly, Tesla stock had skyrocketed 44% in 11 sessions, so technically it was due for a retreat. Shares are still above a near-vertical 10-day line. Ideally, TSLA would pause, forging a meaningful handle or even a new short base.
Shares fell nearly 2% early Friday. UBS downgraded TSLA stock to sell, citing the surging premium for non-auto operations or bets.
Tesla earnings are due July 23.
Tech Megacaps
Nvidia stock fell 5.6% to 127.40 on Thursday, but is still up slightly for the week. Stepping back, NVDA stock has been consolidating for a few weeks, generally finding support around or above the 21-day line. A few more weeks could see a new base, with the 50-day line catching up.
Meta stock tumbled 4.1% to 512.70, below buy points at 522.88 and 514.01, but just holding the 21-day line. Shares reversed from a record high on Monday. Meta fell slightly on Friday.
As for the rest of the Magnificent Seven, Microsoft, Amazon.com, Google parent Alphabet and Apple fell 2%-3%.
With the partial exception of Meta, the megacaps' charts generally look healthy.
Stocks In Buy Zones
KB Home stock surged 10.3% to 73.79, gapping above the 50-day line, breaking a downward-sloping trendline and clearing short-term levels, providing multiple reasons to start a position. KBH stock has a 74.66 buy point from a flat base.
Medpace stock rose 3.8% to 434.99, back above a flat-base buy point of 421, according to MarketSurge. The clinical testing outsourcing firm is up 8.1% this week, rebounding from the 50-day line. MEDP stock, which is prone to sudden gyrations after weeks of quiet trade, has been consolidating for the past four months.
TechnipFTI stock climbed 1.7% to 26.96, topping a 26.76 buy point. That's either an early entry in a flat base or the official buy point in a cup-with-handle base.
BYD stock climbed 1.8% to 31.28, clearing a 30.84 handle buy point in a 40% deep, 11-month base. The Chinese EV and battery giant also cleared a long-term trendline going back to the mid-2022 all-time high. JPMorgan sharply raised its BYD stock price target Thursday, predicting EV sales will rise to 6 million in 2026 from just over 3 million in 2023. On Monday, BYD announced plans for a plant in Turkey, a week after its Thailand factory opened. With Tesla tumbling Thursday, BYD is the only EV stock that's positive for 2024, up 12.7%.
What To Do Now
It's always tricky to know how quickly to react to market rotations. Thursday offered an opportunity to diversify, adding positions in homebuilders and other sectors. But if you did, be ready to scale back if the rotation reverses back. Meanwhile, long-term holders in, say, Nvidia, had little reason to hit the sell button.
Thursday's action dramatically changed a lot of charts, so your watchlists will need to adjust.
JPMorgan earnings signal the start of earnings season, so be acutely aware of relevant results from your portfolio, including earnings for big stocks that you don't own.
Nvidia and Meta stock are on IBD Leaderboard. KB Home stock and Meta Platforms are on SwingTrader. Medpace stock is on IBD Long-Term Leaders. Nvidia stock, Citigroup and Medpace are on the IBD 50. Nvidia stock is on IBD Big Cap 20. KB Home was Thursday's IBD Stock Of The Day.
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