Dow Jones futures open Sunday night, along with S&P 500 futures and Nasdaq futures. Even with a firm close in Friday’s session, the stock market suffered significant damage over the past week, with major indexes collapsing following hawkish comments from Fed Director Jerome Powell.
X
Nasdaq had its worst week since January as megacaps plunged and cloud software crashed.
Apple (AAPL), Amazon.com (AMZN) and parent company Google Alphabet (GOOGL) all dropped more than 10% for the week, with Facebook Meta . Platform (META), Tesla stock and Microsoft stock are not far behind. Google shares, Meta, Amazon.com (AMZN) and Microsoft (MSFT) all hit bear market lows. Apple stock and Tesla (TSLA) are not, but they are close.
Meanwhile, Twilio (TWLO) and Atlassian (TEAM) crashed Friday due to disappointing results and guidance, losing more than 40% for the week. A bunch of other software names have collapsed, with or without earnings.
A market rally attempting against the Fed with the big tech sector plunging? It’s a high order. Therefore, while there are some stocks and sectors showing strength, investors need to be extremely cautious in the current context.
In other news, Warren Buffett’s Berkshire Hathaway (BRKB) on Saturday reported a 20% increase in operating profit. The group suffered a net loss as the ongoing bear market impacted its investments.
Dow Jones Futures Today
Dow Jones futures open at 6 p.m. ET on Sunday, along with S&P 500 futures and Nasdaq 100 futures.
Remember that overnight action in Dow futures and elsewhere does not necessarily translate into actual trading during the next regular stock market session.
Join IBD experts as they analyze stocks that could act in the stock market rally on IBD Live
Rally stock market
The stock market got off to a smooth start to the week but then sold off Wednesday afternoon on hawkish remarks by Fed Director Jerome Powell. The major indexes fell more on Thursday. Shares spiked on Friday after a mixed jobs report, but ended up closing higher that day.
The Dow Jones Industrial Average was still down 1.4% in stock market trading last week. The S&P 500 index fell 3.3%. The Nasdaq composite fell 5.7%, its worst drop since the week ended Jan. 21. The Russell 2000 small-cap index fell 2.4%.
The yield on the 10-year Treasury note rose 15 basis points to 4.16%. The 10-year yield resumed its upward momentum after wrapping up a 12-week winning streak and briefly trading back around 4%.
The dollar gained 0.2% for the week, but fell 1.9% on Friday, its biggest single-day drop in years. That may have contributed to Friday’s stock market boost.
Markets now see a 61.5% chance of a 50 basis point increase at the Fed meeting in December. The October consumer price index is due on Thursday. The November CPI and jobs report will be released ahead of the Fed’s rate hike decision on December 14.
US crude oil futures rose 5.4% last week to $92.61 a barrel. Natural gas rose nearly 13%.
Tech Wreck
Apple stock, which rallied to the 200-day high last week, is down 11.15% to 138.38 over the past week. AAPL stock hit an October low of one cent, though it’s still a bit further from the June bear market low. Microsoft slips 6.1%, Google 10.1% , Amazon 12% and META stock 8.5%, all down to multi-year lows. Tesla shares fell 9.2% for the week, approaching an October 24 low on Friday. That’s after a strong start to the week, hitting 237.40 on Tuesday.
Meanwhile, those are dark days for cloud software. Here are just a few examples: Atlassian stock fell 29% Friday and 38% for the week. Twilio stock fell nearly 35% Friday and 43.5% for the week. Snowflakes (SNOW), which will not report for several weeks, fell 17% for the week.
Meanwhile, Fortinet (FTNT) fell 17.5% for the week after weak invoicing guidance offset strong earnings and a rising revenue outlook. Paycom (PAYC) drops 10.3% despite positive results and guidance.
Businesses looking to cut costs can limit spending on software as they set a budget for 2023.
ETF
Among the best ETFs, the Innovator IBD 50 ETF (FFTY) fell 1.2% last week, while the Innovator IBD Breakout Opportunities ETF (BOUT) lost 2%. The iShares Expanded Technology-Software Sector ETF (IGV) fell 10.2%, with MSFT stock holding a key stake. The VanEck Vectors Semiconductor ETF (SMH) is down just 0.7% after gaining 4.65% on Friday, closing at the top of its weekly range.
The SPDR S&P Metals & Mining ETF (XME) is up 2% last week. The Global X US Infrastructure Development ETF (PAVE) fell 0.1%. The US Global Jets ETF (JETS) gained 0.3%. The SPDR S&P Homebuilders ETF (XHB) is down 5%. The Energy Select SPDR (XLE) ETF was up 2.4%, just below an 8-year high. The Financial SPDR ETF (XLF) fell 0.9%. The SPDR Fund for Healthcare (XLV) has increased by 1.5%.
Reflecting a more speculative narrative in equities, the ARK Innovation ETF (ARKK) fell 9.4% last week and the ARK Genomics ETF (ARKG) fell 4.65%. Tesla stock is a large stock on Ark Invest ETFs.
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Market aggregation analysis
The recovering stock market had a bad week, with a hawkish Fed and generally weak earnings weighing on the major indexes. The Dow Jones Industrial Average, which led the market’s uptrend, posted the smallest drop, but retreated below its 200-day moving average. The Russell 2000 hit resistance near the 200-day line but recovered on Friday to close above the 50-day line. The S&P 500 has crossed 50 days.
The Nasdaq composite, which has never reached its 50-day moving average, fell the most, closing below its next-day low on Wednesday, a bearish signal.
The major indexes extended Thursday’s losses, then eased slightly on Friday with a mixed jobs report.
Negative market action and major reversals in many stocks have triggered a shift to a “pressure market”.
The big market driver was Fed Director Powell, who pulled the rug out of the market’s rally by signaling a shift to smaller gains but higher peak funding rates.
Meanwhile, megacap tech companies, including Apple, Tesla and Amazon, suffered huge losses. Cloud software names like Atlassian and Twilio have vanished, with significant earnings and recent guidance factors.
Comparatively, the chips haven’t had a terrible week, but only a few names are trading near highs.
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There are several market areas that are likely to recover. Overall, the healthcare sector looks to be thriving. Energy names, which include a range of oil stocks, LNG and coal miners, along with some solar stocks, are doing well.
Lithium and some steel scraps are in good working order. Infrastructure companies for the energy, utilities and telecommunications industries are a bright area. Network companies in general are a rare area of ​​technology leading. Some restaurants and discount retailers are showing strength. Various financial sectors, especially brokerage and brokerage firms, have surged.
Still, it’s hard to see a market rebound so strongly with such huge tech sectors reeling. It won’t be enough for the major indexes to advance with Apple, Google, Tesla and cloud software names lagging behind. But to try to move forward with areas that are plunging or collapsing?
If the inflation reports show a clear and meaningful drop, fueling the downtrend in the Fed rate hikes, perhaps megacaps and the cloud could bottom out. However, a return to technology leadership may be out of the question. On the other hand, if the October CPI report on November 10 shows that inflation is still heating up, tech stocks could drag the top sectors down to end the market’s rally.
Tuesday is Election Day. The stock market tends to do better with the government divided and Republicans set to regain control of the House and perhaps the Senate. But political forecasters have predicted at least one House Republican victory all year, so it’s unclear whether Tuesday’s actual results will be the big catalyst.
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What to do now
The rising stock market is under a lot of pressure. The Fed is moving from fast and furious to slow and long, but it’s still hawkish. The tech sector is a train wreck. Major indicators have cut several key levels. Leading indices and stocks are subject to massive intraday and daily volatility.
This is not a good environment to buy stocks. Investors should seek to reduce exposure, either explicitly or simply by cutting losses on various positions.
If the rally shows new strength, with the S&P 500 and possibly Nasdaq moving above their 50-day moving averages, investors could start to increase their exposure. But that will likely require stable technology and inflation data showing some cooling.
If conditions improve, you’ll want to be ready. There are some stocks that are setting up, with many others not too far off. So build your watchlist, be patient and stay engaged.
Read the Big Picture every day to stay in sync with market trends and top stocks and sectors.
Please follow Ed Carson on Twitter at @IBD_ECarson for stock market updates and more.
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