Market Rally Buckling From Fed, Apple, Tesla, Cloud Stocks; What To Do Now

Dow Jones futures open Sunday evening, along with S&P 500 futures and Nasdaq futures. Even with a solid close in Friday’s whips session, the stock market rally suffered significant losses this past week, with major indexes pummeled by hawkish comments from Fed chief Jerome Powell.




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The Nasdaq had its worst week since January as megacaps plunged and cloud software crashed.

apple (AAPL), Amazon.com (AMZN) and Google parent the alphabet (GOOGL), including parent Facebook, lost more than 10% on the week Meta platform (META), Tesla stock and Microsoft stock aren’t far behind. google stock, meta, Amazon.com (AMZN) and Microsoft (MSFT) hit market lows. Apple stock and Tesla (TSLA) didn’t, but they’re close.

Meanwhile, Twilio (TWLO) and Atlassian ( TEAM ) crashed Friday on disappointing results and guidance, losing more than 40% for the week. A slew of other software names with or without earnings.

A market rally with the Fed trying to combat the decline of major tech sectors? That is a tall order. So while some stocks and sectors are showing strength, investors should be extremely cautious in the current environment.

In other news, Warren Buffett’s Berkshire Hathaway (BRKB) reported a 20% bump in operating profit on Saturday. The conglomerate suffered a net loss as the ongoing bear market hit investments.

Dow Jones futures today

Dow Jones futures open at 6 pm ET on Sunday, along with S&P 500 futures and Nasdaq 100 futures.

Note that overnight action in Dow futures and elsewhere does not necessarily translate into actual trading in the next regular stock market session.


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Stock market rally

The stock market rallied to start the weekend in decent fashion, but Fed Chairman Jerome Powell’s taunting comments halted the sell-off on Wednesday afternoon. Major indices gave up more ground on Thursday. Stocks whipsawed on Friday following a mixed jobs report, but ultimately closed strongly that day.

The Dow Jones Industrial Average was still down 1.4% in last week’s stock market trading. The S&P 500 index fell 3.3%. The Nasdaq Composite fell 5.7%, its worst loss since the week ended Jan. 21. The small-cap Russell 2000 fell 2.4%.

The 10-year Treasury yield jumped 15 basis points to 4.16%. The 10-year yield resumed its advance after snapping a 12-week winning streak and briefly trading near 4%.

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The dollar rose 0.2% for the week, but fell 1.9% on Friday, its biggest one-day decline of the year. This likely contributed to Friday’s stock market advance.

The market now sees a 61.5% chance of a 50-basis-point hike at the December Fed meeting. October’s consumer price index is due on Thursday. The November jobs and CPI reports will be released ahead of the Fed’s rate hike decision on December 14.

US crude oil futures jumped 5.4% last week to $92.61 a barrel. Natural gas rose about 13%.

Tech rake

Apple stock, which climbed to its 200-day line the previous week, has fallen 11.15% this past week to 138.38. AAPL stock came within a penny of its October low, though it’s still some distance from its bear market low in June. Microsoft skidded 6.1%, Google 10.1%, Amazon 12% and META stock 8.5%, all to multi-year lows. Tesla stock fell 9.2% for the week, coming close to its Oct. 24 intraday low on Friday. It hit 237.40 intraday on Tuesday, after starting the week strong.

Meanwhile, it’s dark days for cloud software. Here are a few examples: Atlassian stock fell 29% on Friday and 38% for the week. Twilio stock crashed nearly 35% on Friday and 43.5% for the week. Snowflake (SNOW), which won’t report for several weeks, plunged 17% for the week.

Meanwhile, Fortinet (FTNT) crashed 17.5% for the week after weak billings guidance offset strong earnings and a bullish revenue outlook. paycom (PAYC) declined 10.3% despite strong results and guidance.

With budgets set for 2023, businesses looking to cut costs can cut back on software.

ETF

Among the top 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 Tech-Software Sector ETF ( IGV ) fell 10.2%, with MSFT stock a key holding. Vanek Vector Semiconductor ETF ( SMH ) fell just 0.7% after jumping 4.65% on Friday, closing higher in the weekly range.

The SPDR S&P Metals & Mining ETF (XME) rose 2% last week. The Global x US Infrastructure Development ETF ( PAVE ) fell 0.1%. The US Global Jets ETF (JETS) rose 0.3%. The SPDR S&P Homebuilders ETF (XHB) fell 5% The Energy Select SPDR ETF (XLE) rose 2.4%, just below an eight-year high. The Financial Select SPDR ETF ( XLF ) fell 0.9%. The Healthcare Select Sector SPDR Fund ( XLV ) gave up 1.5%.

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Reflecting more speculative story stocks, the ARK Innovation ETF ( ARKK ) lost 9.4% last week and the ARK Genomics ETF ( ARKG ) retreated 4.65%. Tesla stock is a major holding across Arc Invest’s ETFs.


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Market rally analysis

The stock market rally had a bad week, with a sharp Fed and often weak earnings weighing on the major indexes. The Dow Jones, which led the market’s gains, fell the most gently, but fell back 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 knifed through the 50-day.

The Nasdaq Composite, which has never hit its 50-day moving average, fell the most, closing below its follow-through daily low on Wednesday, a bearish signal.

Major indexes extended losses on Thursday, then whipped up on a mixed jobs report on Friday

Negative market action and large swings in many stocks have shifted to “markets under pressure.”

The big market driver was Fed chief Powell, who pulled the rug out from the market rally by hinting at a move to a smaller upward but higher peak Fed funds rate.

Meanwhile, megacap tech giants including Apple, Tesla and Amazon have suffered huge losses. Cloud software names such as Atlassian and Twilio also melted, with recent earnings and guidance notable factors.

Chips didn’t have a terrible week, comparatively, but only a few names are trading near the high.


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There are several resilient market areas. The healthcare sector looks strong overall. Energy names are doing well, including a broad range of oil stocks, LNG plays and coal miners, as well as a few solar stocks.

Lithium and some steel plays are doing well. Infrastructure companies are a bright area for the energy, utility and telecom industries. Networking companies in general are a rare technology field that is leading. Some restaurants and discount retailers are showing strength. Various financials, particularly brokers and brokerages, posted strong gains.

Still, it’s hard to see a strong market rally with such a big tech sector reeling. It will be difficult enough for major indices to move up, with Apple, Google, Tesla and cloud software names lagging behind. But those areas sink or crash trying to advance?

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If inflation reports show a clear and meaningful decline, prompting a downshift in Fed rate hikes, then megacaps and cloud software are likely to move lower. However, the return to technological leadership may be some way off. On the upside, if the October CPI report on November 10 shows that inflation is still running hot, tech stocks could drag down leading sectors to end the market’s rally.

Tuesday is election day. The stock market continues to do better with divided government and Republicans poised to regain control of the House and possibly the Senate. But political forecasters have been predicting at least one House GOP win all year, so it’s unclear whether Tuesday’s actual results will be a big catalyst.


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what to do now

Stock market is under upward pressure. The Fed is switching from fast and furious to slow and long, but it’s still scary. A train wreck in the tech sector. Major indices have cut some key levels. Indices and leading stocks are subject to large intraday and daily swings.

This is not a good environment to buy stocks. Investors should look at reducing exposure, either explicitly or simply by cutting losses on various positions.

If the S&P 500 and possibly the Nasdaq move above their 50-day moving averages, investors can start adding exposure. But that will likely require technology to stabilize and inflation data to show some cooling.

If conditions improve, you’ll want to be prepared. Many stocks are set up, many more are not far away So make your watchlist, be patient and stay engaged.

Read The Big Picture daily to stay in tune with market direction and leading stocks and sectors.

Please follow Ed Carson on Twitter @IBD_ECarson For stock market updates and more.

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