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

Dow Jones futures will open Sunday afternoon, along with S&P 500 futures and Nasdaq futures. Even as Friday’s whip session ended solidly, the stock market rally suffered significant damage last week, with the major indexes falling on hawkish comments from Fed chief Jerome Powell.




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

Apple (AAPL), Amazon.com (AMZN) and parent Google Alphabet (GOOGL) all lost more than 10% for the week, with parent Facebook Meta Platforms (META), Tesla stock and Microsoft stock not far behind. Google Stock, Meta, Amazon.com (AMZN) and Microsoft (MSFT) hit all the bear market lows. Apple stock and Tesla (TSLA) was not, but they are close.

Meanwhile, Twilio (TWLO) and Atlassian (TEAM) crashed on Friday on disappointing results and guidance, losing more than 40% for the week. Other software names have declined in number, with or without earnings.

A market rally trying to counter the Fed with a big drop in the tech sector? That’s a tall order. Therefore, while there is strength in certain stocks and sectors, investors should be very cautious in the current environment.

In other news, Warren Buffett’s Berkshire Hathaway (BRKB) on Saturday reported a 20% bump in operating profit. 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.

Remember that overnight activity 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 rally started the week off in a reasonable fashion but then sold off on Wednesday evening on the hawkish comments of Fed chief Jerome Powell. The major indexes gave up more ground on Thursday. Stocks rallied on Friday after a mixed jobs report, but ultimately closed much higher on the day.

The Dow Jones Industrial Average still fell 1.4% in last week’s stock market trade. The S&P 500 index fell 3.3%. The Nasdaq composite fell 5.7%, its worst loss since the week ended January 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 started to rally again after snapping a 12-week winning streak and briefly traded back around 4%.

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The dollar rose 0.2% for the week, but fell 1.9% on Friday, its biggest one-day drop in recent years. That likely contributed to the stock market’s advance on Friday.

Markets now see a 61.5% probability of a 50 point rate hike at the December Fed meeting. October’s consumer price index is due on Thursday. The November jobs and CPI reports will be out before the December 14 fed rate hike decision.

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

Tech Wreck

Apple stock, which rose up to its 200-day line the previous week, fell 11.15% to 138.38 last week. AAPL stock came within a penny of its October lows, although it still has a bit more distance to its June bear market lows. Microsoft slipped 6.1%, Google 10.1%, Amazon 12% and META stock 8.5%, all to year lows. Tesla stock fell 9.2% for the week, hitting its intraday low of October 24 on Friday. That’s after a strong start to the week, hitting 237.40 on Tuesday intraday.

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

Meanwhile, Fortress (FTNT) crashed 17.5% for the week after weak billing guidance offset strong earnings and a bullish revenue outlook. Paycom (PAY) fell 10.3% despite strong results and guidance.

Businesses looking to cut costs may rein in software spending as they set budgets for 2023.

ETFs

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 Advanced Technology Software Sector ETF ( IGV ) fell 10.2% with MSFT stock a key holding. The VanEck Vectors Semiconductor ETF (SMH) fell just 0.7%, after jumping 4.65% on Friday, closing high in the weekly range.

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

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


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Market Rally Analysis

The stock market rally has had a bad week, with a hawkish Fed and often weak earnings weighing on the major indexes. The Dow Jones, which bucked the uptrend in the market, had the least decline, but moved back below its 200-day moving average. The Russell 2000 hit resistance near the 200-day line but managed to close Friday above the 50-day line. The S&P 500 went through the 50 day.

The Nasdaq composite, which has never reached its 50-day moving average, is the biggest, closing below its trailing day on Wednesday, a bearish sign.

The major indexes extended losses Thursday, then peaked Friday on a mixed jobs report.

Negative market activity and large reversals in many stocks prompted a transition to a “stressed market.”

The main driver in the market was Fed chief Powell, who pulled the rug out from the market rally by signaling a shift to smaller hikes but a higher peak fed funds rate.

Meanwhile, megacap techs, including Apple, Tesla and Amazon, suffered huge losses. Cloud software names like Atlassian and Twilio have melted down, with impressive earnings factors and recent guidance.

Chips haven’t had a terrible week, relatively speaking, but only a few names are trading near hards.


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There are several resilient areas in the market. The overall health care sector looks strong. Energy names are doing well, including a wide 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 firms are a bright field for the energy, utility and telecommunications industries. It is generally a rare technical field that dominates networking businesses. Some restaurants and discount retailers are showing strength. Various financials have made strong gains, especially brokers and brokers.

However, it is difficult to see a strong market rally with such huge technology sectors on the horizon. It would be quite difficult to advance the major indexes with the names of Apple, Google, Tesla and cloud software falling into oblivion. But to try to progress with those areas dipping or crashing?

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If inflation reports show a clear and meaningful decline, prompting a reduction in Fed rate hikes, maybe megacaps and software can cloud bottom. However, a return to technological leadership could lead to several breakthroughs. On the flip side, if the October CPI report on November 10 shows that inflation is still running hot, tech stocks could drag down the leading sectors to end the market’s rally.

Tuesday is Election Day. The stock market tends to do better with divided government, and Republicans are poised to reclaim control of the House and possibly the Senate. But political forecasters have been predicting at least a House GOP victory all year, so it’s unclear whether Tuesday’s actual results will be much of a catalyst.


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What To Do Now

The stock market rally is under pressure. The Fed is transitioning from fast and furious to slow and long, but it’s still a hawk. The tech sector is a train wreck. There are several key levels below the major indexes. The leading indices and stocks are subject to large intraday and daily swings.

This is not a good environment to buy stocks. Investors should be looking to reduce exposure, either expressly or simply from reducing losses in various positions.

If the market’s rally shows renewed strength, with the S&P 500 and possibly the Nasdaq moving above their 50-day moving averages, investors could begin to increase exposure. But data stabilization and inflation technology will probably be needed to show some cooling.

If conditions improve, you’ll want to be ready. Several stocks are being established, and many more are not too far off. So put together your watch lists, be patient and stay engaged.

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

Follow Ed Carson on Twitter at @IBD_ECarson for stock market updates and more.

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