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

Dow Jones futures will open Sunday evening, along with S&P 500 futures and Nasdaq futures. Despite a solid close in Friday’s whipsaw session, the stock market rally has suffered significant losses this past week, with major indices falling on Fed chief Jerome Powell’s hawkish comments.




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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 Alphabet ( GOOGL ) all lost more than 10% for the week, along with parent Facebook Meta Platforms ( META ), Tesla stock and Microsoft stock are not far behind. Google Stock, Meta, Amazon.com (AMZN) and Microsoft (MSFT) all hit bear 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. Many other software names tumbled with or without earnings.

A market rally to fight the Fed with major technical sector declines? That is a tall order. That’s why some stocks and sectors look strong, but investors should be very cautious in the current environment.

In other news, Warren Buffett’s Berkshire Hathaway (BRKB) posted a 20% jump in operating profit on Saturday. The group incurred a net loss as the ongoing bear market affected investments.

Dow Jones Futures Today

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

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


Join IBD experts as they analyze actionable stocks during the stock market rally on IBD Live.


Stock market rally

The stock market rallied to start the weekend in decent fashion but sold off Wednesday afternoon on hawkish comments from Fed chief Jerome Powell. Major indices gave further ground on Thursday. Stocks took a beating on Friday after a mixed jobs report, but ultimately closed the day solidly higher.

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 sank 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 back 4%.

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

Markets now see a 61.5% chance of a 50-basis-point hike at the December Fed meeting. The October consumer price index is due Thursday. The November employment and CPI reports will be out before the December 14 Fed rate hike decision.

U.S. crude oil futures rose 5.4 percent last week to $92.61 a barrel. Natural gas rose about 13%.

Technological destruction

Apple stock, which rose to its 200-day line last week, sank 11.15% last 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 fell 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. After starting the week strong, Tuesday hit 237.40 intraday.

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

Meanwhile, Fortinet (FTNT) crashed 17.5% for the week as weak billing guidance offset strong earnings and a bullish revenue outlook. Paycom (PAYC) sank 10.3% despite strong results and guidance.

Businesses looking to cut costs may hold back on spending on software as they set budgets for 2023.

ETFs

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 Tech-Software Sector ETF ( IGV ) sank 10.2%, with MSFT stock a major holding. The VanEck Vectors 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) climbed 2.4%, below an eight-year high. The Financial Select SPDR ETF ( XLF ) fell 0.9%. The Health Care Select Sector SPDR Fund ( XLV ) yielded 1.5%.

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


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Market Rally Analysis

The stock market rally had a bad week, with a hawkish Fed and often-weak earnings weighing on major indexes. The Dow Jones was the lightest drop in the bullish market, but returned 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 reached its 50-day moving average, fell the most, closing below its follow-through daily low on Wednesday, a bearish sign.

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

Negative market action and large reversals in many stocks resulted in a “market under pressure”.

The big market driver was Fed chief Powell, who took the rug out from the market rally by signaling a small increase in but higher peak Fed funds rate changes.

Meanwhile, megacap tech stocks including Apple, Tesla, and Amazon suffered big losses. Cloud software names such as Atlassian and Twilio melted away, with recent earnings and guidance important factors.

Chips didn’t have a terrible week, relatively, but only a few names are trading near highs.


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There are many flexible market sectors. Overall, the health sector looks strong. Energy names, including a wide range of oil stocks, LNG plays and coal mines, as well as some solar stocks, are doing well.

Lithium and some steel plays are doing well. Infrastructure firms are a bright spot for the energy, utility and telecommunications industries. Networking firms in general are a rare technology field leader. Some restaurants and discount retailers are showing strength. Various financials, especially brokers and brokerages, have made strong gains.

Still, it’s hard to see a strong market rally with such huge technical sectors reeling. It will be tough enough for the major indexes, with names such as Apple, Google, Tesla and cloud software lagging behind. But trying to move forward with those areas sinking or crashing?

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If inflation reports show a clear and meaningful decline, prompting a downshift in Fed rate hikes, then likely megacaps and cloud software could bottom out. However, the return to technological leadership may be some ways off. On the flip side, if the November 10 October CPI report shows that inflation is still running hot, tech stocks could pull key sectors to end the market rally.

Tuesday is election day. Stock markets tend to do well with divided government, and Republicans are set to reclaim control of the House and perhaps the Senate. But political forecasters have been predicting at least a 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

The stock market boom is under pressure. The Fed is switching from fast and furious to slow and long, but it’s still hawkish. The tech sector is a train wreck. Major indices have eased some key levels. Indices and major stocks are subject to large intraday and daily swings.

This is not a good environment for buying shares. Investors should seek to reduce exposure, either outright or simply by cutting losses across positions.

If the market rally shows renewed strength, as the S&P 500 and possibly the Nasdaq break above their 50-day moving averages, investors may begin adding exposure. But that would probably require tech stability and inflation data to show some coolness.

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

Read the big picture every day to stay in sync with market direction and key stocks and sectors.

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

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