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

Dow Jones futures will open Sunday night, along with S&P 500 futures and Nasdaq futures. Even with a solid close in Friday’s whipsaw session, the stock market rally suffered significant damage over the past week, with major indexes tumbling 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.

appeal (AAPL), Amazon.com (AMZN) and Google parent Alphabet ( GOOGL ) all lost more than 10% for the week, with Facebook parent Meta platforms (META), Tesla shares and Microsoft shares not far behind. Google stock, Meta, Amazon.com (AMZN) and Microsoft (MSFT) all hit bear market lows. Apple stock and Tesla (TSLA) hasn’t, but they’re close.

Meantime, Twilio (TWLO) and Atlassian (SPAN) fell on disappointing results and guidance on Friday, losing more than 40% for the week. A bunch of other software names tumbled, with or without earnings.

A market rally trying to fight the Fed with big tech sector plunging? That’s a tall order. Although there are certain stocks and sectors that are performing strongly, investors should be extremely cautious in the current environment.

In other news, Warren Buffett’s Berkshire Hathaway (BRKB) reported a 20% rise 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 6:00 PM 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 in the next regular stock market session.


Join IBD experts as they analyze active stocks in the stock market rally on IBD Live


Stock market rally

The stock market rallied off to a decent start to the week, but then sold off Wednesday afternoon on Fed chief Jerome Powell’s bogus comments. The major indexes gave up more ground on Thursday. Stocks took a beating on Friday after a mixed jobs report, but ended up closing solidly higher 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 rose 15 basis points to 4.16%. The 10-year yield resumed its run after snapping a 12-week winning streak and briefly traded back about 4%.

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

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

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

Technical wreck

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

Meanwhile, these are dark days for cloud software. Here are just a few 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 several weeks, plunged 17% for the week.

Meantime, Fortinet (FTNT) tumbled 17.5% for the week after weak billings guidance offset strong earnings and a bullish revenue outlook. Paycom (PAYC) fell 10.3% despite robust results and guidance.

Businesses looking to cut costs may limit spending on software 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 Expanded Tech-Software Sector ETF ( IGV ) fell 10.2%, with MSFT shares a key holding. The VanEck Vectors Semiconductor ETF (SMH) fell just 0.7%, after jumping 4.65% on Friday and closing at a weekly range high.

SPDR S&P Metals & Mining ETF (XME) climbed 2% last week. The Global X US Infrastructure Development ETF (PAVE) fell 0.1%. US Global Jets ETF (JETS) rose 0.3%. SPDR S&P Homebuilders ETF (XHB) tumbled 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 Select Sector SPDR Fund (XLV) gave up 1.5%.

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ARK Innovation ETF ( ARKK ) fell 9.4% last week and ARK Genomics ETF ( ARKG ) fell 4.65% due to more speculative story stocks. Tesla stock is a major holding in Ark Invest’s ETFs.


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Market Timing Analysis

The stock market rally had a bad week, with a dodgy Fed and often weak earnings weighing on the major indexes. The Dow Jones, which led the market uptrend, had the mildest decline, but did move back below the 200-day moving average. The Russell 2000 hit resistance near the 200-day line, but recovered to close above the 50-day line on Friday. The S&P 500 broke through the 50 days.

The Nasdaq composite, which never broke the 50-day moving average, fell the most, closing Wednesday below its follow-up day’s low, a bearish signal.

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

The negative market action and large pullbacks in many stocks caused a shift to “market under pressure”.

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

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

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


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

Lithium and some steel games do well. Infrastructure firms for the energy, utilities and telecommunications industries are a bright area. Networking firms in general are a rare technology area that is leading the way. Some restaurants and discount retailers are showing strength. Various financials, especially brokerages and brokers, made strong gains.

Still, it’s hard to see a strong market period with such major tech sectors faltering. It will be hard enough for the major indexes to advance with Apple, Google, Tesla and cloud software names lagging behind. But trying to progress with those areas dipping or collapsing?

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If inflation reports show a clear and meaningful decline, prompting a tapering off in Fed rate hikes, then megacaps and cloud software may go under. However, a return to technological leadership can be a few ways. On the other hand, if the October CPI report on November 10 shows that inflation is still warm, tech stocks could pull off leading sectors to complete the market rally.

Tuesday is election day. The stock market tends to do better with divided government, and Republicans are poised to regain control of the House and perhaps the Senate. But political forecasters have been predicting at least a House GOP victory all year, so it’s not clear whether Tuesday’s actual results will be a big 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 fake. The tech sector is a train wreck. The major indices have broken below some key levels. The indices and leading stocks are subject to large intraday and daily swings.

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

If the market rally shows renewed strength, with the S&P 500 and possibly the Nasdaq moving above their 50-day moving averages, investors could 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 ready. There are a number of shares being set up, with many more not too far away. So build your watch lists, be patient and stay engaged.

Read The Big Picture every day to stay in sync with the 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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