Dow Jones futures open Sunday night, along with S&P 500 futures and Nasdaq futures. Berkshire Hathaway (BRKB) result and reports of meta platforms (TARGET) Layoffs were the headlines of the weekend news.
Even with a solid finish in Friday’s whiplash session, the stock market rally suffered significant damage last week as major indices slumped on hawkish comments from Fed Chair Jerome Powell.
The Nasdaq had its worst week since January as megacaps plummeted and cloud software crashed.
Apple (AAPL), Amazon.com (AMZN) and Google parent alphabet (GOOGLE) are all down more than 10% for the week, with Facebook parents meta platforms (TARGET), Tesla stock and Microsoft stock close behind. Google Stock Meta, Amazon.com (AMZN) and Microsoft (MSFT) hit all bear market lows. Apple stock and Tesla (TSLA) not, but they are close.
In the meantime, Twilio (TWO) and Atlasian (TEAM) crashed on Friday due to disappointing results and forecasts and lost more than 40% this week. A whole host of other software names fell, with or without revenue.
A market rally trying to fight the Fed while the big tech sector plummets? That’s a big task. While there are some stocks and sectors showing strength, investors should be extremely cautious in the current environment.
Meta-platforms will cut thousands of jobs, The Wall Street Journal reported Sunday. An announcement could be made as early as Wednesday, according to the WSJ. Meta had more than 87,000 employees at the end of September. On Feb. 10, Meta reported a 49% drop in Q3 EPS and trimmed guidance amid a squandering of Metaverse spend. META stock plummeted 25% the next day, and shares continued to slide.
Late last week, new Twitter owner Elon Musk laid off half of that social media’s 7,500 employees.
In other news, Warren Buffett’s Berkshire Hathaway reported on Saturday a 20% increase 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 p.m. ET, along with S&P 500 futures and Nasdaq 100 futures.
Goldman Sachs now expects S&P 500 earnings to be flat in 2023, below its previous 3% target.
stock market rally
The stock market rally started the week in decent fashion but then sold off on Wednesday afternoon on hawkish comments from Fed Chair Jerome Powell. The major indices continued to fall on Thursday. Shares tumbled on Friday after a mixed jobs report but ultimately closed solidly higher on the day.
The Dow Jones Industrial Average was still down 1.4% over the past week stock exchange trading. The S&P 500 index fell 3.3%. The Nasdaq Composite plunged 5.7%, its worst loss since the week ended 1/21. Small-cap Russell 2000 fell 2.4%.
The 10-year government bond yield rose 15 basis points to 4.16%. The 10-year yield resumed its rise after ending a 12-week winning streak and briefly traded back around 4%.
The dollar rose 0.2% on the week but tumbled 1.9% on Friday, its biggest one-day drop in years. That probably contributed to the rise in stock markets on Friday.
Markets now see a 61.5% chance of a 50 basis point hike at the December Fed meeting. The consumer price index for October is due on Thursday. The November jobs and CPI reports will be out before December. 14 Fed rate hike decision.
US crude oil futures rose 5.4% last week to $92.61 a barrel. Natural gas shot up almost 13%.
Apple stock, which had rallied to its 200-day moving average, recently fell 11.15% to 138.38. AAPL stock is within a penny of its October low, although it is still some way off its June bear market lows. Microsoft slipped 6.1%, Google 10.1%, Amazon 12%, and META stock 8.5%, all to multi-year lows. Tesla stock plunged 9.2%, approaching its October 10th. 24 intraday low on Friday. That was after TSLA started the week strongly, hitting 237.40 on the intraday Tuesday.
These are dark days for cloud software. Atlassian shares plunged 29% on Friday and 38% on the week. Twilio stock plunged nearly 35% on Friday and 43.5% on the week. snowflake (SNOW), which hasn’t reported for a couple of weeks, is down 17% this week.
In the meantime, Fortinet (FTNT) plunged 17.5% on the week as weak billing forecasts wiped out strong earnings and an upbeat sales outlook. Paycom (PAYC) plunged 10.3% despite solid results and guidance.
Businesses looking to cut costs can rein in software spending when setting budgets for 2023.
among the The best ETFsthe innovator IBD 50 ETF (FFTY) fell 1.2% last week, while innovator IBD Breakout Opportunities ETF (STRUGGLE) lost 2%. The iShares Expanded Tech Software Sector ETF (IGV) plunged 10.2% with MSFT stock taking a key position. The VanEck Vectors Semiconductor ETF (SMH) fell just 0.7% after rising 4.65% on Friday to finish high in the weekly range.
SPDR S&P Metals & Mining ETF (XME) rose 2%. The Global X US Infrastructure Development ETF (PAVE) fell by 0.1%. US Global Jets ETF (JETS) rose by 0.3%. SPDR S&P Homebuilders ETF (XHB) fell 5%. The Energy Select SPDR ETF (XL) rose 2.4%, just below an eight-year high. The Financial Select SPDR ETF (XLF) fell 0.9%. The SPDR Fund for Selected Healthcare Sectors (XLV) gave up 1.5%.
Analysis of the market rally
The stock market rally had a bad week with a hawkish Fed and often weak earnings weighing on major indices. The Dow Jones, which led the market uptrend, saw the slightest decline but moved back below the 200-day moving average. The Russell 2000 encountered resistance near the 200-day moving average, but rallied on Friday and closed above the 50-day moving average. The S&P 500 has broken the 50-day mark.
The Nasdaq, which never reached the 50-day moving average, fell the most, closing below its low following day a bearish signal on Wednesday.
The main indices extended losses on Thursday and then whipped up on Friday on a mixed jobs report.
The negative market developments and major price setbacks for many stocks triggered a shift towards “market under pressure”.
The big driver was Fed Chair Powell, who cut the bottom of the market rally by signaling a shift towards smaller hikes but a higher Fed Funds rate.
Meanwhile, megacap tech stocks including Apple, Tesla, Amazon, and Meta stocks suffered huge losses. Cloud software names like Atlassian and Twilio melted along with recent earnings and significant forecasting factors.
Chips haven’t had a terrible week in relative terms, but few names are trading near highs.
There are several resilient areas of the market. Overall, the healthcare sector is strong. Energy stocks are doing well, including a broad range of oil stocks, LNG stocks and coal miners, as well as some solar stocks.
Lithium and some steel games are doing well. Infrastructure companies for the energy, utilities, and telecom industries are a bright area. Networking companies in general are a rare area of technology to lead. Some restaurants and discounters are showing strength. Various financial stocks, particularly brokers and brokerage firms, have rallied strongly.
Still, it’s hard to see a strong market rally when such huge tech sectors are teetering. It would be hard enough for the major indices to improve if the names of Apple, Google, Tesla and cloud software lag behind. But trying to move forward with those areas that are falling or crashing?
If inflation reports show a clear and meaningful decline, leading to a tapering of Fed rate hikes, then megacaps and cloud software may bottom out. However, a return to technology leadership may be a long way off. On the other hand, if the October CPI report on 10/11 shows that inflation is still heating up, tech stocks could drag leading sectors lower to end the market rally.
Tuesday is election day. The stock market tends to fare better with a split government, and Republicans will retake control of the House and perhaps the Senate. But political forecasters have predicted at least one house GOP win every year, so it’s not clear if Tuesday’s actual results will be a big catalyst.
The stock market rally is under pressure. The Fed is going from fast and furious to slow and long, but it’s still hawkish. The tech sector is a train wreck. Major indices have fallen below some key levels. The indices and benchmarks are subject to major day-to-day fluctuations.
This is not a good environment for buying stocks. Investors should try to reduce exposure, either explicitly or simply, to reduce losses on various positions.
If the market rally shows renewed strength and the S&P 500 and possibly the Nasdaq rise 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.
When conditions improve you should be ready. There are a number of stocks being set up and many more not too far away. So build your watch lists, be patient and stay engaged.
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