Dow Jones futures were little changed overnight, along with S&P 500 and Nasdaq futures. The midterm election results come as Tesla CEO Elon Musk sold more TSLA stock.
The stock market rallied on Tuesday morning, fueled by lower bond yields and a weaker dollar. Major indices posted strong gains as Bitcoin and other cryptocurrencies plunged on a surprise Binance-FTX takeover deal. But shares rallied somewhat by the close.
Bitcoin related stocks such as cryptocurrency exchange Coinbase (COIN), trading application Robinhood Shopping (HOOD), a cryptocurrency custodian Silvergate Capital (SI) and Bitcoin miner Marathon Digital (MARA) sold out.
Looking ahead, the consumer price index looks large.
Walt Disney (DIS), Occidental Petroleum (ACID), Tesla (TSLA) opponent Lucid Motors (LCID) and Array Technologies (ARRY) reported late Tuesday.
Disney stock fell sharply overnight as earnings slipped, although Disney+ subscriber growth was strong. OXY stock, more than 20% is owned by Warren Buffett’s Berkshire Hathaway (BRKB), fell lower in gross profit. LCID stock fell amid weak third-quarter results and a decline in Lucid Air bookings. ARRY stock edged higher on strong earnings and guidance.
In other news, Meta Platforms (META) will begin sweeping layoffs Wednesday morning, according to multiple reports.
Tesla CEO Elon Musk revealed that he sold 19.5 million shares for $3.95 billion on November 4th, 7th and 8th. That could help pay for his recent Twitter deal, though Musk said in early August that stock sales then were the last he would need.
Musk’s latest share sales likely contributed to the recent drop in Tesla stock. Increased subsidies in China and concerns about Elon Musk’s Twitter reign could also weigh on TSLA stock.
Tesla shares fell 2.9% to 191.30 in Tuesday’s session, after falling to 186.75 intraday, just above May 2021 lows.
The results of the midterm elections are in full swing on Tuesday night. Republicans are a virtual lock to retake the House, but it’s not going to be a massive GOP wave. The Senate is up for grabs, but final results in key races may be days away.
Either way, President Joe Biden and the Democrats will no longer have full control of the White House and Congress. Financial markets tend to do better with gridlock in Washington. Stocks also traditionally do well in the third year of a presidential term.
So a divided Congress could be good for Wall Street, and it could be good news for defense companies, private prisons and drugmakers. Again, markets may have already priced some of these in.
Dow Jones Futures Today
Dow Jones futures were little changed against fair value, with DIS stock weighing on the blue chips. S&P 500 futures rose 0.1% and Nasdaq 100 futures rose 0.3%.
Consumer inflation in China rose less than expected. Wholesale prices fell.
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’s experts as they analyze stocks that can act in the stock market’s rally on IBD Live
Stock market rally
The stock market rallied higher on Tuesday morning, but then pared in the afternoon as Bitcoin’s collapse spilled over into stocks. The S&P 500 and Nasdaq briefly turned negative before recovering.
The Dow Jones Industrial Average rose 1% in Tuesday trading. The S&P 500 rose 0.6%. The Nasdaq composite rose 0.5%. The small-cap Russell 2000 gained.
Tesla stock sank to May 2021 intraday lows.
Shares of Apple and Microsoft rose 0.4%, Google rose 0.5% and Amazon fell 0.5%. Everything is up this week, but after being down last week.
The yield on the 10-year bond fell 9 basis points to 4.13%.
The US dollar fell sharply for a third day in a row, hitting its lowest levels since late September.
US crude oil prices fell 3.1% to $88.91 a barrel. Natural gas futures fell 11.6%, continuing its massive daily swings.
Despite a weaker dollar, Bitcoin fell as the world’s No. 1 cryptocurrency exchange Binance agreed to buy rival FTX, which has faced a liquidity crunch. These are doubts that the Binance-FTX deal will actually happen, with FTX experiencing massive withdrawals over the past two days. Just a few months ago, FTX and founder Sam Bankman-Fried looked like potential saviors for other troubled crypto companies.
Bitcoin fell to $17,484.20, its lowest since November 2020, and is currently trading around $18,500. The pioneering digital currency broke below $20,000 on Monday night. Ethereum, Dogecoin and other cryptocurrencies experienced similar or even greater losses.
The FTX token crashed 80% on Tuesday after massive losses over the past few days and weeks.
COIN stock fell 10.8% to a four-month low. Binance’s purchase of FTX could create a major new rival for Coinbase, which is also reeling from Bitcoin’s woes and concerns about crypto-related businesses.
Shares in HOOD, which includes Bankman-Fried as an investor, fell 19%. MARA stock fell 5.3% to its lowest level since July. After the shutdown, Marathon Digital reported a bigger-than-expected loss, while revenue fell 75%.
SI stock fell 23% to its lowest level since December 2020.
Tesla still owns some Bitcoin, while Elon Musk has owned Dogecoin for some time.
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Among the top ETFs, the Innovator IBD 50 ETF ( FFTY ) fell 0.3%, while the Innovator IBD Breakout Opportunities ETF ( BOUT ) rose 0.1%. The iShares Expanded Tech-Software Sector ETF ( IGV ) rose 1.3%, with MSFT stock as a key component. The VanEck Vectors Semiconductor ETF ( SMH ) fell 2.2%.
The SPDR S&P Metals & Mining ETF (XME) rallied 1.9%. The Energy Select SPDR ETF ( XLE ) rose 0.1%. The Health Care Select Sector SPDR Fund ( XLV ) rose 0.5%.
Reflecting the more speculative stocks, the ARK Innovation ETF ( ARKK ) fell 0.4% and the ARK Genomics ETF ( ARKG ) rose 1.4%. Tesla stock remains the top performer across all of Ark Invest’s ETFs.
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Market Rally Analysis
The stock market’s rally appeared to be badly damaged last Thursday after Fed chief Jerome Powell’s hawkish comments. But it has been recovering over the past three sessions, even with Bitcoin’s woes.
The Dow Jones closed at last week’s high after retrieving the 200-day line on Monday.
The S&P 500 edged slightly higher above its 50-day line, though it’s still below its near-term high of Nov. 1.
The Nasdaq, weighed down by Tesla and tech woes, hit resistance at its 21-day moving average. It is still below the 50-day and far from the 200-day lines.
But the Direxion Nasdaq-100 Equal Weighted ETF (QQQE) rose a little more than 1% to break above its 50-day line.
Falling bond yields helped lift stocks on Tuesday, while the dollar’s decline was a key driver in the past three sessions.
Mid-term election results could drive market moves, but Thursday’s CPI inflation report could be decisive. A tame CPI reading could fuel hopes for slower Fed rate hikes and lower spike rate. However, another high rate of inflation could trigger a big sell-off in stocks and bonds.
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There were not many new buying opportunities on Tuesday.
GlobalFoundries (GFS) bounced above a trend line and a very low handle after earnings.
Albemarle (ALB) cleared an early entry but quickly ran up to its official buy point, closing just below that key level. However, ALB stock is well above the 50-day line after a huge move from the Nov. 3 intraday lows.
Crocs (CROX) briefly reiterated a buy point while UnitedHealth (UNH) closed in the market area.
Several LNG stocks are near buy points.
Technical weakness remains a concern. Brand stocks are recovering, with the SMH ETF convincingly above the 50-day line. Megacap technicians like apple (AAPL) are trying to bounce back, but after massive sell-offs. The same goes for cloud software.
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What should we do now
The stock market rally is showing resilience after last week’s sharp losses, with the Dow Jones and S&P 500 recovering key levels. Investors may still want to be cautious with the CPI inflation report looming. Also, there aren’t many stocks at the moment, although many are in progress.
Investors should be ready to take action by staying engaged and building their watchlists. Growth stocks are still generally weak, so make sure you cast a wide net to find stocks and sectors that are emerging as leaders.
Be sure to be aware of the earnings, which remain active. Some stocks have made big gains, while others are recovering strongly after initial declines. But there have also been some high-profile sell-offs, as shares of Disney and Lucid showed overnight.
Read The Big Picture every day to stay in sync with market direction and top stocks and sectors.
Please follow Ed Carson on Twitter at @IBD_ECarson for stock market updates and more.
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