Dow Jones futures rose early Friday, along with S&P 500 and Nasdaq futures. The stock market’s rally faltered Thursday morning on dovish Fed statements, extending Wednesday’s losses. However, major indexes recovered from some key levels to close slightly lower.
Bond yields rebounded while crude oil prices fell.
apple (AAPL), Microsoft (MSFT) and parent Google Alphabet ( GOOGL ), the only $3 trillion stock on the U.S. market, rallied after testing support at its 50-day moving averages. In the meantime, Tesla ( TSLA ) fell to market lows.
Investors should be cautious in the current market, adding exposure slowly and being ready to take profits and cut losses quickly.
Applied Materials (AMAT), Palo Alto Networks (PANW), Clearfield (CLFD) and Ross stores (ROST) all beat EPS and sales views late Thursday, with guidance also broadly strong.
AMAT stock rose steadily early Friday, poised to move back above its 200-day line. PANW stock soared, marking a move above its 50-day high. CLFD stock rallied in extended trading, looking to race above the 50-day line as it tries to build the right side of a double-bottom base. ROST stock soared to 2022 highs after closing in a range from a bottom base.
JD.com (JD) and Atkore (ATKR) reported early Friday.
JD.com’s earnings beat projections, while revenue fell, approx Alibaba (BABA) early Thursday. JD stock rose steadily in premarket trading. On Thursday, shares jumped 7.5% on Alibaba’s results, up to the 200-day line.
ATKR’s stock was not yet trading on Friday, but building products maker Atkore beat fourth-quarter fiscal guidance and guided for higher first-quarter and 2023 earnings. ATKR’s stock fell 3.5% on Thursday, but it was comfortably above the 200-day line as it operates on the right side of a deep cup base.
Dow Jones Futures Today
Dow Jones futures rose 0.5% against fair value. S&P 500 futures gained 0.7%. Nasdaq 100 futures jumped 0.9%, with technicals lifting AMAT and PANW stocks.
The 10-year bond yield rose 2 basis points to 3.79%.
Crude oil futures fell, while natural gas sank nearly 4%.
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’s rally eased steadily at the open as St. Louis Fed President James Bullard and Kansas City Fed President Esther George delivered hawkish statements. Major indices recovered to close flat slightly lower.
The Dow Jones industrial average was just below breakeven in Thursday’s trading. The S&P 500 fell 0.3%. The Nasdaq composite fell 0.35%. The small-cap Russell 2000 fell 0.9%.
Apple shares rose 1.3%. Microsoft shares gave back two cents, Google shares fell 0.5%. All tested their 50-day lines intraday. All are below the 200-day lines with no clear buy points. Tesla stock sank 2%, inching closer to its Nov. 9 market low.
US crude oil prices fell 4.6% to $81.64 a barrel. In addition to the Fed’s aggressive comments, blame Beijing’s renewed emphasis on “zero Covid” policies. China’s State Council has reportedly warned cities to avoid an “irresponsible relaxation” of Covid-19 measures, just a week after the top level backed the easing rules. On Wednesday, Peking University went into lockdown over a single case. Covid infections have increased over the past two weeks in China.
Hawkish Fed Raises Treasury Yields
The yield on the 10-year note rose 8 basis points to 3.77%.
Bullard of the St. Fed. Louis said the Fed funds rate, currently at 3.75%-4%, may need to go as high as 7%, well above the consensus of around 5%. The Kansas City Fed’s George said it may take a recession to lower inflation.
One reason policymakers are sounding hawkish is to raise market interest rates and limit the stock market rally. If financial conditions ease significantly with hopes of a Fed turnaround, inflation may stay higher for longer, forcing the Fed to tighten official interest rates even more.
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Among the top ETFs, the Innovator IBD 50 ETF ( FFTY ) fell 0.1%. The iShares Expanded Tech-Software Sector ETF ( IGV ) fell 2.65%, even with a core component of MSFT stock. The PANW share is also an IGV holding. VanEck Vectors Semiconductor ETF (SMH) was down 0.5%, with AMAT stock holding a notable SMH.
The SPDR S&P Metals & Mining ETF ( XME ) fell 2.1%. The SPDR S&P Homebuilders ETF ( XHB ) fell 2%. The Energy Select SPDR ETF ( XLE ) fell 0.5 percent and the Health Care Select Sector SPDR Fund ( XLV ) fell 0.2 percent.
Reflecting the most speculative stocks, the ARK Innovation ETF ( ARKK ) fell 2.8% and the ARK Genomics ETF ( ARKG ) fell 3.2%. TSLA stock is a major holding in Ark Invest’s ETFs.
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Stock Market Rally Analysis
The stock market rally tested some key levels at Thursday’s open. The Nasdaq found support just above its 50-day moving average. The S&P 500 briefly retreated from October’s near-term highs. The Russell 2000 rallied near its 21-day line. The S&P 400 MidCap held its 200-day line.
Arguably the market had to pull back after a strong run and the S&P 500 nearing the 200-day line. At the same time, the market rally found support on Thursday in important sectors. So the last two days have been normal and somewhat constructive for the major indices – assuming they can hold Thursday’s lows and eventually move higher.
However, the market’s pullback from Tuesday’s intraday high to Thursday morning’s low hit a number of stocks that broke out or emerged early over the past two days. Several tried these listings or failed miserably. Some rebound while others may. In some cases, previous purchase points still apply, while others may require new handles or other entries to be set. Still others may struggle for a long time.
A wide variety of stocks and sectors are showing interesting action.
In all these cases, a healthy market rally will be key.
Apple, Microsoft and Google stock are not market leaders and may not be for some time. But if they can avoid the delay, it would be a big help.
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What should we do now
The stock market rally showed encouraging action on Thursday. The overall trend has been higher in recent weeks. But it’s been a bumpy road for investors.
Anyone who bought stock after the day after October 21st was probably underwater until early November. While indexes jumped Nov. 10 on the tame CPI report, the Nasdaq, S&P 500 and Russell 2000 have been flat since then.
The stock market rally remains volatile, with sector switching and large intraday swings complicating matters. Buying opportunities have often been the moment when the market pulls the rug out from investors.
So keep the exposure to light. Add exposure gradually — and be prepared to reduce exposure due to market conditions or individual stock selling rules.
Keep your watchlist up to date so you can spot emerging leaders.
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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