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Market Triumph From Fed, Apple, Tesla, Cloud Stocks; What to do now

Market Triumph 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. Even with Friday’s solid close, the stock market took significant damage last week, with major indexes falling 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 tumbled.

Apple (AAPL), Amazon.com (AMZN) and Google Parent Alphabet (GOOGLE) all lost more than 10% for the week, with the Facebook parent Meta Platforms (TARGET), Tesla stock and Microsoft stock aren’t far behind. Google stock, Meta, Amazon.com (AMZN) and Microsoft (MSFT) all hit bear market lows. Apple shares and Tesla (TSLA) are not, but they are close.

In the meantime, Twilio (TWLO) and Atlassian (TEAM) fell on Friday amid disappointing results and guidance, losing more than 40% for the week. A number of other software names dropped, with or without earnings.

A market rally trying to fight the Fed with a major decline in the tech sector? It is a difficult task. So while there are some stocks and sectors showing strength, investors should be extremely cautious in the current environment.

Dow Jones Futures today

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

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


Join the IBD experts as they analyze the stocks that can be exploited in the stock market rally on IBD Live


Stock Market Rally

The stock market rallied to start the week in decent fashion, but then sold off Wednesday afternoon on hawkish comments from Fed chief Jerome Powell. The main indexes eased on Thursday. Shares fell on Friday after a mixed business report, but ended the day solidly higher.

The Dow Jones Industrial Average was still down 1.4% last week stock 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 jumped 15 basis points to 4.16%. The 10-year yield continued its advance after snapping a 12-week streak and briefly retreated to around 4%.

The dollar rose 0.2% this week but fell 1.9% on Friday, its biggest one-day drop in years. This probably contributed to the progress in the stock market on Friday.

Markets now see a 61.5% probability of a 50 basis point hike at the December Fed meeting. The October consumer price index is due to be released on Thursday. The November jobs and CPI reports will be released ahead of the Fed’s Dec. 14 rate hike decision.

US crude oil futures jumped 5.4% last week to $92.61 a barrel. Natural gas rose almost 13%.

Tech Wreck

Shares of Apple, which rose to its 200-day line last week, fell 11.15% last week to 138.38. Shares of AAPL are nearing their October lows, though they’re still some distance from June’s bear market lows. Microsoft fell 6.1%, Google 10.1%, Amazon 12% and META shares 8.5%, all to multi-year lows. Tesla shares are down 9.2% for the week, nearing an intraday low since Oct. 24 on Friday. That’s after a strong start to the week, hitting 237.40 intraday on Tuesday.

Meanwhile, these are dark days for cloud software. Here are just a few examples: Atlassian shares fell 29% on Friday and 38% for the week. Twilio shares fell nearly 35% on Friday and 43.5% for the week. Snowflake (SNOW), which won’t appear for several weeks, is down 17% for the week.

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

Companies looking to cut costs can limit software spending as they set budgets for 2023.

ETFs

Among the best ETFsInnovator IBD 50 ETF (FFTY) fell 1.2% last week, while the Innovator IBD Breakout Opportunities ETF (BOUT) lost 2%. iShares Broadened Tech & Software Sector ETF (VAT) sank by 10.2%, and the key was the action of MSFT. VanEck Vectors Semiconductor ETF (SMH) fell just 0.7%, after jumping 4.65% on Friday, closing at a weekly range high.

SPDR S&P Metals & Mining ETF (XME) rose by 2% last week. The Global X US Infrastructure Development ETF (PAVE) decreased by 0.1%. US Global Jets ETF (JETS) increased by 0.3%. SPDR S&P Homebuilders ETF (XHB) fell by 5%. The Energy Select SPDR ETF (XLE) rose by 2.4%, slightly below the eight-year high. The Financial Select SPDR ETF (45) fell by 0.9%. SPDR fund for the selected health care sector (XLV) gave up 1.5%.

Reflecting a more speculative stock story, the ARK Innovation ETF (ARKK) fell 9.4% last week and the ARK Genomics ETF (ARKG) withdrew 4.65%. Tesla shares are the main holding in Ark Invest’s ETFs.


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Market analysis

Stock market gains had a rough week, with a strong Fed and often weak earnings weighing on the major indexes. The Dow Jones, which led the market’s uptrend, had the mildest decline, but returned below its 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 went through 50 days.

The Nasdaq composite, which has never reached its 50-day moving average, fell the most, closing below its all-time low. the following day on Wednesday, a bearish signal.

The major indexes extended losses on Thursday before falling on a mixed business report on Friday.

Negative market action and large reversals in many stocks triggered the transition to a “pressured market”.

The big market mover was Fed chief Powell, who pulled the race out of the market rally by signaling a move to smaller hikes but a higher top federal funds rate.

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

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


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There are several resilient market areas. The health sector in general looks strong. Energy names, including a broad range of oil stocks, LNG and coal miners, plus a few solar stocks, are doing well.

Lithium and some steel games work well. Infrastructure firms for the energy, utility and telecom industries are a bright area. Network firms are generally a rare technology field that is leading the way. Some restaurants and discount retailers are showing strength. Various financials, especially brokers and brokerage houses, made strong gains.

Still, it’s hard to see strong market growth with such huge tech sectors spinning. It would be hard enough for the major indexes to advance with the names of Apple, Google, Tesla and cloud software lagging behind. But trying to make progress with those areas that are falling or failing?

If inflation reports show a clear and significant decline, prompting a reduction in Fed rate hikes, then perhaps megacaps and cloud software could bottom out. However, a return to technological leadership could be a long way off. On the other hand, if October’s CPI report on November 10 shows that inflation remains hot, tech stocks could drag out leading sectors to end 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 possibly the Senate. But political forecasters have been predicting at least a GOP House victory all year, so it’s unclear whether Tuesday’s actual results will be much of a catalyst.


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What to do now

Stock market growth is under pressure. The Fed is moving from fast and furious to slow and long, but it’s still hawkish. The tech sector is a train wreck. Major indices have undermined some key levels. Indices and leading stocks are subject to large intraday and daily fluctuations.

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

If market growth 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 prepared. There are numerous stocks being set up and many more not too far away. So build your watchlists, be patient and stay engaged.

Read The big picture every day to stay in tune with market direction and leading stocks and sectors.

Follow Ed Carson on Twitter at @IBD_ECarson for stock market updates and more.

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