Dow Jones futures fell slightly overnight, along with S&P 500 futures and Nasdaq futures. Key inflation data hits Friday morning.
Stock market bulls Thursday was wildly different. The Nasdaq, and especially the Nasdaq 100, soared Nvidia (NVDA) rose on strong earnings and guidance. It also sent Advanced Micro Devices (AMD), Taiwan Semiconductor (TSM) and Arista Networks (Aneta) with solid gains, rising ASML (ASML), Microsoft (MSFT), Google Parents letters (Google) and other AI or chip plays.
But outside of a handful of big winners, the market showed modest or weak action amid ongoing debt-ceiling talks, Fed rate hike concerns and more. When the Dow Jones fell below its 200-day line, the decliners easily beat the winners.
ASML and fellow chip-gear giants Utility items (Big) and KLA Corporation (ClutchThe chip-design software maker returned above buy points on Thursday Cadence design settings (CDNS) ANET stock and Mobile (MBLY) early records were lit.
But investors should be wary of fresh buys amid fragmented market action and super-concentrated market leadership.
Dow Jones Futures Today
Dow Jones futures fell 0.2%. fair value. S&P 500 futures were down 0.3% and Nasdaq 100 futures were down 0.35%.
Remember that overnight action in Dow futures and elsewhere does not necessarily translate into actual trading in the next regular stock market session.
Debt ceiling talk
Debt ceiling negotiations continued throughout Thursday. President Joe Biden called the talks “productive.” A key House Republican dissent has narrowed. But there is still no agreement to raise the credit limit. If no deal is reached by then, the US could default by early June.
Moody’s said Thursday that the U.S. must pay interest on Treasurys by mid-June to avoid losing its AAA credit rating. Fitch Ratings put the US AAA rating on negative watch late Wednesday.
Costco revenue came in below fiscal Q3 views. COST stock was little changed in extended trading after closing below all of its moving averages.
Sales missed while Ulta revenue slightly exceeded Q1 views. ULTA stock fell in action overnight, marking a drop to a 200-day low after falling from a record high on May 1.
Workday topped Q1 revenue views and led Q2 subscription revenue. WDAY stock was still higher in late trading, indicating a move above multiple buy points. Shares rose 0.1% to 196.41 on Thursday. The software firm is working on a cup-base buy point of 206.78, with an initial entry from a proto-hand of 199.17.
Deckers topped earnings views, but DECK stock fell solidly overnight. The maker of Ugg boots and Hoka running shoes fell below its 50-day line following the latest. In holding (onion) and Foot Locker (FL) revenue.
Marvel revenue and earnings slightly beat Q1 views. The chipmaker also gave further guidance, forecasting AI revenue to double in the second half of the fiscal year. MRVL stock surged overnight. Shares rose 7.6% to 49.47 on Wednesday. That was at the top of a cup-shaped bottom at 49.58, but Marvel stock extended from its 50-day and 200-day lines.
Nvidia stock and ASML enabled IBD Leaderboard. Microsoft, KLA and CDNS stocks are IBD’s long-term leaders. WDAY stock and ASML are available IBD 50. ASML, Workday, Microsoft, Cadence Design and AMAT stock IBD Big Cap 20.
The debt ceiling is just the beginning. These drags can disrupt the economy.
PCE inflation data
The Commerce Department will release the personal consumption expenditures price index, the central bank’s preferred measure of inflation, at 8:30 a.m. on Friday.
Economists expect the PCE price index to rise 0.3% in April. This would push the 12-month PCE inflation rate to 4.3%. Core PCE, which excludes food and energy, rose 0.3%, leaving the core PCE inflation rate at 4.6%.
Federal Reserve Chairman Jerome Powell has said he will focus more on core PCE services, excluding housing. So check the inflation of these supercore services.
The odds of another Fed interest rate hike at the June 13-14 policy meeting are now 49%, having risen sharply over the past several days. That’s up from 73% at the Fed meeting in late July.
PCE inflation data is part of the Commerce Department’s Income and Expenditure Report. Economists see both income and spending up 0.4% in April.
Stock market rally
The stock market rally showed very mixed activity, with the Nasdaq thanks to a handful of large-cap technicals.
The Dow Jones Industrial Average fell 0.1% in stock market trading Thursday. The S&P 500 index rose 0.9%. The Nasdaq composite rose 1.7%. The small-cap Russell 2000 fell 0.8%.
Nvidia shares rose 24%. AMD shares rose 11% and Taiwan Semiconductor gained 12%. ANET shares fell nearly 11%. Shares of ASML, KLA and AMAT rose 6%-7%. Microsoft shares rose nearly 4% to a 52-week high, while Google gained 2.1%. Except for Arista and KLAC stocks, these have a market capitalization of at least $100 billion. Nvidia is worth almost $1 trillion, GOOGL stock is worth $1.5 trillion and Microsoft is over $2 trillion.
US crude oil prices fell 3.4% to $71.83 a barrel. Copper prices rose 0.8%, but off a near seven-month low.
The 10-year Treasury yield rose 10 basis points to 3.81%.
The US dollar continued to rise, closing off its 2023 high in early March.
Among growth ETFs, the iShares Expanded Technology-Software Sector ETF (IGV2.5%, hitting a 10-month high. MSFT stock is a major IGV holding. VanEck Vectors Semiconductor ETF (SMH) rose 8.6% to a 52-week high. Notable SMH constituents include NVDA Stock, Taiwan Semiconductor, AMD ASML, Applied Materials and KLA Corporation. CDNS stock is held in the IGV and SMH ETFs.
SPDR S&P Metals & Mining ETF (XMEfell 0.8%. US Global Jets ETF (JETS) rose 1.2%. SPDR S&P Homebuilders ETF (XHBrose 0.3%. Energy Select SPDR ETF (XLE) fell 1.8% and the Health Care Sector SPDR Fund (XLVHe gave 1%.
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Market rally analysis
Thursday’s stock market rally showed a stark contrast. The Nasdaq 100 rose more than 2%, while losers outnumbered winners by two to one.
The Nasdaq composite recovered almost all of its losses from the previous two days. The S&P 500 retook a 21-day streak in a solid advance. But they reflected big-to-big gains at Nvidia, AMD, Microsoft, Google and others.
Meanwhile, debt ceiling default concerns, rising Treasury yields and the dollar, weaker foreign economies and growing odds of further Fed interest rate hikes weighed on the broader market.
The Dow Jones, with MSFT shares as a component, also fell below its 200-day line, although it closed lower. The Russell 2000 fell below its 50-day line.
The First Trust Nasdaq 100 Equal Weighted Index ETF (QQEW) rose only 0.5% from the 21-day.
Invesco S&P 500 Equal Weight ETF (RSP) margin of less than 0.1%, but well below the lower session. RSP is down 2.1% for the week and is below all its moving averages.
New lows easily beat new highs.
Other than AI and chip plays, there aren’t many stocks flashing buy signals ELF is beautiful (ELF) was the exception.
Some names showed solid action, but many stocks fell significantly in or near buy zones. It’s a disturbing trend this week.
Time the market with IBD’s ETF Market Strategy
What to do now
A bifurcated market rally shows unusual activity. Many stocks were big winners, but the overall market remained subdued.
Investors may have moderate exposure. It depends on whether you are into winning stocks.
If you’re not among some of the top winners of 2023 and are struggling to get ahead, don’t beat yourself up. A short market rally, with various sector cycles, is difficult to navigate. A lot of stocks are promising for breakouts or entries to fizzle quickly or round-trip quickly for solid gains.
What you don’t want to do is chase extended stocks. Nvidia stock is 90% above its 200-day moving average. A significant setback and a new site in the next few weeks wouldn’t be surprising. It may provide new inputs down the road, but NVDA is currently out of reach.
Don’t pay too much attention. Traders may be over-exposed to a particular stock, group or theme in many issues of a split market rally and narrow leadership. Clearly, anyone heavily invested in Nvidia and related plays is a big winner on Thursday, but the downside portfolio risks are high. Investors may have bought ANET stock, ASML, KLA or some other names on Thursday, but may not want to buy many of them.
Time to invest, a clear, broad market bullish, large number of stocks from various sectors will flash buy signals and continue to rise. At various points, the market rally teased such a reversal, only to pull back again.
But you have to be willing to act. So keep working on the watch lists.
Read the big picture every day to stay in tune with market direction and leading stocks and sectors.
Follow Ed Carson on Twitter @IBD_ECarson For stock market updates and more.
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