Market Rally Buckling From Fed, Apple, Tesla, Cloud Stocks; What To Do Now

Dow Jones futures will open on Sunday evening, along with S&P 500 futures and Nasdaq futures. Even with a strong follow-up to Friday’s whipsaw session, stock prices took a big hit last week, with record points falling on hawkish comments from Fed Chairman Jerome Powell.




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The Nasdaq had its worst week since January as megacaps fell and cloud software crashed.

apple (AAPL), Amazon.com (AMZN) and parent Google Alphabet (GOOGL) all lost more than 10% for the week, along with parent Facebook Meta Platform (META), Tesla stock and Microsoft stock are not far behind. Google Apps, Meta, Amazon.com (AMZN) and Microsoft (MSFT) all bear markets fell. Apple products and Tesla (TSLA) isn’t done yet, but they’re close.

Meanwhile, Twilio (TWLO) and Atlassian (TEAM) fell Friday with disappointing results, losing more than 40% for the week. A slew of other failed software titles, with or without money.

A market rally trying to fight the Fed and the main tech sector plummeting? That’s a long process. So while there are some stocks and sectors that are showing strength, investors should be cautious in the current environment.

In other news, Warren Buffett’s Berkshire Hathaway (BRKB) on Saturday reported a 20% drop in operating profit. The group had a net loss as the bear market continued to hit investments.

Dow Jones Futures Today

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

Remember that overnight events in the Dow Futures and elsewhere do not necessarily translate into actual trading in the next stock market session.


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Market Rally

The stock market started the week in positive fashion but then sold off on Wednesday afternoon on Fed Chairman Jerome Powell’s hawkish comments. The major indexes handed down Thursday. Stocks took a beating on Friday following a mixed jobs report, but closed well for the day.

The Dow Jones Industrial Average fell 1.4% in last week’s 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 rose 15 basis points to 4.16%. The 10-year rally resumed its front after a 12-week winning streak and traded back about 4% with short trades.

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The dollar was up 0.2% for the week, but fell 1.9% on Friday, the biggest one-day drop in the year. That likely contributed to Friday’s stock market gains.

The market now sees a 61.5% chance of a 50-basis-point hike at the December Fed meeting. The October Consumer Price Index is due Thursday. November activity and CPI report will be out before Dec. 14 Fed rate hike decision.

US crude futures rose 5.4% last week to $92.61 a barrel. Natural gas was up nearly 13%.

Tech broke

Apple stock, which reached its 200-day line last week, fell 11.15% to 138.38 last week. AAPL stock came within a penny of its October low, though it still has some distance from its June bear market decline. Microsoft lost 6.1%, Google 10.1%, Amazon 12% and META products 8.5%, all in multi-year declines. Tesla stock fell 9.2% for the week, approaching the Oct. 24 intraday low on Friday. That’s after starting the week strong, hitting 237.40 intraday Tuesday.

Meanwhile, it’s a dark day for cloud computing. Here are just a few examples: Atlassian stock fell 29% on Friday and 38% for the week. Twilio stock fell nearly 35% on Friday and 43.5% for the week. Snowflake (SNOW), which won’t report for a few weeks, was down 17% for the week.

Meanwhile, Fortin (FTNT) fell 17.5% for the week after weak billing guidance offset strong earnings and earnings expectations. Paycom (PAYC) fell 10.3% despite strong results and guidance.

Businesses looking to cut costs may curb spending on software as they budget for 2023.

ETFs

Among the best performing ETFs, the Innovator IBD 50 ETF (FFTY) fell 1.2% last week, while the Innovator IBD Breakout Opportunities ETF (BOUT) lost 2%. The iShares Expanded Tech-Software Sector ETF (IGV) was down 10.2%, with MSFT stock the main holding. The VanEck Vectors Semiconductor ETF (SMH) fell just 0.7%, after gaining 4.65% on Friday, to close higher on the week.

SPDR S&P Metals & Mining ETF changed +2% last week. The price change of the Global X US Infrastructure Development ETF changed -0.111%. The price change of the US Global Jets ETF changed -0.333%. SPDR S&P Homebuilders ETF (XHB) changed -5%. The Energy Select SPDR ETF (XLE) climbed 2.4%, just below an eight-year high. The Financial Select SPDR ETF (XLF) fell 0.9%. The Health Care Select Sector SPDR Fund (XLV) yielded 1.5%.

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More historically conservative, the ARK Innovation ETF (ARKK) was down 9.4% last week and the ARK Genomics ETF (ARKG) returned 4.65%. Tesla is the main stock held across Ark Invest’s ETFs.


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Market Rally Analysis

Stock markets had a bad week, with hawkish food and weak currencies weighing on major indexes. The Dow Jones, which led the stock market, had a mild fall, but was back below its 200-day moving average. The Russell 2000 hit resistance near the 200-day line but recovered on Friday to close above the 50-day line. The S&P 500 held steady over the 50-day period.

The Nasdaq composite, which has yet to reach a 50-day moving average, fell the most, closing below its consecutive day lows on Wednesday, a bearish signal.

Major indexes extended Thursday’s losses, then hit Friday on a mixed job report.

Poor market behavior and large swings in many stocks led to changes in “markets under pressure.”

The big driver is Fed Chairman Powell, who has taken the wraps off the market by showing changes in small hikes but higher interest rates.

Meanwhile, tech megacaps, including Apple, Tesla and Amazon, suffered heavy losses. Cloud software names like Atlassian and Twilio floated, and recent installations were key.

Chips didn’t have a terrible week, but only a few names traded near the top.


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There is a changing market segment. The health care sector looks strong overall. Energy names, including oil brands, LNG plays and coal miners, as well as smaller solar stocks, are doing well.

Lithium and some steel plays well. The infrastructure industry for the energy, industrial and telecom industries is a bright area. The network industry in general is a leading technology field. Some hotels and cashiers are showing strength. Different funds, especially traders and brokers, have made huge profits.

Still, it’s hard to see a strong marketing campaign being rolled out by the big tech sector. It will be strong enough for the main index to continue with the names of Apple, Google, Tesla and the cloud. But trying to keep up with those places is falling or falling apart?

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If the inflation report shows a clear and meaningful decline, leading to a reduction in Fed rate hikes, then perhaps the megacaps and clouds may fall. However, a return to technology leadership may be some way off. On the flip side, if the October CPI report in Nov. 10 shows that inflation is still hot, the production technology can attract the leading people to stop marketing campaigns.

Tuesday is election day. The market is improving and the government is divided, and Republicans will take back control of the House and possibly the Senate. But political forecasters predict at least one GOP House win all year, so it’s unclear whether Tuesday’s results will be much of a boost.


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What You Should Do Now

The stock market is under pressure. The Fed is changing from fast and furious to slow and long-term, but it’s still scary. The technology sector is a train wreck. Major records have broken some major standards. Indexes and leading stocks are subject to large intraday and daily fluctuations.

This is not a good place to buy stocks. Investors should be looking to reduce exposure, either explicitly or simply by reducing losses in various situations.

If the market session shows renewed strength, with the S&P 500 and possibly the Nasdaq moving above the 50-day moving average, investors may start adding exposure. But that would require the technology to stabilize and data to rise to show some cooling.

If the situation is better, you will want to be prepared. There are many stocks already set up, and many more not far away. So build your checklist, be patient and stick with it.

Read The Big Picture every day to stay in touch with the market leading stocks and sectors.

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

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