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

Dow Jones futures open Sunday evening, along with S&P 500 and Nasdaq futures. Even with a solid close in Friday’s session, the stock market’s rally took a hit this past week, with major indexes falling on comments from Fed Chair Jerome Powell.




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The Nasdaq had its worst week since January after a drop in megacaps and a crash in cloud software.

apple (AAPL), Amazon.com (AMZN) and parent Google Alphabet ( GOOGL ) all lost more than 10% for the week, along with parent Facebook Meta platforms ( META ), Tesla shares and Microsoft shares are not that far behind. Google Shares, Meta, Amazon.com (AMZN) and Microsoft (MSFT) all hit bear market lows. Apple shares and Tesla (TSLA) didn’t, but they’re close.

Meanwhile, Twilio (TWLO) and Atlas (TEAM) tumbled on Friday with disappointing results and guidance, losing more than 40% for the week. A number of other software names have collapsed, with or without revenue.

Market rally trying to fight the Fed, with the decline of the big tech sector? This is a tall order. So, while some stocks and sectors are strong, investors should be very cautious in the current environment.

In other news, Warren Buffett Berkshire Hathaway ( BRKB ) reported a 20% jump in operating profit on Saturday. The conglomerate saw a net loss as the current bear market hit investments.

Dow Jones futures today

Dow Jones futures open at 6:00 PM ET on Sunday, along with S&P 500 and Nasdaq 100 futures.

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


Join IBD’s experts as they analyze actionable stocks in the stock market rally on IBD Live


Stock market rally

The stock market rallied off to a good start to the week, but it sold off Wednesday afternoon due to upbeat comments from Fed Chairman Jerome Powell. Major indexes gave up more ground on Thursday. Stocks rallied on Friday after a mixed jobs report, but ultimately closed significantly higher on the day.

In stock market trading last week, the Dow Jones Industrial Average was still down 1.4%. The S&P 500 index fell 3.3%. The Nasdaq Composite fell 5.7%, its worst loss since the week ended Jan. 21.

The 10-year treasury yield increased by 15 basis points and reached 4.16%. The 10-year yield resumed its advance after snapping a 12-week winning streak, briefly retreating nearly 4%.

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The dollar rose 0.2% for the week, but fell 1.9% on Friday, its biggest one-day decline in years. This likely contributed to the stock market’s advance on Friday.

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

US crude oil futures rose 5.4% last week to $92.61 a barrel. Natural gas increased by about 13 percent.

Technical disaster

Apple shares, which rose to their 200-day line last week, fell 11.15% last week to 138.38. AAPL’s stock is up a penny from October’s lows, though it still has some distance to go to June’s bear market lows. Microsoft 6.1%, Google 10.1%, Amazon 12% and META shares 8.5%, all fell to multi-year lows. Shares of Tesla fell 9.2% for the week, hitting an intraday low of Oct. 24 on Friday. This is after a strong start to the week, which hit 237.40 on Tuesday.

Meanwhile, these are dark days for cloud software. Here are some examples: Atlassian shares fell 29% on Friday and 38% for the week. Shares of Twilio fell nearly 35% on Friday and 43.5% for the week. Snowflake ( SNOW ), which hasn’t reported in several weeks, sank 17% for the week.

Meanwhile, Fortinet ( FTNT ) fell 17.5% for the week, after weak accounting guidance offset strong earnings and a higher earnings outlook. Paycom (PAYC) fell 10.3% despite solid results and guidance.

Businesses looking to cut costs can limit spending on software as they set their budgets for 2023.

ETFs

Among the top ETFs, the Innovator IBD 50 ETF ( FFTY ) fell 1.2% last week, while the Innovator IBD Breakout Opportunities ETF ( BOUT ) fell 2%. The iShares Expanded Tech-Software Sector ETF ( IGV ) fell 10.2%, and MSFT shares are a key holding. The VanEck Vectors Semiconductor ETF ( SMH ) fell just 0.7% after jumping 4.65% on Friday to close within the range of the week’s high.

The SPDR S&P Metals & Mining ETF (XME) rose 2% last week. The Global X US Infrastructure Development ETF ( PAVE ) fell 0.1%. US Global Jets ETF (JETS) rose 0.3%. The SPDR S&P Homebuilders ETF ( XHB ) fell 5%. The Energy Select SPDR ETF ( XLE ) rose 2.4%, just below an eight-year high. Financial Select SPDR ETF ( XLF ) fell 0.9%. The SPDR Fund ( XLV ) in the Healthcare sector surrendered 1.5%.

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Reflecting more speculative holdings, the ARK Innovation ETF ( ARKK ) fell 9.4% last week, and the ARK Genomics ETF ( ARKG ) fell 4.65%. Tesla stock is a major holding in Ark Invest ETFs.


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Market Rally Analysis

The stock market had a bad week, with the Fed and mostly weak earnings weighing on the major indexes. The Dow Jones, which led the market up, had the lightest decline, but fell below its 200-day moving average. The Russell 2000 hit resistance near the 200-day line, but recovered on Friday to break above the 50-day line. The S&P 500 hit a 50-day low.

The Nasdaq Composite, which has never hit its 50-day moving average, fell the most, falling below its tracking intraday low on Wednesday, a bearish signal.

Major indexes extended losses on Thursday, then showed a mixed performance report on Friday.

Negative market action and large swings in many stocks have led to a transition to a “stressed market”.

The big driver of the market was Fed Chairman Powell, who pulled the rug out from the market rally by pointing to a move to a small but higher peak in the Fed rate.

Meanwhile, tech megacaps, including Apple, Tesla and Amazon, suffered big losses. Cloud software names such as Atlassian and Twilio have melted away with recent earnings and significant guidance factors.

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


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There are several areas of stable markets. The health sector looks strong overall. Energy names, including a wide range of oil stocks, LNG and coal plays, as well as several solar stocks, are doing well.

Lithium and some steel plays work well. Infrastructure companies are a bright spot for the energy, utilities and telecommunications industries. Networking companies as a whole are a rare technology industry that is leading the way. Some restaurants and discount retailers are showing strength. Various financials, especially brokers and brokers, have made strong gains.

However, it is difficult to see a strong market rally with such large tech sectors. Leading the major indexes will be hard enough with Apple, Google, Tesla and cloud software names lagging behind. But trying to progress with those areas sink or crash?

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If inflation reports show a clear and meaningful decline, leading to a Fed rate cut, then maybe megacaps and cloud computing could go down. However, a return to technological leadership may be some ways off. On the other hand, if the October CPI report on November 10 shows that inflation continues to be tepid, tech stocks could drag down the leading sectors to end the market’s rally.

Tuesday is election day. The stock market is doing better with a divided government, and Republicans are poised to regain control of the House and perhaps the Senate. But political forecasters have been predicting at least one GOP victory in the House for most of the year, so it’s unclear whether Tuesday’s actual results will be a big catalyst.


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What to do now

The market rally is under pressure. The Fed goes from fast and furious to slow and long, but it’s still sensitive. The tech industry is a train wreck. The major indices declined to some key levels. Leading indices and stocks are subject to large day-to-day fluctuations.

This is not a good condition for buying stocks. Investors should try to reduce the exposure or simply reduce losses in various positions.

If the market rally shows renewed strength, with the S&P 500 and possibly the Nasdaq breaking above their 50-day moving averages, investors can begin to add exposure. But this is likely to stabilize the technology and require inflation data to show some cooling.

If conditions improve, you’ll want to be prepared. There are a number of stocks that are not far behind. So, make your checklists, be patient, and keep busy.

Read The Big Picture daily to stay in tune with market direction and leading stocks and sectors.

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

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