Dow Jones futures open Sunday evening, along with S&P 500 futures and Nasdaq futures. Nvidia earnings loom large in the coming week, with debt-ceiling talks set to resume Friday night after stalling hours earlier.
Stocks rallied last week on hopes of a debt ceiling deal and eased bank fears, with gains led by AI-empowered tech leaders. Nvidia (NVDA), Advanced Micro Devices (AMD), Service now (Now), Google Parents letters (Google), Snowflake (Snow) and Palantir Technologies (PLTR)
The Nasdaq composite and S&P 500 hit 2023 highs, with the Nasdaq 100 setting its best levels in more than a year. The White House and congressional leaders appeared to be moving toward a debt ceiling deal as concerns about regional banks eased.
On Friday, GOP negotiators stalled debt ceiling talks, saying President Biden’s White House was being unreasonable. At the same time, a report emerged that Treasury Secretary Janet Yellen had told bank executives that more bank mergers may be needed. That hit regional bank shares on Friday, although they rallied strongly on the week.
Key indexes on the debt-ceiling backlash and Yellen’s comments edged higher on Friday, as Federal Reserve Chairman Jerome Powell signaled he wants a rate hike next month at the same time.
Investors are optimistic about the debt ceiling deal. Indeed, House Speaker Kevin McCarthy said Friday evening that debt ceiling negotiations would resume that night.
The stock market’s rally is somewhat fragmented with a short lead. However, investors can add careful exposure, although many stocks do not offer buying opportunities at this time.
Tesla (D.S.L.A) made a nice move in the midst of its shareholder event last week, clearing some key positions. But TSLA stock faces more resistance.
Nvidia earnings will be a big deal in the market rally on Wednesday night. NVDA stock is going right in the market. It is the leading megacap and AI stock in a market rally dominated by megacaps and AI plays. Nvidia shares rose 10% last week and have been significantly extended.
It would be healthy for Nvidia stock to pause or pull back for several weeks. But if Nvidia’s earnings or guidance disappoint, NVDA could be severely punished. This will have repercussions for rival AMD, but Google and many other “AI” plays will boost the market.
ServiceNow’s stake in Nvidia and AI-related alliances began last week Microsoft (MSFT) SNOW took the stake based on a report that it may buy an AI search firm. PLTR stock, a long AI play, vaulted 23% on the week after a 28% spike in the previous week’s earnings. Google shares are up 14% so far in May.
Other major revenues
SNOW stock is in a 10-month consolidation. ELF stock is consolidating at its 21-day line after a big run. PANW stock is trying to hold its 50-day line within a new, volatile flat base. DECK stock was a big winner, but fell below its 50-day line last week In holding (onion) and Foot Locker (FL) were overwhelmed by their results.
Dow Jones Futures Today
Dow Jones futures open Sunday at 6 PM ET, along with S&P 500 futures and Nasdaq 100 futures.
Remember that overnight action in Dow futures and elsewhere does not necessarily translate into actual trading in the next regular stock market session.
Stock market rally
The stock market rallied last week, with a wide gap between leaders and laggards.
The Dow Jones Industrial Average rose 0.4% in last week’s stock market trade. The S&P 500 index advanced 1.65%. The Nasdaq composite rose 3%. The small-cap Russell 2000 rose 1.9%.
The 10-year Treasury yield rose 23 basis points last week to 3.69%, hitting a two-month high.
Odds for a Fed rate hike next month briefly rose to 40% during the week amid strong economic data and some dovish comments from central bank officials. But Friday’s chance slipped to about 20%, as Powell said “we’ll be able to look at the data.”
U.S. crude futures rose 2.2% to settle at $71.55 a barrel on the week.
Among growth ETFs, the iShares Expanded Technology-Software Sector ETF (IGVincreased by 5.25%. Now stock is a big IGV component. VanEck Vectors Semiconductor ETF (SMH8.5% up. Nvidia stock is a large SMH holding along with AMD stock. Reflecting the more speculative story stocks, the ARK Innovation ETF (ARKK) rose 2.7% last week and the ARK Genomics ETF (ARKG) received 3%. Tesla shares are the No. 1 holding in ArcInvest ETFs. Cathie Wood’s Ark also has some PLTR stock.
SPDR S&P Metals & Mining ETF (XME) fell 0.5%, its fifth consecutive weekly loss. US Global Jets ETF (JETS) rose 4.1%. SPDR S&P Homebuilders ETF (XHBincreased by 1.2%. Energy Select SPDR ETF (XLE) gained 1.4%. Health Care Select Sector SPDR Fund (XLVfell 0.7%.
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Buy Tesla stock?
Tesla shares rose 7.2% last week to 180.14, rebounding from near the 21-day line and regaining the 50-day line for the first time since early April.
Investors responded well to Tesla’s shareholder day on Tuesday. CEO Elon Musk reiterated that the Cybertruck will begin deliveries this year, while again hinting at the next-generation vehicle. Musk also said Tesla will “try” some advertising. Like any aspiring CEO in 2023, he made sure to mention “AI” several times.
Meanwhile, following recent discounts on Model 3 and Y vehicles in Europe, Tesla quietly offered some new inventory discounts for US Model 3 vehicles. Inventory discounts don’t get the headlines that official price cuts do, but they hit similar profit margins. The balance between production, distribution and prices is the main Tesla story in 2023.
Investors may see Friday’s move above the 50-day moving average as an early entry point for Tesla stock. But it can be very aggressive. Tesla is still facing a 200-day streak that is approaching 200. Just above that is a 207.89 buy point above the March 31 high. That’s from a seven-week consolidation or a three-month double bottom buy point.
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Market rally analysis
The stock market showed a boom Strong last week, but progress remains short. Later in the week the S&P 500 hit a 2023 high, while the Nasdaq hit a 2023 high.
The Russell 2000, buoyed by banking stocks, had a solid week but is near 2023 highs. The Dow Jones posted a small weekly gain after it broke its 50-day line on Tuesday.
The tech rally has extended from megacap stocks like Google and Nvidia to big-cap chip and AMD, software names like ServiceNow and AI plays like Palantir. But most have now been extended.
The Nasdaq 100 hit a 52-week high, up 3.5% for the week. The First Trust Nasdaq 100 Equal Weighted Index ETF (QQEW), was struggling, rising 2.45%. It is approaching the 2023 high.
But the overall breadth remains sluggish. Invesco S&P 500 Equal Weight ETF (RSP) rose nearly 1%, but slipped below its 200-day line on Friday. RSP is no closer to its 2023 high than its October bear market low.
Losers led the pioneers on Friday after modestly positive breadth on Thursday. But new highs beat losers for the second consecutive session.
Beyond chips, software and megacap stocks, homebuilders, building materials, medical products and biopharma names are performing well. Like travel plays and some paid stocks.
Shoe-related stocks were up last week due to ONON and Foot Locker. Deckers Outdoor, as well Dick’s Sporting Goods (D.K.S), will try to put their best foot forward.
Debt-ceiling talks, banking concerns and recession risks are big issues in the market rally. While Wall Street and political analysts see the debt ceiling deal as more bullish, a variety of headlines could move markets up and down over the next few days.
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What to do now
Stock market bullishness is high, but leadership is short and market breadth is questionable. Many leading stocks are extended.
Investors who took advantage of technical buy signals over the past week have generally been rewarded, some in a big way. But overall exposure should be moderate. Consider taking some profits on the big winners. There is definitely a game plan.
A healthy number of stocks from various sectors are set up and could move if the market rally continues. So you should be prepared.
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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