Dow Jones futures fell slightly overnight, along with S&P 500 futures and Nasdaq futures. Key inflation data will be available Friday morning.
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The stock market rally had an enormously divergent course on Thursday. The Nasdaq and especially the Nasdaq 100 rose like a rocket Nvidia (NVDA) skyrocketed on strong earnings and blowout expectations. That has also been sent Advanced micro devices (AMD), Taiwan semiconductor (TSM) and Arista Networks (ANET) is also rising, with solid gains ahead ASML (ASML), Microsoft (MSFT), Google parent Alphabet (GOOGL) and other AI or chipplays.
But barring a limited number of big winners, the market showed lukewarm or weak action amid ongoing debt ceiling talks, concerns about Fed rate hikes and more. Dalers easily beat winners as the Dow Jones dipped below the 200-day line.
ASML and fellow chip giants Applied materials (AMAT) and KLA Corp. (KLAC) moved back above buy points on Thursday, along with the chip design software maker Cadence Design Systems (CDNS). ANET shares and Mobile (MBLY) flashed early entries.
But investors should be cautious about new purchases amid the divided market action and super-concentrated market leadership.
Dow Jones Futures Today
Dow Jones futures fell 0.1% from fair value. S&P 500 futures lost 0.15% and Nasdaq 100 futures fell 0.1%.
Remember that overnight action in Dow futures and elsewhere does not necessarily translate into actual trading in the next regular trading session.
Debt ceiling talks
Debt ceiling talks continued throughout Thursday. President Joe Biden said the negotiations have been “productive”. A senior House Republican said the differences have narrowed. But there is no deal yet to raise the debt limit. The US could default in early June if there is no deal by then.
Moody’s said on Thursday that the US must make an interest payment on government bonds by mid-June to avoid losing its AAA rating. Fitch Ratings placed the US AAA rating on a negative watch late Wednesday due to rising default risks.
Revenue
In the meantime, Costco wholesale (COST), Ultimate beauty (ULTA), Business day (WDAY), Deckers outside (DEK) and Marvell technology (MRVL) and headlined post-close earnings reports.
Costco revenue was lower than fiscal Q3 guidance. COST stock changed little in extended trading after closing modestly below all of its moving averages.
Ulta earnings just above Q1 views, while sales just missed. ULTA stock plunged into action overnight, signaling a drop below 200 days after falling from record highs on May 1.
Workday topped earnings estimates in the first quarter and remained in line with subscription revenue in the second quarter. WDAY shares were still up in late trading, signaling a move above multiple buy points. Shares rose 0.1% to 196.41 on Thursday. The software giant is working at a buy point of 206.78 cup-base, with 199.17 as an early proto-handle entry.
Deckers earnings outpaced views, but DECK stock plummeted overnight. The maker of Ugg boots and Hoka running shoes had recently dipped below the 50-day mark Holding on (You and Foot Locker (FL) income.
Marvell’s revenue and earnings were slightly higher than first quarter views. The chipmaker also went higher, predicting that AI revenue will double in the second half of the fiscal year. MRVL stock skyrocketed overnight. Shares rose 7.6% to 49.47 on Wednesday. That was on the verge of a 49.58 bowl bottom base, but the Marvell supply was extended from the 50-day and 200-day lines.
Nvidia stock and ASML are on IBD Leaderboard. Microsoft, KLA and CDNS stocks are long-term IBD leaders. WDAY stock and ASML are on the IBD 50. ASML, Workday, Microsoft, Cadence Design and AMAT stock are on the IBD Big Cap 20.
The debt ceiling is just the beginning. These barriers can derail the economy.
PCE inflation data
The Commerce Department will release the Personal Consumption Price Index, the Fed’s favorite inflation gauge, on Friday at 8:30 a.m. ET.
Economists expect the PCE price index to rise 0.3% in April. That would raise 12-month PCE inflation to 4.3%. Core PCE, which excludes food and energy, is also up 0.3%, leaving core PCE inflation unchanged at 4.6%.
Fed Chief Jerome Powell has indicated that he is paying extra attention to PCE’s core services, with the exception of housing. So look for this supercore services inflation rate.
The probability of another rate hike by the Fed at the June 13-14 policy meeting is now 49%, a significant increase in recent days. That goes to 73% by the Fed meeting in late July.
The PCE inflation data is part of Commerce’s income and expenses report. Economists expect both income and spending to rise by 0.4% in April.
Join IBD experts as they analyze actionable stocks in the stock market rally on IBD Live
Stock market rally
The stock market rally saw very mixed action, with the Nasdaq leading thanks to a handful of big-cap techies.
The Dow Jones Industrial Average fell 0.1% during Thursday trading. The S&P 500 index climbed 0.9%. The Nasdaq composite jumped 1.7%. The small-cap Russell 2000 lost 0.8%.
Nvidia stock shot up 24%. AMD shares rose 11% and Taiwan Semi 12%. ANET shares shot up nearly 11%. ASML, KLA and AMAT shares rose 6%-7%. Microsoft shares rose nearly 4% to a 52-week high, while Google gained 2.1%. With the exception of Arista and KLAC stocks, these have market caps of at least $100 billion. Nvidia is at nearly $1 trillion, with GOOGL shares above $1.5 trillion and Microsoft above $2 trillion.
US crude oil prices fell 3.4% to $71.83 a barrel. Copper prices rose 0.8%, but from their lowest level in nearly seven months.
The yield on 10-year Treasury bills rose 10 basis points to 3.81%.
The US dollar continued to rise, approaching its 2023 high in early March.
ETFs
Among growth ETFs, the iShares Expanded Tech-Software Sector ETF (IGV) is up 2.5%, a 10-month record. MSFT shares are a major IGV holding company. The VanEck Vectors Semiconductor ETF (SMH) rose 8.6% to a 52-week high. NVDA Stocks, Taiwan Semiconductor, AMD ASML, Applied Materials and KLA Corp. are all notable SMH components. CDNS stocks are in the IGV and SMH ETFs.
Reflecting more speculative story stocks, ARK Innovation ETF (ARKK) fell 2.7% and ARK Genomics ETF (ARKG) fell 2.5%.
SPDR S&P Metals & Mining ETF (XME) fell 0.8%. US Global Jets ETF (JETS) rose 1.2%. SPDR S&P Homebuilders ETF (XHB) rose 0.3%. The Energy Select SPDR ETF (XLE) lost 1.8% and the Health Care Select Sector SPDR Fund (XLV) lost 1%.
The Financial Select SPDR ETF (XLF) closed just short of break-even. The SPDR S&P Regional Banking ETF (KRE) fell 0.8%
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Analysis of the market rally
The stock market rally showed extreme divergence on Thursday. The Nasdaq 100 surged more than 2% as stocks lost two to one faster than gainers.
The Nasdaq composite almost made up all of its losses from the previous two days. The S&P 500 regained its 21-day line with a solid advance. But those reflected big to huge gains in Nvidia, AMD, Microsoft, Google and more.
Meanwhile, concerns about the debt ceiling default, along with rising Treasury and dollar yields, weaker overseas economies and increasing chances of further Fed rate hikes weighed on the broader market.
The Dow Jones, even MSFT stocks as part, dipped just below the 200-day line even though it closed lows. The Russell 2000 fell below the 50-day line.
The First Trust Nasdaq 100 Equal Weighted Index ETF (QQEW) gained just 0.5% and bounced from day 21.
The Invesco S&P 500 Equal Weight ETF (RSP) fell less than 0.1%, but was well outside the lows of the session. RSP is down 2.1% this week, below all of its moving averages.
New lows easily beat new highs.
However, aside from AI and chip plays, there weren’t many stocks with buy signals ELEVEN beauty (ELF) was an exception.
Some names showed solid action, but many stocks in or near buy zones fell significantly. That’s a disturbing trend this week.
Time the market with IBD’s ETF market strategy
What to do now
The split market rally continues to show unusual action. A number of stocks have been huge gainers, but the overall market has been lackluster at best.
Investors can have modest exposure. How much depends a lot on whether you are in the winning stocks.
If you’re not one of the big winners of 2023 and are struggling to make progress, don’t beat yourself up. A tight market rally, with several sector rotations, is difficult to navigate. Many stocks looked promising, only to see breakouts or entries fizzle quickly, or solid gains quickly back and forth.
What you don’t want to do is chase extensive inventories. Nvidia shares are more than 90% above its 200-day moving average. A significant pullback and perhaps a new base in the coming weeks should come as no surprise. That could provide new inputs in the future, but NVDA is out of reach for now.
Don’t be too focused. One of the many problems with a divided market rally and limited leadership is that traders can be extremely exposed to a specific stock, group or theme. Clearly, anyone who invested heavily in Nvidia and related games was a big winner on Thursday, but downside portfolio risks are high. Investors could have bought ANET stock, ASML, KLA or a few other names on Thursday, but probably wouldn’t want to buy several.
The time to invest heavily is when there is a clear, broad uptrend in the market, with a large number of stocks from different sectors giving buy signals and continuing to rise. At various points, the market rally has plagued such a transformation, only to pull back.
But you want to be ready to act. So keep working on watchlists.
Read The Big Picture every day to stay in sync 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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