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

Dow Jones futures open Sunday evening, along with S&P 500 futures and Nasdaq futures. Despite a solid close in Friday’s whipsaw session, the stock market’s rally took a significant hit this past week, with key indexes tumbling after Fed chief Jerome Powell’s hawkish comments.




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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 ) lost more than 10% for the week, along with parent Facebook Meta platforms (META), Tesla stock and Microsoft stock are not far behind. Google Stock, Meta, Amazon.com (AMZN) and Microsoft (MSFT) affected all market lows. Apple stock and Tesla (TSLA) didn’t, but they’re close.

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

A market rally trying to fight the Fed with key tech sector declines? That is a tall order. So while some stocks and sectors are showing strength, investors should be extremely cautious in the current environment.

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

Dow Jones Futures Today

Dow Jones futures open at 6pm ET on Sunday, 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.


Join IBD experts as they analyze stocks worth taking action on in the stock market rally on IBD Live


Stock market rally

Stock markets started the week well but hawkish comments from Fed chief Jerome Powell led to a sell-off on Wednesday afternoon. Major indices gave further ground on Thursday. Stocks were whipsawed on Friday following a mixed jobs report, but ultimately closed strongly higher on the day.

The Dow Jones Industrial Average was still down 1.4% in last week’s stock market trading. The S&P 500 index fell 3.3%. The Nasdaq Composite tumbled 5.7%, its worst loss since the week ended Jan. 21. The small-cap Russell 2000 fell 2.4%.

The 10-year Treasury yield rose 15 basis points to 4.16%. The 10-year yield resumed its advance after snapping a 12-week winning streak and briefly trading around 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. That likely contributed to Friday’s stock market gains.

Markets now see a 61.5% chance of a 50-basis-point hike at the December Fed meeting. The October Consumer Price Index is out on Thursday. The November jobs and CPI reports will be out before the Dec. 14 Fed rate hike decision.

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

Tech rack

Apple stock, which touched its 200-day line the previous week, fell 11.15% to 138.38 last week. AAPL stock came within a penny of its October low, though it’s still some distance from its bear market low in June. Microsoft shed 6.1%, Google 10.1%, Amazon 12% and META stock 8.5%, all to multi-year lows. Tesla stock tumbled 9.2% for the week, hitting its Oct. 24 came close to intra-day lows. After a strong start to the week, it reached 237.40 intra-day on Tuesday.

Meanwhile, there are dark days ahead for cloud software. Here are just a few examples: Atlassian stock fell 29% on Friday and 38% for the week. Twilio stock tumbled nearly 35% on Friday and 43.5% for the week. Snowflake (SNOW), which won’t report for a few weeks, fell 17% for the week.

Meanwhile, Fortinet ( FTNT ) crashed 17.5% for the week after weak billing guidance offset strong earnings and bullish revenue estimates. Paycom (PAYC) fell 10.3% despite strong results and guidance.

Businesses looking to cut costs can hold back spending on software as they set a budget for 2023.

ETFs

Among the best 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 ) tumbled 10.2%, with MSFT stock the top holding. Vanek Vectors Semiconductor ETF ( SMH ) fell just 0.7% after jumping 4.65% on Friday, closing at a weekly range high.

The SPDR S&P Metals & Mining ETF (XME) gained 2% last week. The Global X US Infrastructure Development ETF ( PAVE ) fell 0.1%. The 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%, down from an eight-year high. The Financial Select SPDR ETF ( XLF ) fell 0.9%. The Health Care Select Sector SPDR Fund ( XLV ) shed 1.5%.

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Reflecting a more speculative stock story, the ARK Innovation ETF ( ARKK ) fell 9.4% last week and the ARK Genomics ETF ( ARKG ) retreated 4.65%. Tesla stock is a major holding in Arc Invest’s ETF.


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Market Rally Analysis

The stock market rally had a bad week, with the Fed’s hawkishness and largely weak earnings weighing on major indexes. The Dow Jones, which has led the market’s uptrend, had the lightest decline, but was back below its 200-day moving average. The Russell 2000 held resistance near the 200-day line but recovered on Friday and closed above the 50-day line. The S&P 500 hit a 50-day low.

The Nasdaq Composite, which has never reached its 50-day moving average, fell the most to close below its follow-through day’s low on Wednesday, a bearish sign.

Major indexes extended Thursday’s losses, then whipsawed Friday on a mixed jobs report.

Negative market action and large reversals in many stocks led to “market under pressure”.

The big market driver was Fed chief Powell, who pulled the rug out from the market rally by signaling a small hike but a shift to a higher peak Fed funds rate.

Meanwhile, megacap tech, including Apple, Tesla and Amazon, suffered heavy losses. Cloud software names such as Atlassian and Twilio have diluted recent earnings and guidance with significant factors.

Chips didn’t have a relatively terrible week, but only a few names are trading near highs.


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There are many resilient market areas. The healthcare sector looks strong overall. Energy names are doing well, including a wide range of oil stocks, LNG plays and coal miners, along with some solar stocks.

Lithium and some steel plays are doing well. Infrastructure firms are a bright spot for the energy, utilities and telecom industries. Networking companies in general are a rare tech sector that is a pioneer. Some restaurants and discount retailers are showing strength. Various financials, especially brokers and brokerages, have made strong gains.

Still, it’s hard to see a strong rally in the market with such huge tech sectors. Moving up will be tough enough for major indexes trailing Apple, Google, Tesla and cloud software names. But to try to move forward with those areas sinking or collapsing?

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If inflation reports show a clear and meaningful decline, prompting a further downshift in the Fed’s rate hikes, then megacaps and cloud software may fall. However, the return to tech leadership may be somewhat off-putting. On the other hand, if the October CPI report on November 10 shows that inflation is still tepid, tech stocks could drag down leading sectors to end the market’s rally.

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


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What to do now

Stock market bullishness is under pressure. The fade is switching from fast and furious to slow and long, but it’s still hawkish. The tech sector is a train wreck. Major indices have declined to some key levels. Indices and leading stocks are subject to large intraday and daily swings.

This is not a good environment to buy shares. Investors should consider reducing exposure, either outright or simply by reducing losses on 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 start adding exposure. But that will likely require tech to stabilize and inflation data to show some cooling.

If conditions improve, you’ll want to be prepared. There are a lot of stocks setup, with many not far off. So make your watchlists, be patient and stay 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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