Dow Jones futures fell slightly Sunday evening, along with S&P 500 futures and Nasdaq futures. Investors are looking ahead to a huge week of earnings, led by Tesla (TSLA), Microsoft (MSFT) and Boeing (BA).
The stock market rally retreated mid-week, with the major indexes tumbling below key moving averages. But they bounced back Friday, especially the Nasdaq and tech stocks. The Nasdaq, the laggard in 2022, has led the big-cap indexes in 2023 as tech growth names come back in favor.
The recent pullback offered a chance for many stocks to take a breather, forging handles or other new buying opportunities.
Investors should be paying close attention, but be cautious about new positions. The market rally is around critical levels. Earnings season could roil the indexes and specific sectors as well as individual stocks.
Hundreds of companies will be reporting this coming week. Here are 10 earnings reports to watch closely: Tesla, Microsoft, Boeing, ServiceNow (NOW), Chevron (CVX), Visa (V) and Mastercard (MA), as well as chip-gear giants ASML (ASML), Lam Research (LRCX) and KLA Corp. (KLAC).
These reports will offer insight into their respective industries, and could have a big impact on the overall market. Tesla stock and Microsoft still have a lot of repair work to do, while Boeing is extended. NOW stock could be near an aggressive early entry. CVX stock, Visa and Mastercard are all near buy points. So are LRCX and KLA, while ASML is slightly out of reach.
KLAC stock is on the IBD Big Cap 20. Microsoft stock and ASML are on IBD Long-Term Leaders.
Microsoft, Boeing, Chevron and Visa stock are all Dow Jones components.
The video embedded in this article reviews an important market week and analyzes Etsy (ETSY), LRCX stock and ServiceNow.
Dow Jones Futures Today
Dow Jones futures lost 0.1% vs. fair value. S&P 500 futures fell 0.15% and Nasdaq 100 futures declined 0.2%.
Crude oil futures fell slightly.
Remember that overnight action in Dow futures and elsewhere doesn’t necessarily translate into actual trading in the next regular stock market session.
Stock Market Rally
The stock market rally suffered a downside reversal Wednesday, and fell further on Thursday, but finished relatively well.
The Dow Jones Industrial Average fell 2.7% in last week’s stock market trading. The S&P 500 index dipped 0.7%. The Nasdaq composite climbed 0.55%. The small-cap Russell 2000 declined 1.1%.
The 10-year Treasury yield fell 3 basis points to 3.48% Friday. The yield hit 3.37% during the week, a four-month low.
The expiring February crude oil futures contract rose 1.8% to $81.31 a barrel last week. The March contract, the new near-month crude contract, finished at $81.64.
Among growth ETFs, the Innovator IBD 50 ETF (FFTY) fell 1% last week. The iShares Expanded Tech-Software Sector ETF (IGV) rose 1.45%, with MSFT stock and ServiceNow both significant holdings. The VanEck Vectors Semiconductor ETF (SMH) edged up 0.7%. ASML stock is a big holding, along with LRCX, KLAC and TER.
Reflecting more-speculative story stocks, ARK Innovation ETF (ARKK) climbed 1.4% last week and ARK Genomics ETF (ARKG) lost 1%. TSLA stock remains a major holding across Ark Invest’s ETFs. Indeed, Cathie Wood’s Ark reloaded its Tesla stock holdings in recent months.
SPDR S&P Metals & Mining ETF (XME) dipped 0.5% after two big weekly gains. The Global X U.S. Infrastructure Development ETF (PAVE) fell nearly 3%. U.S. Global Jets ETF (JETS) edged up just 0.35% but it’s up sharply in 2023. SPDR S&P Homebuilders ETF (XHB) fell 2.4%.
The Energy Select SPDR ETF (XLE) climbed 0.7%, a sixth straight weekly advance. Chevron stock is a major component. The Financial Select SPDR ETF (XLF) sank 2.1%. The Health Care Select Sector SPDR Fund (XLV) fell 1.1%, the sixth decline in seven weeks.
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Tesla earnings are due Wednesday night. Investors expect earnings to rise 34% and revenue 39%. That would be the first quarter in years that revenue growth would outpace profits, an early sign of margin pressure.
The focus will likely be on the outlook, especially in the wake of big price cuts worldwide to start 2023. Will Tesla stick to its 50% delivery growth target? Will Elon Musk provide more Cybertruck specifics, and will he confirm a reported Model 3 revamp? What about a new EV plant? Tesla stock soared 9% last week to 133.42, above the 21-day moving average after dropping to 101.81 intraday on Jan. 6. But it’s still below its 50-day line and especially its 200-day line.
Microsoft earnings are due Tuesday night. Analysts expect Microsoft earnings to decline slightly, with a slim revenue gain. Microsoft’s results will be key for software makers, the PC sector and cloud-computing rivals such as Amazon.com (AMZN). This past week, the Dow Jones tech titan said it would cut 10,000 jobs, or 4.5% of staff. MSFT stock edged up 0.4% last week, hitting resistance at the 50-day line. Microsoft arguably has a bottoming base below the 200-day line. But a breakout would involve clearing the 200-day line and a long downward-sloping trendline.
Boeing earnings are Wednesday morning, with a slim profit expected after a string of losses. Investors are betting on rebounding profit and cash flow in the coming years. Boeing stock fell 3.4% to 206.76 this past week. After a huge move, BA stock needs to set up again.
ServiceNow earnings are slated for Wednesday night. Analysts expect a 38% EPS gain, the second straight quarter of accelerating growth. Executives have been bullish on 2023 IT spending. The report will be key for highly valued business software names. NOW stock popped 6.5% to 441.83 after surging 13% in the prior week. Shares cleared the 200-day line on Friday, hitting a four-month high and clearing a long downtrend. That offered a very early entry, but the upcoming earnings make that highly risky.
Chevron earnings are due out Friday morning. Analysts expect another quarter of booming EPS growth vs. a year earlier, but down from Q2-Q3. CVX stock rose 1.8% to 180.81 last week, retaking its 50-day line. Chevron is in a flat base, but a move above Wednesday’s high of 182.38 would offer an early entry. Chevron earnings will be important for the oil and gas sector, especially oil majors such as Exxon Mobil (XOM).
Mastercard earnings are due early Thursday, with Visa earnings after the close. Mastercard EPS is seen up nearly 10% with Visa’s up 11%. The credit card giants’ results and comments will be important for other payments firms and for insight into consumer spending trends. Both Visa and Mastercard stock are working on handles in long consolidations, trading around key resistance levels going back to early 2022.
ASML earnings are due early Wednesday, with Lam Research and Teradyne after the close. KLA reports late Thursday. ASML earnings are expected to fall 11%, but Lam Research earnings should climb 15% and KLA’s 27%. Guidance will be key in what is likely to be a challenging 2023. Together these earnings reports, along with chipmakers such as Intel (INTC), will give insight into the semiconductor space and end markets.
ASML stock is extended from the 200-day line. LRCX stock is trading just above its 50-day and 200-day lines in a bottoming base. KLAC stock has a small handle on a weekly chart for a consolidation going back a year.
Market Rally Analysis
The stock market rally was due for a pullback, and it got one. The major indexes reversed sharply lower on Wednesday and kept falling Thursday. But they closed off Thursday’s lows and rebounded strongly Friday.
The Nasdaq eked out a weekly gain, decisively retaking the 50-day moving average on Friday. Friday’s action was another subsequent follow-through day for the Nasdaq.
The S&P 500 reclaimed its 50-day line and sneaked back above its 200-day line. The Russell 2000 found support at the 200-day and could try to test its late 2022 peaks soon.
The Dow Jones was the week’s biggest loser, tumbling below its 50-day and ending the week well below that level.
Outside of the Dow, the recent pullback looks normal and healthy so far.
The pause is giving a chance for leading stocks to forge handles while few are breaking down. If anything, a slightly longer pullback could be useful in this regard.
But the major indexes have a number of key resistance levels. The S&P 500 needs to decisively retake the 200-day line, with this past week’s highs and the December peak serving as key milestones.
Earnings season could be the catalyst for big market gains or losses — or both.
This coming week will also offer the first reading on fourth-quarter GDP, along with the December PCE inflation gauge. Those will pave the way for the Federal Reserve policy meeting on Feb. 1.
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Tech Revival Continues
The stock market rally appears to be rotating toward tech growth plays after a long break. The Nasdaq composite hit a bear market closing low as recently as Dec. 28. But in 2023, the Nasdaq is up 6.4%. The SMH chip ETF has rallied 12%, the IGV software ETF 5.5% and the speculative ARKK 16.8%.
What’s driving the tech growth revival?
Treasury yields are falling, a positive for highly valued growth stocks. Meanwhile, there are hopes for an economic soft landing, as China and Europe improve and as Fed rate hikes appear close to a peak. That raises bets that much of the bad news is priced in for growth stocks
The Russell 2000, another risk-on play, is nearly even with the Nasdaq, up 6.1% in 2023.
The S&P 500 has climbed 2.5% to start the new year. The Dow Jones has edged up 0.7%, and only positive thanks to Friday’s solid gain.
There aren’t a lot of tech growth names in position yet. LRCX stock is among the emerging big-cap chip leaders setting up. Software is scarce, though NOW stock is making a case. E-commerce is picking up, with MercadoLibre (MELI) breaking out and Etsy (ETSY) setting up. Chinese e-commerce and internet firms also are doing well.
The big earnings reports over the next two weeks are tech heavy, so investors will see if the growth revival has legs.
Meanwhile, many financials struggled last week, while defense contractors and defensive-minded food and consumer goods stocks are stumbling.
But metals and mining stocks look strong. Airlines have flown, while investors are moving into hotels as well. Retail is a mixed bag. So are medicals: Biotechs look interesting but health insurers are weak.
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What To Do Now
The market rally showed some resilience late last week, along with many quality stocks. It’s still possible that the current pullback will resume, triggering more-lasting damage. Earnings season could trigger huge moves in specific stocks, but also their rivals, suppliers and customers.
So while the market, especially the Nasdaq, may be signaling “risk on,” investors should be cautious about adding exposure. One possible option is via market or sector ETFs, to avoid single-stock risk. If you do add exposure, be ready to step out quickly. If you’re not ready and willing to quickly exit, you need to be more conservative in entering positions.
But the next few weeks could offer many buying opportunities. So get your watchlists ready and stay engaged.
Read The Big Picture every day to stay in sync with the market direction and leading stocks and sectors.
Please follow Ed Carson on Twitter at @IBD_ECarson for stock market updates and more.
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