Dow Jones futures open Sunday night, along with S&P 500 futures and Nasdaq futures. Nvidia earnings are big this week, with debt ceiling talks resuming Friday night after a break hours earlier.
Shares rallied in the past week due to deal optimism with the debt ceiling and an easing of banking fears, with gains led by AI-infused technology leaders such as Nvidia (NVDA), Advanced Micro Devices (AMD), Service Now (NOW), Google Parent Alphabet (GOOGL), 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 deal on the debt ceiling as concerns about regional banks eased.
On Friday, GOP negotiators suspended debt ceiling negotiations, saying President Biden’s White House was unreasonable. Around the same time, a report came out that Treasury Secretary Janet Yellen told bank chiefs that more bank mergers may be necessary. That hit regional bank shares on Friday, although they rose strongly for the week.
The major indexes took the debt ceiling setback and Yellen’s comments in stride on Friday, in part because Fed Chair Jerome Powell signaled at the same time that he favors a rate hike next month.
Investors are also assured of a debt limit agreement. In fact, the Representative of the House of Representatives, Kevin McCarthy, said on Friday night that the negotiations on the debt ceiling would resume later that evening.
The share rise is still somewhat fragmented, with narrow management. Still, investors can add exposure cautiously, even though not many stocks currently offer buying opportunities.
Tesla ( TSLA ) made a bullish move this past week in the middle of its shareholder event, clearing some key levels. But TSLA stock faces further resistance.
Nvidia earnings on Wednesday night will be a big deal for the market rally. NVDA stock is everything that is going right with the market. It is the leading megacap and AI stock in a market rally dominated by megacaps and AI plays. Nvidia stock rose 10% last week and is significantly extended.
Nvidia stock stalling or pulling back modestly over several weeks would be healthy. But if Nvidia earnings or guidance disappoint, NVDA could be severely punished. That would have consequences for rival AMD, but also Google and a number of “AI” games that have driven the market higher.
ServiceNow stock gained momentum last week amid AI-related alliances with Nvidia and Microsoft (MSFT). SNOW stock received a report that it might buy an AI search firm. PLTR stock, long an AI play, rose 23% for the week following last week’s 28% rise in earnings. Google shares have risen 14% so far in May.
Other key revenues
Snowflake, Elf beauty (ALV), Palo Alto Networks (PANW) and Covers outdoors ( DECK ) are also notable companies with earnings in the coming week.
SNOW stock is in a 10-month consolidation. ELF shares are consolidating at their 21-day line after a huge rally. PANW stock is trying to hold its 50-day line within a new volatile flat base. DECK stock had been a big winner, but fell below the 50-day line in the past week as On holding (You too Foot Locker (FL) plunged on its results.
Nvidia stock is on the IBD Leaderboard, with ELF stock on the Leaderboard watchlist. The SNOW stock is at the IBD 50. The NOW stock is at the IBD Big Cap 20.
The video embedded in the article discussed the weekly market action and reviewed three non-AI setups: Lifetime group (LTH), Merit homes (MTH) and Free market (MELI).
Dow Jones Futures today
Dow Jones futures open at 6 PM ET on Sunday, along with S&P 500 futures 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 regular session.
Join IBD experts as they analyze actionable stocks in the stock market rally on IBD Live
Stock market rally
The stock market rally continued last week, with a large gap between leaders and laggards.
The Dow Jones Industrial Average rose 0.4% in last week’s trading. The S&P 500 index rose 1.65 percent. The Nasdaq composite rose 3 percent. The small-cap Russell 2000 jumped 1.9%.
The 10-year Treasury yield rose 23 basis points to 3.69% in the past week, hitting a two-month high.
Odds for a Fed rate hike next month briefly topped 40% during the week amid strong economic data and some hawkish comments from Fed officials. But when Powell said “we can afford to look at the data,” the chance fell back to about 20% on Friday.
US crude oil futures rose 2.2% to $71.55 a barrel for the week.
Among growth ETFs, the iShares Expanded Tech-Software Sector ETF ( IGV ) rose 5.25%. NOW stock is a major IGV component. VanEck Vectors Semiconductor ETF (SMH) rose 8.5%. Nvidia stock is a major SMH holding, along with AMD stock. Reflecting more speculative story stocks, the ARK Innovation ETF ( ARKK ) rose 2.7% last week and the ARK Genomics ETF ( ARKG ) rose 3%. The Tesla share is number 1 across Ark Invest ETFs. Cathie Wood’s Ark also owns some PLTR shares.
The SPDR S&P Metals & Mining ETF ( XME ) fell 0.5%, its fifth straight weekly loss. The US Global Jets ETF (JETS) rose 4.1%. The SPDR S&P Homebuilders ETF (XHB) rose 1.2%. The Energy Select SPDR ETF (XLE) rose 1.4%. The Health Care Select Sector SPDR Fund (XLV) fell 0.7 percent.
The Financial Select SPDR ETF (XLF) rose 2.2%. The SPDR S&P Regional Banking ETF ( KRE ) rose 7.8%, even with Friday’s 1.8% decline.
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Tesla Share A Buy?
Tesla shares rose 7.2% last week to 180.14, rebounding from near the 21-day line and retracing the 50-day line for the first time since early April.
Investors responded well to Tuesday’s Tesla shareholder day. CEO Elon Musk reiterated that the Cybertruck will begin deliveries this year, while again hinting at a next-generation vehicle. Musk also said Tesla will “try” some advertising. Like any savvy CEO in 2023, he made sure to mention “AI” several times.
Meanwhile, Tesla quietly offered some new inventory discounts on US Model 3 vehicles, following recent discounts on Model 3 and Y vehicles in Europe. Stock discounts don’t get the headlines that official price cuts do, but they hit profit margins nonetheless. The balance between production, deliveries and prices is Tesla’s key story in 2023.
Investors may see Friday’s move above the 50-day moving average as an early entry for Tesla stock. But that would be extremely aggressive. Tesla still faces the 200-day line, which is heading down toward 200. Just above that is a buy point at 207.89, just above the March 31 high. It is either from a seven week consolidation or a three month double bottom buy point.
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Market rally analysis
The rise in the stock market showed that strength last week, but progress is still narrow. The Nasdaq boomed and hit a 2023 high, and the S&P 500 did as well late in the week.
The Russell 2000, driven by bank stocks, also had a solid week but is well off 2023 highs. The Dow Jones posted a small weekly gain after undercutting its 50-day line on Tuesday.
The tech rally has expanded from megacap stocks like Google and Nvidia to big chip and software names like AMD, ServiceNow and AI plays like Palantir. But most have been expanded now.
The Nasdaq 100 hit a 52-week high, up 3.5% for the week. First Trust Nasdaq 100 Equal Weighted Index ETF (QQEW), which had been struggling, rose 2.45%. It is near 2023 highs.
But the overall breadth remains lacking at best. The Invesco S&P 500 Equal Weight ETF ( RSP ) climbed nearly 1% but fell back below its 200-day line on Friday. RSP is not much closer to the 2023 highs than the October bear market.
Losers led advances Friday after modestly positive broadside Thursday. But new highs outpaced the losers for a second consecutive session.
Beyond chips, software and megacap stocks, homebuilders, building materials, medical products and biopharma names are performing well. So are travel plays and some payment balances.
Shoe-related stocks turned heels last week due to ONON and Foot Locker. Covers Outdoor, as well Dick’s Sports Equipment (DKS), will try to put their best foot forward.
Talks about the debt ceiling, banking problems and recession risk are still major problems for the market recovery. While Wall Street and political analysts still see a debt limit deal as highly likely, various headlines could swing markets up and down over the next few days.
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What to do now
The share price is trending higher, but the leadership is narrow and the market breadth suspect. Many of the leading stocks have expanded.
Investors who took advantage of technology that cleared buy signals in the last week or so have generally been rewarded, some hugely. But overall exposure should remain modest. Consider taking partial profits on big winners. Definitely have a game plan in place.
A healthy number of stocks are establishing themselves from a variety of sectors, and could get going if the market picks up. So you will be ready.
Read The Big Picture every day to stay in sync with market direction and leading stocks and sectors.
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