Dow Jones futures fell overnight, along with S&P 500 futures and Nasdaq futures, with Treasuries still rising and Asian markets hitting new lows. Tesla fell on mixed earnings even as CEO Elon Musk hinted at a “meaningful” TSLA share buyback, and predicted an “epic” fourth quarter. But he also admitted that the EV giant sees weakness in China and Europe.
The attempt at a stock market rally lost ground on Wednesday, when the 10-year government yield jumped to a new 14-year high. Netflix ( NFLX ) led overall strong earnings results, providing some support for stocks, but there were also some big losers.
Tesla ( TSLA ) slightly topped earnings views, but fell short on revenue. Musk said Q4 will be “epic,” although he acknowledged China and European issues. TSLA stock sold off overnight.
Lamb Research (LRCX), Alcoa (AA), IBM (IBM) and Las Vegas Sands (LVS) and Steel dynamics (STLD) reported late Wednesday.
Lam Research revenue and earnings topped fiscal Q1 views, but the chip-gear maker said it will lose up to $2.5 billion in U.S. curbside sales on China exports. LRCX shares fell modestly in overnight trading. Shares climbed 2.5% on Wednesday, boosted by strong ASML (ASML) earning and guidance before Wednesday’s opening.
Alcoa reported a surprise loss while sales fell short. The AA share plunged in extended action. The share fell 5.3 percent on Wednesday.
IBM’s earnings and sales both peaked. IBM shares rose modestly after falling 0.35 percent on Wednesday.
Las Vegas Sands reported a quarterly loss and revenue that was slightly weaker than expected. LVS shares were little changed in extended trading after falling 0.7% on Wednesday. Sands shares briefly broke out of a bottom base in early October, but shares have plunged on the market sell-off and another rise in China Covid cases.
Steel Dynamics’ earnings and turnover peaked. STLD shares rose overnight. Shares fell 1.3% to 80.68 on Wednesday but held above the 50-day line. Steel Dynamics stock has a consolidation buy point of 88.72, according to MarketSmith. It is close to a trendline entry.
Nucor (NOW) and American Airlines (AAL) has an appointment on Thursday morning. NUE stock edged higher late on STLD earnings, after hitting resistance at the 50-day and 200-day lines in Wednesday’s session. AAL shares rose 2.1% on Wednesday, extending a winning streak to seven sessions on strong guidance from United Airlines (UAL) late Tuesday and Delta Air Lines (DAL) last week.
Dow Jones Futures today
Dow Jones futures were down 0.2% relative to fair value, even as IBM shares gave a boost. S&P 500 futures fell 0.5 percent. Nasdaq 100 futures retreated 1%. Tesla stock is a major S&P 500 and Nasdaq component.
The 10-year government yield rose 2 basis points to 4.15%.
Hong Kong’s Hang Seng index fell again to a 13-year low. The Japanese yen approached 150 vs. the dollar as the Bank of Japan made unplanned bond purchases to rein in Japanese interest rates. China’s offshore yuan hit a record low.
Keep in mind that overnight action in Dow futures and elsewhere does not necessarily translate into actual trading in the next regular session.
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Stock market rally
The attempted stock market rally briefly contributed to the recent gains, but then turned lower amid soaring government interest rates. The major indexes pared losses somewhat at the end. A tepid beige book report, offering some Fed-positive signals on labor markets and inflation, may have helped.
The Dow Jones Industrial Average fell 0.3% in Wednesday’s trading. The S&P 500 index gave up 0.7 percent. The Nasdaq Composite retreated 0.85%. The small-cap Russell 2000 fell 1.7%.
The 10-year Treasury yield rose 13 basis points to 4.13%, a new 14-year high. UK inflation returning to a 40-year high helped push interest rates higher. The 10-year yield is on track for a 12th consecutive weekly gain.
U.S. crude oil prices rose 3.3% to $85.55 a barrel, even as the Biden administration set to release more crude from the Strategic Petroleum Reserve. Natural gas prices increased sharply in recent years, down 3.9%.
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Among the top ETFs, the Innovator IBD 50 ETF ( FFTY ) rose 0.7%, while the Innovator IBD Breakout Opportunities ETF ( BOUT ) fell 2.1%. The iShares Expanded Tech-Software Sector ETF ( IGV ) fell 1.15%. The VanEck Vectors Semiconductor ETF ( SMH ) climbed 0.8%, with ASML and LRCX shares helping.
Reflecting more speculative stock stocks, the ARK Innovation ETF ( ARKK ) fell 4.2% and the ARK Genomics ETF ( ARKG ) fell 5.5%, to a four-month low. Tesla stock is the top holding across Ark Invest’s ETFs.
The SPDR S&P Metals & Mining ETF ( XME ) retreated 2.4%. The US Global Jets ETF (JETS) closed flat, despite advances by UAL, AAL and DAL. The SPDR S&P Homebuilders ETF (XHB) sold 4.8 percent. The Energy Select SPDR ETF (XLE) jumped 3%. The Health Care Select Sector SPDR Fund ( XLV ) fell 1.4%.
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Tesla’s earnings rose 69% to $1.05 per share, and revenue rose 56% to $21.45 billion. Analysts had expected Tesla earnings of $1 per share on sales of $23.3 billion, both up 62%.
Musk said on the Tesla earnings call “it’s likely we’ll do some sort of buyback” in 2023.
Tesla’s CEO predicted an “epic” Q4, but with caveats. In response to a question about lag, Musk said China and Europe are experiencing some weakness. He suggested it is temporary and reflects wider economic problems.
Q3 deliveries, reported earlier this month, easily set a record of 343,830, but missed impressions by about 360,000. It also fell short of production by about 22,000 vehicles.
Tesla claimed that logistics costs spurred it to tone down the rush at the end of the quarter. The EV giant said it will build additional inventory in Q4 to help with that shift.
But there is widespread speculation that China’s weakness was a big factor in the third-quarter delivery shortfall. Wait times have dropped significantly, even with some new incentives, as local backlogs drop to zero.
And despite saying they want to smooth out logistics, Tesla’s local deliveries in China and key European markets are very low to start Q4.
Thanks to recent upgrades, production at the Shanghai plant increases higher Q4. Berlin and Austin are also slowly picking up production. So Tesla may have an “epic” Q4 for deliveries, but has demand concerns for 2023. That’s especially true if the overall Eurasian backlog is drawn down by year-end.
In the US, new tax credits for electric cars should help Tesla in 2023, although it is not clear which vehicles will be eligible. The upcoming tax credits may encourage potential buyers to wait until January to buy. The Cybertruck can also help in the US, if volume production starts next year.
Tesla Semi deliveries will begin on December 1, as Musk previously tweeted. It is unclear how many will be made now or in 2023. Despite the limited production, the Tesla Semi will not use 4680 batteries for now.
Tesla said production of 4,680 battery cells tripled in Q3 vs. Q2. But that still equates to a small number of battery packs. The larger form factor batteries are still not mass produced, making cost savings elusive.
Musk said new Tesla drivers will soon have access to the Full Self-Driving Beta. But the FSD Beta will remain a level 2 driver assistance system for the time being.
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Tesla shares fell 6% in overnight trading. TSLA stock pared losses on Musk’s buyback comment but rallied as he admitted weakness in Europe and China. Shares rose 0.8% to 222.04 in Wednesday’s regular session. TSLA stock is up 8.3% so far this week, but that’s after falling to a 15-month low last week. Tesla shares hit a record high of 414.46 in November 2021.
A key question is whether Musk needs to sell more TSLA stock to finance Twitter (TWTR) agreement. At least one analysis had Musk offloading $8 billion worth of Tesla stock.
Musk didn’t talk about it, but said he’s “thrilled” to buy Twitter, although he admitted he’s “paying too much.”
TWTR stock rose more than 1% overnight. Shares rose 0.1% to 51.83 on Wednesday, near the takeover price of $54.20.
Market rally analysis
The attempted stock market rally attempted to make further progress on Wednesday. But the rising 10-year government yield weighed on the major indexes, overshadowing generally strong earnings.
Netflix and a few other big names flattered the major indexes. But decliners outnumbered winners by nearly 3-to-1 on the NYSE and Nasdaq. The small-cap Russell 2000 and S&P MidCap 400 fell sharply, while the Nasdaq composite fared much worse than the Nasdaq 100.
The Dow Jones held above its 21-day line, but the S&P 500 fell back below short-term levels. So did Russell and S&P MidCap. The Nasdaq peaked only briefly on Tuesday and lost further ground on Wednesday.
The indices are still looking for a follow-up day to confirm the new uptrend. The market rally attempt will remain in place unless the major indices break below their October 13 lows.
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What to do now
It’s still a bear market, despite the ongoing rally attempt. The whipsaw action in the major indexes and leading stocks during regular and prolonged trading makes it difficult to play stocks, even for very short periods.
If you take any positions, make them small and be quick to take profits and losses. There is nothing wrong with staying partly or wholly in cash.
Work with these watchlists. Many shares are not far from flashing buy signals.
If they trigger entries, it doesn’t mean you have to do anything. It may mean that you pass up some stocks that become big winners. But it also prevents you from buying a stock that reverses quickly and possibly sells hard.
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 exchange updates and more.
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