Dow Jones futures fell after hours, along with S&P 500 futures and Nasdaq futures, which Microsoft (MSFT) guidance overruled better than feared earnings. ASML (ASML), Boeing (BA) and Tesla (TSLA) is on tap Wednesday.
The stock market rally traded in a relatively narrow range on Tuesday after big gains in the two previous sessions. The main indexes closed mixed. Nasdaq retreated as the Justice Department filed another antitrust lawsuit against Google parent Alphabet (GOOGL).
Microsoft’s earnings fell short of previous views on strong growth in cloud computing. But the software giant gave weak guidance. MSFT shares rose strongly at the start, turned down.
Intuitive surgical (ISRG) and Texas Instruments (TXN) also reported. ISRG revenue missed out on in-line revenue. Texas Instruments beats a bit, but guided lower. ISRG shares fell while TXN shares fell slightly.
Early Wednesday, chip equipment giant ASML reports, along with other semiconductor equipment manufacturers Lamb Research (LRCX), Teradyne (TER) and Wolfspeed (WOLF) expires after closing.
Boeing and Freeport-McMoRan (FCX) also reports early Wednesday.
Tesla will provide profit results on Wednesday evening. Tesla earnings will be important, but investors will likely focus on 2023 guidance, especially after big price cuts worldwide to start the year. These price cuts have increased demand for Tesla – at the expense of margins – but will that increase last?
After the closing, Tesla said it will spend $3.6 billion on or around its original “Gigafactory” outside Reno, Nevada. It will be used for a Tesla Semi line and for mass production of 4680 battery cells.
Tesla shares fell 2% overnight. Shares rose 0.1% Tuesday to 143.89, nearing the 50-day line. TSLA stock is up nearly 17% so far in 2023.
Dow Jones Futures today
Dow Jones futures fell 0.25% vs. fair value. S&P 500 futures fell 0.4 percent. Nasdaq 100 futures fell 0.7%, reversing modest initial gains. MSFT stock is a Dow Jones, S&P 500 and Nasdaq component.
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
After an NYSE glitch disrupted about 100 tickers at the open, the stock market rally traded modestly lower in the morning before gradually improving to mixed.
The Dow Jones Industrial Average rose 0.3% in Tuesday’s trading. The S&P 500 index fell 0.1 percent. The Nasdaq composite fell 0.3 percent. The small-cap Russell 2000 gave up 0.25%.
US crude oil prices fell 1.8% to $80.13 a barrel. Natural gas fell 5.5% after rising more than 6% on Monday.
The 10-year Treasury yield fell basis points to 3.47% amid mixed to weak manufacturing data.
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DOJ sues Google again
The DOJ sued Google for its dominance of online advertising, and sought to force the company to sell certain assets. In October 2020, the Ministry of Justice filed an antitrust case due to alleged abuse of online search power. Groups of states have three antitrust lawsuits against Google, including one involving advertising.
Google shares fell 2.1% to 97.70 on Tuesday, though that’s after running 10% higher on heavy volume in the previous three sessions.
Google reports Q4 earnings on February 2nd.
Among growth ETFs, Innovator IBD 50 ETF (FFTY) and Innovator IBD Breakout Opportunities ETF (BOUT) were higher. The iShares Expanded Tech-Software Sector ETF ( IGV ) fell 0.6%. The Microsoft share is an important IGV component.
VanEck Vectors Semiconductor ETF (SMH) fell 0.7%, ASML stock is a big holding, with TXN, LRCX and TER also in SMH.
Reflecting stocks with more speculative stories, ARK Innovation ETF ( ARKK ) fell 1.6% and ARK Genomics ( ARKG ) lost 1.4%. Tesla stock is a large holding across Ark Invest’s ETFs. Cathie Wood’s Ark has strengthened its TSLA position in recent weeks, adding shares as recently as Monday.
The SPDR S&P Metals & Mining ETF ( XME ) rose 0.2%, and the Global X US Infrastructure Development ETF ( PAVE ) rose 0.4%. US Global Jets (JETS) crashed. The SPDR S&P Homebuilders ETF ( XHB ) rose 0.4%. The Energy Select SPDR ETF (XLE) yielded 0.4% and the Financial Select SPDR ETF (XLF) gained 0.1%. The Health Care Select Sector SPDR Fund ( XLV ) fell 0.7%.
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Microsoft’s earnings fell 6% from a year earlier, excluding various items, just beating fiscal Q2 views. Revenue rose 1.9%, the smallest increase in more than six years and missing forecasts. Revenue from Azure and other cloud computing services rose 31% — 38% excluding currency fluctuations — beating consensus views. Analysts had been concerned about Azure growth.
Investors were relieved by the Dow Jones tech titan’s decent performance. But Microsoft gave weak guidance and warned of slowing activity.
MSFT shares fell 1% after initially jumping 5% or more after hours.
Last week, Microsoft announced plans to cut 10,000 jobs, about 4.5% of its workforce.
Shares fell 0.2% to 242.04 on Tuesday, holding the 50-day line after reclaiming that key level on Monday. Without a doubt, Microsoft stock has a bottom base with a buy point at 264.02. It formed below the 200-day mark, but a breakout would mean clearing that level and breaking a long downtrend.
Microsoft’s earnings and guidance are important to other software makers, PC-related stocks and cloud computing games such as Google and Amazon.com (AMZN). Microsoft’s recent major stake and alliance with ChatGPT creator OpenAI could be another threat to Google and Amazon.
Amazon and several cloud software companies fell overnight after initially collecting Microsoft revenue.
Market rally analysis
The share rise stopped on Tuesday, and the major indices ended mixed. But it was normal action after big gains on Friday and Monday, especially heading into a huge flood of earnings.
The S&P 500, which cleared last week’s highs and the 4,000 level on Monday, held those key levels.
The Nasdaq Composite fell and remains modestly below the 200-day line and December highs.
The Dow Jones extended the rally from the 50-day line after retaking that key level on Monday
The small-cap Russell 200 edged lower but is near late-2022 highs.
The market recovery looks strong, but the major indices meet all levels of resistance. Tech has led the market in 2023, but now we’re going to get a flurry of tech revenue. Even if the macroeconomic picture stabilizes and Fed rate hikes slow down, companies may cut guidance in the coming weeks.
Microsoft can only start.
In addition to Tesla, ASML and Boeing on Wednesday, apple (AAPL), the Facebook parent Meta platforms (META), Amazon, AMD (AMD), Google and many more are due to report next week
If the market rally has cleared the late 2022 highs by the end of next week, it will be a strong signal that a sustained uptrend is underway.
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What to do now
The share rise has shown more strength and offers a number of buying opportunities.
Investors should increase their exposure gradually and not become too concentrated in a particular stock or sector. Earnings season can spoil the market, but especially individual stocks. An alternative for investors is to buy market or sector ETFs, along with individual names.
Definitely focus on building your watchlists. Be aware of key earnings for the market and your holdings, including rivals, customers and suppliers of the companies you hold positions in.
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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