Dow Jones futures fell slightly overnight, along with S&P 500 futures and Nasdaq futures. Key inflation data is in print on Friday morning.
The stock market rise had a wildly divergent Thursday. The Nasdaq and especially the Nasdaq 100 rose as Nvidia (NVDA) skyrocketed with strong earnings and guidance on blowout. It also sent Advanced Micro Devices (AMD), Taiwan Semiconductor (TSM) and Arista Networks (ANET) sky high too, with solid gains for ASML (ASML), Microsoft (MSFT), Google parent Alphabet (GOOGL) and other AI or chip games.
But outside of a limited number of big winners, the market showed tepid or weak action amid ongoing debt ceiling talks, concerns about Fed rate hikes and more. Decliners turned in easy winners as the Dow Jones dipped below its 200-day line.
ASML and other chip-gear giants Materials used (AMAT) and KLA Corp. ( KLAC ) pulled back above buy points on Thursday, along with the chip design software maker Cadence design systems (CDNS). ANET makes and Mobileye (MBLY) flashed early entries.
But investors should be cautious about new purchases amid the fragmented market action and super-concentrated market leadership.
Dow Jones Futures today
Dow Jones futures fell 0.2% relative to fair value. S&P 500 futures lost 0.2% and Nasdaq 100 futures fell 0.2%.
Keep in mind that overnight action in Dow futures and elsewhere does not necessarily translate into actual trading in the next regular session.
Conversations about debt and ceilings
Talks about the debt ceiling continued throughout Thursday. President Joe Biden said the negotiations have been “productive.” A key House Republican said the differences have narrowed. But there is no agreement to raise the debt limit yet. The US could default in early June if there is no deal by then.
Moody’s said on Thursday that the US must make an interest payment on Treasurys in mid-June to avoid losing its AAA credit rating. Late Wednesday, Fitch Ratings placed the US’s AAA rating on negative watch due to rising default risks.
Meanwhile, Costco Wholesale (COST), Ulta beauty (ULTA), Workday (WDAY), Covers outdoors (TIRES) and Marvell technology (MRVL) and the headings results reports after the end.
Costco’s revenue came in below its third-quarter results. COST stock was little changed in extended trading after closing modestly below all moving averages.
Ulta revenue just above Q1 views while sales just missed. ULTA stock plunged in overnight action, signaling a drop below 200 days after falling from a May 1 all-time high.
Workday topped first-quarter earnings views and led in line with second-quarter subscription revenue. WDAY stock continued to bounce in late trading, signaling a move above multiple buy points. The stock rose 0.1% to 196.41 on Thursday. The software giant is working on a buy point of 206.78 cups, with 199.17 as an early entry from a protohandle.
Decker’s earnings topped views, but DECK stock fell solidly overnight. The maker of Ugg boots and Hoka running shoes had dipped below the 50-day line after recently On holding (You too Foot Locker (FL) earnings.
Marvell revenue and earnings slightly exceeded first-quarter views. The chip maker also led higher, forecasting AI revenue to double in the second half of the fiscal year. The MRVL share soared overnight. The shares rose 7.6% on Wednesday to 49.47. It was on the edge of a 49.58 cup-shaped bottom base, but Marvell stock extended from its 50-day and 200-day lines.
The Nvidia stock and ASML are on the IBD Leaderboard. Microsoft, KLA and CDNS stocks are long-term IBD leaders. WDAY stocks and ASML are on the IBD 50. ASML, Workday, Microsoft, Cadence Design and AMAT stocks are on the IBD Big Cap 20.
The debt ceiling is just the beginning. These moves can derail the economy.
PCE inflation data
The Commerce Department will release the personal consumption expenditures price index, the Fed’s favorite inflation gauge, at 8:30 a.m. ET Friday.
Economists expect the PCE price index to rise 0.3% in April. That would lift the 12-month PCE inflation rate to 4.3%. Core PCE, which strips out food and energy, is also seen increasing 0.3%, leaving core PCE inflation unchanged at 4.6%.
Fed Chairman Jerome Powell has signaled that he is paying extra attention to core PCE services excluding housing. So look for this inflation reading for super core services.
The odds for a new Fed interest rate increase at the board meeting on 13-14. June is now at 49%, a strong rise in recent days. It goes to 73% at the Fed meeting at the end of July.
The PCE inflation data is part of Commerce’s Income and Expenditure report. Economists see both income and consumption up 0.4% in April.
Join IBD experts as they analyze actionable stocks in the stock market rally on IBD Live
Stock market rally
The stock rally showed highly divergent action, with the Nasdaq leading the way thanks to a handful of big-cap technologies.
The Dow Jones Industrial Average fell 0.1% in Thursday’s trading. The S&P 500 index rose 0.9 percent. The Nasdaq index rose 1.7 percent. The small-cap Russell 2000 fell 0.8%.
Nvidia shares rose 24 percent. AMD shares rose 11% and Taiwan Semi 12%. The ANET share bolted almost 11%. The ASML, KLA and AMAT shares fell 6%-7%. Microsoft shares rose nearly 4% to a 52-week high, while Google rose 2.1%%. Excluding Arista and KLAC shares, these have market capitalizations of at least $100 billion. Nvidia is almost at $1 trillion, with GOOGL shares over $1.5 trillion and Microsoft topping $2 trillion.
The US crude oil price fell 3.4% to $71.83 a barrel. Copper prices rose 0.8%, but from their lowest levels in nearly seven months.
The 10-year government yield jumped 10 basis points to 3.81%.
The US dollar continued to rise, approaching the 2023 highs set in early March.
Among growth ETFs, the iShares Expanded Tech-Software Sector ETF ( IGV ) 2.5% hit a 10-month high. The MSFT share is a large IGV holding. VanEck Vectors Semiconductor ETF ( SMH ) rose 8.6% to a 52-week high. NVDA shares, Taiwan Semiconductor, AMD ASML, Applied Materials and KLA Corp. are all notable SMH components. The CDNS share is in the IGV and SMH ETFs.
ARK Innovation ETF ( ARKK ) reflected more speculative stock stocks, dropping 2.7% and ARK Genomics ETF ( ARKG ) 2.5%.
The SPDR S&P Metals & Mining ETF ( XME ) fell 0.8%. The US Global Jets ETF (JETS) rose 1.2%. The SPDR S&P Homebuilders ETF ( XHB ) rose 0.3%. The Energy Select SPDR ETF (XLE) fell 1.8% and the Health Care Select Sector SPDR Fund (XLV) gave up 1%.
The Financial Select SPDR ETF (XLF) closed just below break-even. SPDR S&P Regional Banking ETF (KRE) retreated 0.8%
Top five Chinese stocks to watch now
Market rally analysis
The stock market rise showed an extreme difference on Thursday. The Nasdaq 100 rose more than 2% while losers outnumbered winners by two to one.
The Nasdaq composite recovered almost all of the losses from the previous two days. The S&P 500 retook the 21-day line in a solid advance. But these reflected large to huge gains in Nvidia, AMD, Microsoft, Google and more.
Meanwhile, concerns about debt ceiling defaults, along with rising Treasury yields and the dollar, weaker foreign economies and increasing odds of further Fed rate hikes, weighed on the broader market.
The Dow Jones, even MSFT stock as a component, dipped just below its 200-day line, although it closed lower. The Russell 2000 fell below the 50-day mark.
The First Trust Nasdaq 100 Equal Weighted Index ETF (QQEW) rose just 0.5%, back from its 21-day high.
The Invesco S&P 500 Equal Weight ETF ( RSP ) was down less than 0.1%, but well off session lows. RSP is down 2.1% for the week, below all moving averages.
New lows easily beat new highs.
However, apart from AI and chip games, not many stocks were flashing buy signals ELF beauty (ELF) was an exception.
Some names showed solid action, but many stocks in or near buy zones fell significantly. There has been a disturbing trend this week.
Time the market with IBD’s ETF market strategy
What to do now
The two-part market rally continues to show unusual action. A number of stocks have been big winners, but the overall market has been weak at best.
Investors may have modest exposure. How much depends largely on whether you are in the winning share.
If you’re not in any of 2023’s big winners and are struggling to get ahead, don’t beat yourself up. A narrow market rally, with various sector rotations, is difficult to navigate. Many stocks have looked promising, only to have their breakouts or entries stumble quickly, or solid gains quickly turn around.
What you don’t want to do is chase extended stocks. Nvidia stock is more than 90% above its 200-day moving average. A significant pullback and perhaps a new base in the next few weeks would not be a surprise. It may offer new entries down the road, but for now NVDA is out of reach.
Don’t get too concentrated. Among the many problems with a split market rise and narrow leadership is that traders can be extremely exposed to a specific stock, group or theme. Obviously, anyone heavily invested in Nvidia and related games was a big winner on Thursday, but the downside risk to the portfolio is high. Investors could have bought ANET shares, ASML, KLA or a few other names on Thursday, but probably wouldn’t want to buy more of them.
The time to invest heavily is when there is a clear, broad market rally, with a large number of stocks from a variety of sectors flashing buy signals and continuing to march higher. At various points, the market recovery has teased such a transformation, only to retreat again.
But you will be ready to act. So keep working on watchlists.
Read The Big Picture every day to stay in sync with market direction and leading stocks and sectors.
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