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Dow Jones Futures: Microsoft, Google, Meta Earnings Test AI-Led Rally; Tesla Ups discounts




Dow Jones futures open Sunday night, along with S&P 500 futures and Nasdaq futures, with Microsoft (MSFT), Google parent Alphabet (GOOGL) and Meta platforms ( META ) delivers a huge earnings week, with the Federal Reserve set to raise interest rates again.




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Tesla ( TSLA ) continues to expand discounts and financing options to boost demand, despite the possible impact on margins.

The stock rally saw big weekly gains for the Dow Jones, which is on its longest winning streak in almost six years. The S&P 500 also made solid progress. But the Nasdaq turned lower after a big sell-off on Thursday led by Tesla. Growth stocks suffered losses, often heavy, but generally they still look healthy.

Bank shares, meanwhile, are roaring back. Industrial, travel and some drug stocks showed strong or resistant action.

The market may need a breather and there aren’t many setups at the moment. So it is not a good time to add exposure.

Microsoft, Google and Meta earnings tower over the market rally. Not only do these three tech titans boast nearly $5 trillion in combined market capitalization, but their results, guidance, spending plans and commentary will be important to cloud computing, artificial intelligence, digital advertising and more.

It will also have a big impact on cloud software games Nvidia (NVDA) and other suppliers. That will also be the key to Amazon.com (AMZN), which reports Aug. 3.

Meanwhile, ServiceNow (NOW), General Electric (GE), Visa (V), Chipotle Mexican Grill (CMG), Boeing (BA), General Motors (GM) are just some of the other important companies on tap.

Tesla, Nvidia and Meta shares are on the IBD Leaderboard, with CMG shares on the Leaderboard watchlist. Microsoft stock is on the IBD Long-Term Leader list. Tesla and NOW stock are at the IBD 50. TSLA stock is at the IBD Big Cap 20.

The video embedded in the article discussed the weekly market action and analyzed Dow giants Microsoft, Boeing and Visa stocks.

Cool meeting

The Fed meets for two days this week with a policy announcement on Wednesday at 2 p.m. ET. After a break in June, the Fed is overwhelmingly expected to raise interest rates by a quarter of a point. But the real question is the rate hike outlook for the rest of the year. Fed policymakers in June forecast two more rate hikes this year, but tame inflation reports have bolstered investor expectations that there is only a modest chance of another move after Wednesday.

Fed Chair Jerome Powell’s comments at 2:30 PM ET are likely to provide clues about the interest rate outlook.

Dow Jones Futures today

Dow Jones futures open at 6 p.m. ET, 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 market rally on IBD Live


Stock market rally

The stock market rally started the week with broad strength, but then diverged.

The Dow Jones Industrial Average jumped 2.1% in last week’s trading, finally moving above its 2023 highs. The Dow is riding a 10-day winning streak, its longest since August 2017. The S&P 500 rose 0.8%, but pared gains. The Nasdaq composite fell 0.6%, thanks to Thursday’s 2.05% drop. The small-cap Russell 2000 climbed 1.5%, also approaching 2023 highs.

The Invesco S&P 500 Equal Weight ETF (RSP) climbed 1.35%, nearly double the S&P 500’s gain and just shy of 2023 highs,

The First Trust Nasdaq 100 Equal Weighted Index ETF (QQEW) rose 0.9%, mirroring the Nasdaq 100’s 0.9% slide.

The 10-year Treasury yield rose 2 basis points to 3.84%, but with some big daily moves.

U.S. crude oil futures rose 2.3% to $77.07 a barrel, the fourth straight weekly gain.


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ETFs

Among growth ETFs, the Innovator IBD 50 ETF ( FFTY ) fell 0.35% last week, while the Innovator IBD Breakout Opportunities ETF ( BOUT ) climbed 0.7%. The iShares Expanded Tech-Software Sector ETF ( IGV ) rose 0.1%, paring weekly gains. Microsoft shares and ServiceNow are big IGV holdings. VanEck Vectors Semiconductor ETF ( SMH ) fell 2% after last week’s peak of 5.4%.

The SPDR S&P Metals & Mining ETF (XME) rose 0.2% last week. The Global X US Infrastructure Development ETF (PAVE) rose 0.4%, right at all times. The US Global Jets ETF (JETS) rose 1.9%. The SPDR S&P Homebuilders ETF ( XHB ) fell 1.5%. The Energy Select SPDR ETF (XLE) rose 3.5% and the Health Care Select Sector SPDR Fund (XLV) rose 3.45% to its best levels since early January. The Industrial Select Sector SPDR Fund ( XLI ) climbed 0.9%, hitting a new high.

The Financial Select SPDR ETF ( XLF ) rose nearly 3% and the SPDR S&P Regional Banking ETF ( KRE ) rose 7.5%.

Reflecting more speculative story stocks, the ARK Innovation ETF ( ARKK ) fell 1.3% last week and the ARK Genomics ETF ( ARKG ) climbed. Tesla stock is No. 1 across Ark Invest’s ETFs. TSLA stock fell 7.6% in a big outside, downside week in higher volume, but remains comfortably above the 10-week mark.


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Tesla discounts are extended

Tesla has now increased US discounts on its Model 3 inventory, with the EV sedan going as low as $37,040 with zero miles. That’s versus the build-to-order starting price of $40,240. With the $7,500 federal tax credit, the price tag is under $30,000, with some government incentives further reducing costs.

Meanwhile, Tesla now offers 84-month car loans, after previously offering financing for up to 72 months.

On the Q2 earnings call, CEO Elon Musk announced that Tesla would offer a one-time free Full Self-Driving transfer from an existing Tesla to a new one purchased in the third quarter. It may provide a one-time increase in sales, but without the FSD revenue of $15,000.

All this points to further margin pressure in the third quarter.

Tesla’s earnings per share topped views, with revenue up 47% thanks to ongoing price cuts and simple year-over-year comparisons. But operating profit fell 2.6%, while margins weakened further. Tesla stock fell 7.6% last week in an outside week of above-average volume. It was ugly action, although the EV giant could use a long handle or short base within a much larger consolidation. TSLA stock has more than doubled in 2023.

Microsoft, Google, Meta revenue

Microsoft earnings and Google earnings are due Tuesday night with Meta earnings Wednesday night.

Microsoft and Google will provide insight into cloud computing. Google and Meta will offer clues about online advertising and social media, with Snapchat parenting Snap (SNAP) also in print next week.

All three will add color to artificial intelligence. Microsoft will be particularly important because it is seen as an AI leader and has just announced prices for various enterprise AI capabilities. How quickly will “AI” be a real growth driver for Microsoft? If Mr. Softy doesn’t see meaningful earnings for a while, that could chill “AI stocks” broadly, especially the more speculative names.

Cloud-related comments from these three titans will be key for Amazon, which relies on Amazon Web Services for the bulk of its profits. Together with the ServiceNow revenues, they could swing leading software games such as Data dog (DDOG), Dynatrace (DT), Cloudflare (NET) and MongoDB (MDB).

Meanwhile, megacap guidance, especially on spending, will be key for vendors such as Nvidia, Broadcom (AVGO), Arista Networks (ANET) and more.

Market rally analysis

The equity rally still looks strong, with the major indexes right at 52-week highs with robust breadth and diverse leadership. The Nasdaq’s sell-off on Thursday was sharp, but it ended the week finding support at the 10-day line.

The Nasdaq and S&P 500 are on the verge of being extended, so a tidy break or pullback would be healthy.

A market break would create new buying opportunities. Many leading stocks are expanding. A number of others look OK after heavy losses on Thursday, but may need a few days or weeks to rebound.


Time the market with IBD’s ETF market strategy


What to do now

This is not a good time to add exposure. The Nasdaq took a hit, but is also not far from being extended again. Not many shares are in position. And earnings this week, along with the Fed meeting, could affect individual stocks, sectors and market gains.

Investors should look at their portfolio and note which holdings have earnings at a loss – and which big results from related companies are due. Consider whether to hold various stocks through the earnings season, or take full or partial profits.

The share rise is still strong. Investors should watch how stocks react to earnings and other news this week. It doesn’t take much before a number of names look interesting again.

Nasdaq 100 Special Rebalance

Before Monday’s market open, a special rebalancing of the Nasdaq 100 will take place, reducing the dominance of the “Magnificent Seven” of Microsoft, Apple, Nvidia, Google, Amazon, Meta Platforms and Tesla stock. The MSFT share and Nvidia will see the biggest weight reductions in the index.

The particular rebalance probably won’t have a big impact on these titans. The news has basically been out for two weeks.

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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