Dow Jones Futures Rise as Microsoft Jumps; S&P 500 Rolls as First Republic Crashes

Dow Jones futures rose overnight, along with S&P 500 futures and especially Nasdaq futures which Microsoft (MSFT) and Google parent Alphabet (GOOGL) led a big night for earnings.

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Stocks fell sharply on Tuesday, with investors wary of big earnings Tuesday night and beyond. First Republic Bank (FRC) crashed on deposit flight and revived banking fears. Concerns about China’s growth, compounded by reports of a new wave of Covid-19 there, also weighed on stocks, as well as sovereign yields and commodity prices. US government default risk looms over the horizon.

Microsoft stock bounced late on strong results and guidance, signaling a move back into a buy zone. google, Visa (V) and Chipotle Mexican Grill (CMG) also rose after hours. But Enphase Energy (ENPH) dived on mixed results and guidance.

Boeing (BA) reports early Wednesday.

Microsoft stock is on the IBD Long-Term Leaders.

The video embedded in this article discussed Tuesday’s market action and analyzed Rambus (RMB), ServiceNow (NOW) and BJ’s Wholesale (BJ).

Dow Jones Futures today

Dow Jones futures rose 0.2% relative to fair value, with Microsoft shares and Visa both Dow Jones components. S&P 500 futures rose 0.5 percent. Nasdaq 100 futures rose 1.35 percent.

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

Microsoft, Google revenue

Microsoft’s earnings comfortably topped fiscal Q3 views as Azure cloud-computing growth slowed, but were perhaps better than feared. The Dow Jones tech titan also led slightly higher on Q4 earnings.

MSFT shares rose more than 8% in late trading. Shares fell 2.25% to 275.42 in Tuesday’s regular session. Microsoft closed back below a buy point of 276.86, according to MarketSmith analysis, but is signaling a move above that level on Wednesday.

In fact, MSFT stock may clear the top on April 6 at 292.08. Investors may see the recent action as a handle for a consolidation back into August or even late 2021.

Google’s earnings topped views with the internet giant also approving up to $70 billion in share buybacks. Google Cloud revenue rose 28%.

GOOGL stock rose 1.7% in overnight action. The stock closed down 2% to 103.85 on Tuesday. Google stock has a buy point at 106.69 cup with handle.

Microsoft and Google revenue and guidance, along with Meta platforms (META) and Amazon.com (AMZN) later this week, has big implications for cloud software, networking, artificial intelligence and many other tech plays. Meta, Amazon, Nvidia (NVDA) and many cloud software names also rose modestly to solid overnight.

Other key revenues

Visa revenues exceeded forecasts, boosted by strong cross-border payments. The shares climbed 1.7% in extended action. Visa shares fell 1.4% to 229.59 on Tuesday, holding in the area of ​​a 230.15 cup-with-handle buy point.

Chipotle earnings topped views with strong same-store sales growth and profit margins. CMG shares rose nearly 8% after hours. Shares fell 0.9% to 1,780, on the edge of a buy zone from a cup base.

Enphase earnings topped, but revenue missed slightly, and the solar inverter maker guided low on second-quarter earnings. ENPH shares plunged almost 17% overnight. Shares fell 1.8% on Tuesday to 220.60, stalling in recent days after retracing the 50-day line. Enphase stock is well below its 200-day line and its December highs. Group leader First Solar (FSLR) reports on Thursday.

Stock market rally

The stock rally suffered significant damage on Tuesday, with the underlying action even worse than the major indexes.

The Dow Jones Industrial Average fell 1% in Tuesday’s trading. The S&P 500 index lost 1.6%, and the FRC share fared the worst. The Nasdaq composite fell 2%. The small-cap Russell 2000, with heavy exposure to regional banks, plunged 2.4%.

US crude oil prices fell 2.15% to $77.07 a barrel, a new low for April.

Copper futures fell 2.7% to the industry’s lowest since Jan. 5. The key industrial metal is down nearly 6% in a five-session losing streak. China’s demand for metals has not recovered as much as hoped, with fears of a Covid outbreak adding to the downside pressure.

The 10-year government yield fell 12 basis points to 3.4%. The 2-year government rate fell 19 basis points to 3.95%. The odds of another rate hike from the Fed on May 3 fell modestly on Tuesday, but remain high. Markets are becoming more confident that an interest rate hike in May will be the last.

ETFs

Among growth ETFs, the Innovator IBD 50 ETF ( FFTY ) gained 2.7%, while the Innovator IBD Breakout Opportunities ETF ( BOUT ) fell 1.2%. The iShares Expanded Tech-Software Sector ETF ( IGV ) fell 3%, with MSFT stock a large holding. The VanEck Vectors Semiconductor ETF ( SMH ) fell 3.2%.

ARK Innovation ETF ( ARKK ) fell 3.3% and ARK Genomics ETF ( ARKG ) 3.35% reflecting stocks with more speculative stories.

The SPDR S&P Metals & Mining ETF (XME) slid 3% and the Global X US Infrastructure Development ETF (PAVE) 1.7%. The US Global Jets ETF (JETS) fell 2.3%. The SPDR S&P Homebuilders ETF (XHB) returned 1.5%. The Energy Select SPDR ETF (XLE) gave up 1.9% and the Health Care Select Sector SPDR Fund (XLV) fell 1.1%

Bank shares

FRC shares crashed 49% to a record low. First Republic Bank reported late Monday that deposits plunged 41 percent, or $72 billion, in the first quarter. That’s more than $100 billion excluding banking giants who deposited $30 billion in March. Deposits were far worse than expected, and much worse than other regional banks that have reported results for the 1st quarter.

First Republic will cut up to 25% of staff and pursue strategic alternatives. It is exploring a sale of up to $100 billion in assets in a desperate bid to avoid an FDIC seizure. It may require additional incentives, perhaps even government guarantees, to find buyers to pay above market value and closer to book value. A solution must come soon.

First Republic’s problems could spur new deposit flights from other regional banks, even as regulators have sent strong signals that they want to protect all deposits. But bank shares will not get a bailout. More generally, problems with regional banks could reduce lending with growing recession fears. In the longer term, regional banks may face significantly higher financing costs, putting pressure on profitability.

PacWest Bancorp ( PACW ), among the hardest hit in March, rose 14% late after saying deposits have picked up in recent weeks. PACW shares had closed down 8.9%.

The SPDR S&P Regional Banking ETF (KRE) fell 4.2% on Tuesday, hitting its lowest levels since late 2020. FRC shares and PacWest are KRE components.

The Financial Select SPDR ETF ( XLF ) retreated 1.7%. XLF, dominated by financial giants including Visa, is far from the March bottom.

Top five Chinese stocks to watch now

Market rally analysis

The stock market recovery showed several strains on Tuesday.

The Nasdaq Composite fell below the 21-day line and the 12,000 level, undercutting the past few weeks of trading. It is now just above the 50-day mark. In particular, the Nasdaq closed below the low of the follow-up day on March 29, a very bearish sign of the market recovery.

The S&P 500 fell below its 21-day moving average, not far from the 50-day either. But the S&P 500 is above the March 29 FTD low.

The Dow Jones has come down to its 21-day line.

The damage was worse below the surface. The First Trust Nasdaq-100 Equal Weighted Index ETF (QQEW) slid 2.1%, below its 50-day mark. The Invesco S&P 500 Equal Weight ETF ( RSP ) fell 1.7%, back below its 50-day line and right at the 200-day.

Chip stocks look weak, with many big recent winners fading or selling out. The SMH ETF is decisive below the 50-day mark, erasing all gains at the end of March.

The software struggles again. The IGV ETF is also below the 50-day mark, with the technical action far worse in many cloud software plays.

Homebuilders look strong, along with many pharmaceuticals and some shoe plays, discount stores and restaurants as CMG shares. But many of these have now been expanded, and even some of those names were hit on Tuesday. The general management has been significantly reduced

Losers beat overwhelming winners on Tuesday.

The market rally could be revived in the next few days if earnings are strong and there is a positive reaction to economic data and the Fed meeting.

Futures are currently higher, but are only recouping some of Tuesday’s losses. Even if it holds on Wednesday, a pullback wouldn’t be all that meaningful if it’s mostly a few megacaps going back.

But it didn’t take much for the indices to break decisively lower. Whipsaw action is entirely possible, with earnings and other news spurring large gains or losses one day followed by a reversal the next session.

Time the market with IBD’s ETF market strategy

What to do now

Investors should have cut their exposure somewhat in recent days, if only because of the performance of individual holdings. The recent decline in the market has triggered sell signals in some recent buys, while reducing cushions for bigger winners heading into earnings season.

If the market rally returns in the coming days, buying opportunities will return, but perhaps not immediately. Many stocks are still near buy points, although most have pulled back somewhat in recent days.

In this scenario, investors may try to gradually increase their exposure again. But don’t get excited by overnight action or a bounce in the open market.

But you also need to be prepared for the market to continue to deteriorate, spurring a major move to cash.

Staying engaged, flexible and prepared is always important, but especially so in today’s environment.

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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