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Dow Jones futures, along with S&P 500 futures and Nasdaq futures, are set to open on Sunday evening. The upcoming week will be crucial for Nvidia earnings, while debt-ceiling talks are back in focus after a temporary pause.
The stock market rally gained strength during the previous week due to optimism surrounding a potential debt ceiling deal and easing concerns about banks. Leading the gains were tech giants infused with artificial intelligence, including Nvidia, Advanced Micro Devices, ServiceNow, Alphabet (Google’s parent company), Snowflake, and Palantir Technologies.
Both the Nasdaq composite and S&P 500 reached their highest levels in 2023, with the Nasdaq 100 hitting its best performance in over a year. The White House and congressional leaders seemed to be making progress toward a debt ceiling agreement, while worries about regional banks subsided.
However, on Friday, Republican negotiators temporarily halted debt-ceiling discussions, claiming that President Biden’s administration was being unreasonable. Simultaneously, a report surfaced stating that Treasury Secretary Janet Yellen had suggested the need for more bank mergers. This news affected regional bank stocks negatively, although they had a strong performance for the week.
Despite the setback in debt-ceiling talks and Yellen’s comments, major stock indexes remained stable on Friday, partly due to Federal Reserve Chairman Jerome Powell signaling a preference for pausing interest rate hikes next month.
Investors maintained confidence in the possibility of a debt-limit agreement as negotiations resumed on Friday night. However, no talks were scheduled for Saturday, with both sides accusing each other of bad faith. President Biden is expected to return from a brief Asia trip on Sunday.
The stock market rally continues to exhibit limited leadership, with cautious opportunities for investors to add exposure. Currently, there aren’t many stocks offering attractive buying opportunities.
Tesla made a positive move during its shareholder event, surpassing key levels. However, the stock still faces resistance in its upward trajectory.
Nvidia Earnings Hold Key Role in Market Rally
Nvidia’s upcoming earnings announcement on Wednesday night is highly anticipated and will significantly impact the ongoing market rally. NVDA stock represents the epitome of success in the market, being a leading mega-cap and artificial intelligence (AI) stock in a rally dominated by such companies. Last week, Nvidia shares surged by 10%, and the stock has seen substantial growth.
It would be healthy for Nvidia stock to take a pause or experience a modest pullback over the course of several weeks. However, if Nvidia’s earnings or guidance disappoint, it could face severe consequences. Such an outcome would not only affect rival AMD but also impact Google and numerous other “AI” companies that have been major drivers behind the market’s upward trajectory.
ServiceNow stock witnessed a surge last week due to AI-related partnerships with Nvidia and Microsoft. Additionally, SNOW stock saw gains following reports of a potential acquisition of an AI search firm. PLTR stock, which has long been associated with AI, experienced a notable 23% increase last week, building on the prior week’s 28% spike driven by earnings. Meanwhile, Google stock has already soared by 14% in May.
The market’s focus on Nvidia’s earnings stems from its position as a bellwether for the broader market rally, particularly in the context of AI-related investments. As investors eagerly await the results, the outcome will undoubtedly have a significant impact on various sectors and companies closely aligned with AI technology.
Notable Companies Set for Key Earnings
In addition to Nvidia, several other companies are gearing up for significant earnings releases in the upcoming week. Snowflake, Elf Beauty, Palo Alto Networks, and Deckers Outdoor are among the notable names.
Snowflake (SNOW) stock has been consolidating for the past 10 months, attracting attention from investors. Elf Beauty (ELF) stock, after experiencing a substantial rally, is currently consolidating near its 21-day line. Palo Alto Networks (PANW) stock is striving to maintain its position above the 50-day line within a new and volatile flat base. Meanwhile, Deckers Outdoor (DECK) stock, which had previously performed well, witnessed a decline below its 50-day line following disappointing results from On Holding (ONON) and Foot Locker (FL).
Nvidia stock holds a prominent position on the IBD leaderboard, indicating its strong performance and potential. Elf Beauty stock is on the Leaderboard watchlist, garnering attention from investors. Snowflake stock has secured a spot on the IBD 50, signifying its status as a top-performing stock. Additionally, ServiceNow (NOW) stock is featured on the IBD Big Cap 20, highlighting its significance as a large-cap stock.
Dow Jones Futures Open Today
Today, Dow Jones futures will start trading at 6 p.m. ET, along with S&P 500 futures and Nasdaq 100 futures. However, it’s important to remember that the activity in futures markets overnight may not directly affect the actual trading in the regular stock market session that follows.
While Dow Jones futures provide insights into investor expectations and market sentiment, the way stocks perform during regular market hours might be different. Various factors, such as news events, economic indicators, and global happenings, can significantly impact how the market behaves.
Stock Market Rally
The stock market had a positive week as it rallied, but there was a significant difference between the top-performing stocks and those that fell behind.
Last week, the Dow Jones Industrial Average increased by 0.4% during stock market trading. The S&P 500 index showed a stronger advance of 1.65%. The Nasdaq composite experienced a substantial jump of 3%. The small-cap Russell 2000 also saw a bounce of 1.9%.
In the past week, the 10-year Treasury yield made a significant leap of 23 basis points, reaching a two-month high of 3.69%.
The chances of a rate hike by the Federal Reserve next month briefly exceeded 40% during the week due to positive economic data and some hawkish comments from Fed officials. However, Federal Reserve Chair Jerome Powell mentioned that they can assess the data, causing the likelihood to decrease to around 20% by Friday.
U.S. crude oil futures rose by 2.2% to $71.55 per barrel for the week.
ETFs
Last week, several growth ETFs showed notable movements. The iShares Expanded Tech-Software Sector ETF (IGV) experienced a significant surge of 5.25%. It is worth noting that NOW stock plays a significant role as a component of IGV. The VanEck Vectors Semiconductor ETF (SMH) also had an impressive performance, soaring 8.5%. SMH holds major positions in Nvidia stock and AMD stock. In the category of more speculative story stocks, the ARK Innovation ETF (ARKK) rose by 2.7%, while the ARK Genomics ETF (ARKG) gained 3%. Across Ark Invest ETFs, Tesla stock remains the top holding. Cathie Wood’s Ark Invest also has some holdings in PLTR stock.
On the other hand, the SPDR S&P Metals & Mining ETF (XME) experienced a slight decline of 0.5%, marking its fifth consecutive weekly loss. The U.S. Global Jets ETF (JETS) performed well, ascending by 4.1%. The SPDR S&P Homebuilders ETF (XHB) showed a modest increase of 1.2%. The Energy Select SPDR ETF (XLE) gained 1.4%, while the Health Care Select Sector SPDR Fund (XLV) slipped by 0.7%.
In the financial sector, the Financial Select SPDR ETF (XLF) recorded a rise of 2.2%. The SPDR S&P Regional Banking ETF (KRE) rebounded strongly, with a gain of 7.8%, despite a 1.8% retreat on Friday.
Is Tesla stock a good buy?
Tesla’s stock saw a strong rally of 7.2% last week, reaching a price of $180.14. This upward movement brought it back above the 50-day line, which it hadn’t crossed since early April, after bouncing back from near the 21-day line.
Investors reacted positively to Tesla’s shareholder day, held on Tuesday. During the event, CEO Elon Musk reaffirmed that deliveries of the Cybertruck will begin this year and hinted at the development of a next-generation vehicle. Musk also mentioned that Tesla plans to experiment with advertising and made multiple references to “AI,” showcasing his savvy approach as a CEO in 2023.
Meanwhile, Tesla quietly introduced new discounts on their inventory of U.S. Model 3 vehicles, following similar discounts on Model 3 and Y vehicles in Europe. Although inventory discounts don’t receive as much attention as official price cuts, they still impact profit margins. Finding the right balance between production, deliveries, and prices remains a crucial aspect of Tesla’s story in 2023.
Market Rally: Recent Surge in Stock Performance
The stock market rally displayed strength last week, although the progress was mainly concentrated in specific areas. The Nasdaq index performed exceptionally well, reaching a high for the year 2023, while the S&P 500 also achieved a similar milestone towards the end of the week. On the other hand, the Russell 2000, supported by bank stocks, had a solid week but is currently below its highest point since 2023. The Dow Jones index managed to eke out a small gain for the week after briefly falling below its 50-day moving average on Tuesday.
The rally in the technology sector has expanded beyond large-cap companies like Google and Nvidia to include big-cap chip and software stocks such as AMD, ServiceNow, and AI-focused companies like Palantir. However, many of these stocks are now considered overextended.
The Nasdaq 100 index reached a 52-week high, recording a 3.5% gain for the week. The First Trust Nasdaq 100 Equal Weighted Index ETF (QQEW), which previously faced challenges, experienced a 2.45% increase and is approaching its highest point in 2023.
Despite these positive developments, overall market breadth remains relatively weak. The Invesco S&P 500 Equal Weight ETF (RSP) rose by nearly 1% but retreated below its 200-day moving average on Friday. RSP is still far from its highest level in 2023 and is closer to its lows from the bear market in October.
On Friday, losers outnumbered advancers, although there was a slight positive breadth on Thursday. However, new highs outpaced losers for the second consecutive session.
In addition to chip stocks, software companies, and large-cap stocks, sectors such as homebuilders, building materials, medical products, biopharmaceuticals, travel-related businesses, and certain payment companies are showing positive performance.
Stocks related to shoes faced a decline last week due to ONON and Foot Locker. Companies like Deckers Outdoor and Dick’s Sporting Goods (DKS) will strive to recover and improve their performance.
Debt-ceiling discussions, concerns about the banking sector, and the possibility of a recession continue to be significant issues affecting the market rally. While analysts anticipate a debt-limit agreement, various headlines can lead to market fluctuations in the coming days as Wall Street and political analysts monitor the situation closely.
What To Do Now Amid the Market Rally?
As the stock market rally continues its upward trend, it’s important to navigate the current market conditions with caution and a well-defined strategy. Here are some key considerations:
- Mind Narrow Leadership: Although the market is showing overall positive performance, it is essential to be mindful of narrow leadership. This means that a select few stocks are driving the rally, while many others may not be participating. Keep this in mind when evaluating investment opportunities.
- Evaluate Profit-Taking Opportunities: If you have benefited from recent buy signals in the technology sector or other areas, consider taking partial profits on your winning positions. This allows you to secure some gains while still maintaining exposure to potential further upside. Having a game plan in place for profit-taking is prudent.
- Maintain Moderate Exposure: While the market rally may be enticing, it is wise to maintain a moderate level of exposure. This approach helps mitigate risk and ensures you are not overly exposed to potential market fluctuations. Diversifying your portfolio across different sectors and asset classes can help achieve a balanced exposure.
- Stay Prepared for Broader Market Moves: Keep an eye on stocks from various sectors that are setting up and showing potential for upward movement. If the market rally broadens out, these stocks could present attractive opportunities. Stay prepared by conducting thorough research and identifying potential entry points for such stocks.
- Stick to Your Investment Plan: It’s crucial to have a well-defined investment plan and stick to it. Assess your risk tolerance, investment goals, and time horizon. Align your investment decisions with your plan and avoid making impulsive moves driven solely by short-term market trends.
