Dow Jones futures fell solidly early Friday, along with S&P 500 futures and Nasdaq futures. Tesla slashed prices in the US and Europe, following big cuts in China and key Asian markets last week, sending TSLA stock and other automakers tumbling. JPMorgan, Bank of America, Delta Air Lines and UnitedHealth earnings topped views before the open. But those stocks were generally lower.
The stock market rally gained some more ground on Thursday, although the S&P 500 hit resistance at a critical area.
The much-anticipated CPI inflation report showed cooling price pressures largely in line with expectations, although service price gains were a mixed picture. Still, the slowing inflation trend should continue for several months, raising hopes that the Federal Reserve will soon end rate hikes.
Investors should be looking to add exposure, carefully. This market is prone to pullbacks, and could be due for one. Meanwhile, many leading stocks are now extended from at least early buy points. Exxon Mobil (XOM) and Celsius Holdings (CELH) are still actionable.
XOM stock and Celsius are on the IBD 50. CELH stock is on SwingTrader and on the IBD Leaderboard watchlist.
Tesla Price Cuts
Tesla cut prices sharply in the US, making more of its models eligible for tax credits of up to $7,500. US Model 3 prices have been reduced 6%-14%, depending on the trim. The base Model Range Standard Range RWD was cut $3,000 to $43,990, which means it would be $36,240 after the IRA tax credits. The Performance version was cut $9,000 to $53,990, getting under the $55,000 limit for tax credits. The base Model Y has been slashed $13,000, or nearly 20%, to $52,990. The Performance variant has been cut to $56,990, also down $13,000.
Meanwhile, Tesla cut Model 3 and Y prices in at least Austria, France, Germany, the Netherlands, Norway, Switzerland and the UK
The price cuts should significantly boost sales in the US and provide a boost in Europe, where backlogs had been falling significantly. But they also raise concerns about Tesla’s prized profit margins.
On Jan. 6, Tesla cut China prices significantly for the second time in less than three months, as inventories swelled despite big year-end incentives and temporary Shanghai plant production halt.
Tesla stock fell 6% in premarket trading. General Motors (GM), Ford (F), Rivian (RIVN) and Lucid (LCID) declined 3%-4%, as Tesla price cuts may undercut their demand and pricing for EVs and other vehicles.
UnitedHealth (UNH) earnings topped fourth-quarter views early Friday. UNH stock retreated slightly early Friday. Shares have sold off in 2023 along with other health insurers, although it rose Thursday.
Delta Air Lines (DAL) topped Q4 estimates as well and reiterated recent bullish guidance on 2023. But shares fell solidly before the open. DAL stock has spiked in 2023 with the airline group, adding to gains Thursday on bullish preliminary revenue from American Airlines (AAL). Delta is well extended from early entries and is working up the right side of a long, deep base.
JPMorgan Chase (JPM) and Bank of America (BAC) topped fourth-quarter views, while Wells Fargo (WFC) and Citigroup (C) had mixed results.
JPM stock and BofA fell modestly, while Wells Fargo and Citi stock also declined. JPMorgan stock closed Thursday in a buy zone after a traditional breakout. Bank of America and Citigroup stock were near early entries in bottoming bases. WFC stock has more work to do.
Dow Jones Futures Today
Dow Jones futures fell 0.75% vs. fair value. JPM stock and UnitedHealth are both Dow Jones components. S&P 500 futures declined 0.9%. Nasdaq 100 futures tumbled 1.2%. Tesla stock is weighing on S&P 500 and Nasdaq futures, while all the banks and DAL stock are hitting the S&P 500.
The 10-year Treasury yield rose 4 basis points to 3.49%.
Remember that overnight action in Dow futures and elsewhere does not necessarily translate into actual trading in the next regular stock market session.
Join IBD experts as they analyze actionable stocks in the stock market rally on IBD Live
Stock Market Rally
The stock market rally wavered Thursday, with volatile premarket swings continuing into the morning. But as the session wore on, the major indexes calmed down and moved higher before fading somewhat during the day.
The Dow Jones Industrial Average advanced 0.6% in Thursday’s stock market trading. The S&P 500 index climbed 0.3%. The Nasdaq composite rose 0.6%. The small-cap Russell 2000 jumped 1.7%.
US crude oil prices rose 1.3% to $78.39 a barrel, climbing 7.6% over the past six sessions.
Copper climbed 0.8% on Thursday, surging 11.9% over the past six trading days.
The 10-year Treasury yield tumbled 11 basis points to 3.45%, near recent lows. The two-year Treasury yield, more closely tied to Fed policy, hit a three-month low. Markets have almost fully priced in a quarter-point rate hike on Feb. 1, which would be a step down from 50 basis points and 75 basis points in the previous two meetings. Investors also strongly expect another quarter-point hike in March, to a 4.75%-5% range. Right now, markets are betting that’s the end.
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Among growth ETFs, the Innovator IBD 50 ETF (FFTY) and Innovator IBD Breakout Opportunities ETF (BOUT) rose 0.7%. The iShares Expanded Tech-Software Sector ETF (IGV) climbed 0.8%. The VanEck Vectors Semiconductor ETF (SMH) climbed 1.5%.
SPDR S&P Metals & Mining ETF (XME) jumped 2% and the Global X US Infrastructure Development ETF (PAVE) rose 0.8%. US Global Jets ETF (JETS) soared 4.6%, with DAL stock and American Air both key holdings. SPDR S&P Homebuilders ETF (XHB) edged up 0.3%. The Energy Select SPDR ETF (XLE) advanced 1.9%. The Financial Select SPDR ETF (XLF) nudged 0.2% higher, with JPMorgan, Wells Fargo, Citigroup and BAC stock all major components. The Health Care Select Sector SPDR Fund (XLV) dipped 0.3%, with UNH stock a major holding.
Reflecting more-speculative story stocks, ARK Innovation ETF (ARKK) popped 2.1% and ARK Genomics ETF (ARKG) 3.45%. TSLA stock is a major holding across Ark Invest’s ETFs. Cathie Wood’s Ark has been loading up on Tesla shares in recent days and weeks.
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Market Rally Analysis
After wavering in the morning, the major indexes ultimately climbed modestly, while small caps jumped.
The S&P 500 came right up to its 200-day moving average, closing just below that key level. The Nasdaq held support at its 50-day line and moved a little higher from that area.
The Dow Jones and Russell 2000, above all their moving averages, are working towards their December highs.
Overall, the market rally has made huge strides over the past five sessions. Investors see the light at the end of the tunnel for Fed rate hikes.
Still, the major indexes face further tests. The S&P 500 needs to decisively clear the 200-day line, where it has hit resistance multiple times. The December highs are the ultimate test for the indexes. But after running up for several sessions, with the major indexes right around key levels, a pause or pullback wouldn’t be a surprise.
Dow Jones futures are pointing to a pullback at Friday’s open.
Leading stocks are showing better action, but many are now extended, at least from early entries or moving averages.
Exxon Mobil stock rose 1.7% to 113.22, just below a 114.76 flat-base buy point, according to MarketSmith analysis. But XOM stock is in range from the 50-day line. Celsius stock dipped 0.2% to 106.40, but found support at the 21-day line. CELH stock is still actionable from Wednesday’s jump, rebounding from the 50-day line and breaking a short trendline.
In a positive sign for the broader market rally, the chip sector has regained momentum, with the SMF ETF moving decisively above its 200-day line this week. Taiwan Semiconductor (TSM), the largest holding in SMH, gapped above its 200-day line on earnings. That’s despite revenue falling short and TSMC also guiding low on Q1. But not many chip names, even those that are clear market leaders, are actionable right now.
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What To Do Now
The stock market rally has had a strong stretch, moving above some key resistance areas and with the CPI inflation report out of the way.
Investors can be adding exposure, gradually, if conditions continue to improve. The major indexes, sectors and leading stocks have had a tendency to stage big pullbacks just as they seem to be gaining steam. And the market rally is gaining momentum.
Earnings season could upend the market rally, or slam specific sectors or stocks.
Investors who largely stayed on the sidelines in recent days may feel like big opportunities have passed them by. It’s true that some stocks may be out of reach right now. But don’t chase extended names. Wait to see if they pause or pull back or set up new bases. Meanwhile, other stocks will come to the fore.
If this market rally has real legs, that there will be plenty of opportunities. If it quickly stalls out again, then you’ll be glad you’re not heavily invested.
But it’s crucial to have your watchlists up to date. Cast a wide net to find stocks that are setting up across different sectors. Then focus on stocks that are “ready” or nearly so.
Read The Big Picture every day to stay in sync with the market direction and leading stocks and sectors.
Please follow Ed Carson on Twitter at @IBD_ECarson for stock market updates and more.
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