Dow Jones futures fell after hours, along with S&P 500 futures and Nasdaq futures, as Microsoft (MSFT) guidance overruled better than feared gains. ASML (ASML), Boeing (BA) and Tesla (TSLA) are on tap Wednesday.
X
The stock market rally traded in a relatively narrow range on Tuesday after posting big gains in the previous two sessions. The major indices ended mixed. The Nasdaq retreated as the Justice Department filed a second antitrust lawsuit against Google’s parent company alphabet (GOOGL).
Microsoft’s gains beat previous views of strong cloud computing growth. But the software giant made weak forecasts. MSFT shares, which had initially risen sharply, reversed lower.
Intuitive Surgery (ISRG) and Texas Instruments (TXN) also reported. Missed ISRG earnings with inline earnings. Texas Instruments slightly beaten, but led lower. ISRG stock fell while TXN stock fell slightly.
Early Wednesday, chip equipment giant ASML reports along with other semiconductor equipment makers Lam Research (LRCX), Teradine (TER) and wolf speed (WOLF) due after close of trading.
Boeing and Freeport-McMoRan (FCX) are also reporting early Wednesday.
Tesla will lead the earnings numbers on Wednesday night. Tesla earnings will be important, but investors will likely focus on 2023 guidance, especially after big price cuts around the world earlier in the year. Those price cuts have boosted Tesla demand — at the expense of margins — but will that boost last?
Following the closing, Tesla announced that it will spend $3.6 billion on a Tesla Semi factory and mass-produce 4680 battery cells at its facilities outside of Reno, Nevada. This confirmed previous reports.
Tesla stock fell slightly overnight. Shares rose 0.1% to 143.89 on Tuesday, closer to the 50-day moving average. TSLA stock is up nearly 17% so far in 2023.
Dow Jones futures today
Dow Jones futures fell 0.2% from fair value. S&P 500 futures fell 0.35%. Nasdaq 100 futures are down 0.7%, retreating from initially modest gains. MSFT stock is a component of the Dow Jones, S&P 500 and Nasdaq.
Keep in mind that overnight action in Dow futures and elsewhere doesn’t necessarily translate to actual trading in the next regular trading session.
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stock market rally
After a NYSE glitch disrupted about 100 tickers on the open, the stock market rally traded slightly lower in the morning before gradually improving to a mixed one.
The Dow Jones Industrial Average rose 0.3% in trading on Tuesday. The S&P 500 index fell 0.1%. The Nasdaq Composite declined 0.3%. Small-cap Russell 2000 fell 0.25%.
US crude prices fell 1.8% to $80.13 a barrel. Natural gas fell 5.5% after rising more than 6% on Monday.
The 10-year government bond yield fell to 3.47% basis points on mixed to weak manufacturing data.
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DOJ is suing Google again
The DOJ sued Google for its online advertising dominance and attempted to force the company to divest certain assets. In October 2020, the Department of Justice filed an antitrust lawsuit alleging abuse of online search power. Groups of states are conducting three antitrust lawsuits against Google, including an advertising lawsuit.
Google shares fell 2.1% to 97.70 on Tuesday, despite doing so after 10% higher volume in the previous three sessions.
Google reports Q4 results on February 2nd.
ETFs
Among the growth ETFs, the Innovator IBD 50 ETF (FFTY) and the Innovator IBD Breakout Opportunities ETF (BOUT) gained slightly. The iShares Expanded Tech-Software Sector ETF (IGV) fell 0.6%. Microsoft stock is a key IGV component.
The VanEck Vectors Semiconductor ETF (SMH) is down 0.7%, ASML stocks are a big holding, with TXN, LRCX and TER also included in SMH.
Reflecting stocks with more speculative histories, ARK Innovation ETF (ARKK) fell 1.6% and ARK Genomics (ARKG) lost 1.4%. Tesla stock is a key position in Ark Invest’s ETFs. Cathie Wood’s Ark has been beefing up its TSLA position for the past few weeks, only adding shares on Monday.
SPDR S&P Metals & Mining ETF (XME) was up 0.2% and Global X US Infrastructure Development ETF (PAVE) was up 0.4%. The US Global Jets (JETS) blew lower. SPDR S&P Homebuilders ETF (XHB) gained 0.4%. The Energy Select SPDR ETF (XLE) was down 0.4% and the Financial Select SPDR ETF (XLF) was up 0.1%. The Health Care Select Sector SPDR Fund (XLV) fell 0.7%.
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Microsoft revenue
Microsoft earnings fell 6% year over year excluding miscellaneous items, just beating expectations for the second quarter. Revenue rose 1.9%, the smallest increase in more than six years and missed guidance. Revenue from Azure and other cloud computing services rose 31% — 38% excluding currency fluctuations — slightly beating consensus views. Analysts had worried about Azure’s growth.
Investors were relieved by the decent results of the tech titan Dow Jones. But Microsoft gave weak clues and warned of a slowdown in activity.
MSFT stock fell 1% after initially rising 5% or more after hours.
Last week Microsoft announced plans to cut 10,000 jobs, about 4.5% of the workforce.
Shares fell 0.2% to 242.04 on Tuesday and held the 50-day moving average after regaining that key level on Monday. Microsoft stock appears to be bottoming with a buy point of 264.02. It formed below the 200-day moving average, but a breakout would involve breaching that level and breaking a long downtrend.
Microsoft’s earnings and guidance are important to other software makers, PC-related stocks, and cloud computing companies like Google and Amazon.com (AMZN). Microsoft’s recent major involvement and alliance with ChatGPT developer OpenAI could pose another threat to Google and Amazon.
Amazon and several cloud software companies fell overnight after initially rebounding on Microsoft’s gains.
Analysis of the market rally
The stock market rally was halted on Tuesday, with major indices ending mixed. But that was normal action after big wins on Friday and Monday, especially when heading for a huge flood of wins.
The S&P 500, which broke through last week’s highs and 4,000 on Monday, held these key levels.
The Nasdaq Composite fell and is still slightly below the 200-day moving average and the December highs.
The Dow Jones extended its rise off the 50-day moving average after regaining that key level on Monday
The small-cap Russell 200 is down a bit, but is close to its late 2022 highs.
The market rally looks strong but the major indices are all facing resistance levels. Tech was the market leader in 2023, but now we’re going to have a flood of tech earnings. Even if the macroeconomic picture stabilizes and the Fed rate hikes ease, companies could lower forecasts in the coming weeks.
Microsoft might just be getting started.
Alongside Tesla, ASML and Boeing on Wednesday, Apple (AAPL), Facebook parent company meta platforms (META), Amazon, AMD (AMD), Google and many more are scheduled to report next week
If the market rally later next week clears the late 2022 highs, it would be a strong signal that a sustained uptrend is underway.
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What now
The equity market rally is showing more strength and presenting a number of buying opportunities.
Investors should increase their exposure gradually and not become overly focused on a particular stock or sector. Earnings season could rock the market, but especially individual stocks. One option for investors is to buy market or sector ETFs along with individual names.
In any case, focus on building your watch lists. Be aware of important revenues for the market and your holdings, including competitors, customers, and suppliers of the companies in which you hold positions.
Read The Big Picture every day to keep up to date with 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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