Dow Jones futures fell modestly Sunday night, along with S&P 500 futures and Nasdaq futures. Bitcoin also declined. Treasury yields moved higher.
The stock market rally had a huge week, with the Nasdaq boasting its best weekly gain since March and S&P 500 having its biggest increase since June. The major indexes surged Thursday on a Fed-friendly inflation report. On Friday, a shift away from defensive names intensified, with many medicals and other defensive or defensive growth plays falling sharply.
While buying opportunities in leading stocks are limited, investors should be looking to add exposure gradually.
Arista Networks (ANET), Pure Storage (PSTG), Mobileye (MBLY), Shift4Payments (FOUR) and Flex (FLEX) are tech companies with robust growth but with reasonable valuations. Flex and recent IPO MBLY stock are in traditional buy zones. FOUR stock flashed an aggressive entry while Arista Networks and Pure Storage are setting up.
The video embedded in this article discussed a pivotal week for the market rally, and analyzed Cigna (CI), Flex and MBLY stock.
One laggard is Tesla stock, which hit a two-year low last week. Tesla (TSLA) is under pressure from CEO Elon Musk’s wild start to owning Twitter. Meanwhile, concerns about China demand continue, even after an Oct. 24 price reduction and a recent return of insurance subsidies.
Graphics and data-center chip giant Nvidia (NVDA) headlines a still-active earnings season. Strong Nvidia earnings and guidance, along with results from semiconductor equipment maker Applied Materials (AMAT), could keep the chip rebound going, a positive sign for the market rally. NVDA stock has rallied powerfully over the past four weeks, but is still well below its 200-day line.
The price of Bitcoin traded back to $16,000 Sunday night. Bitcoin plunged over the week, hitting a two-year-low $15,554.48 on Wednesday, with several other cryptocurrencies suffering massive losses. Cryptocurrency exchange FTX, seen as an industry white knight just a few months ago, abruptly collapsed, with a bankruptcy filing shortly before the stock market opening bell Friday. Ongoing revelations about FTX and related firm Alameda suggest significant financial improprieties.
The FTX fiasco, following several crypto-industry collapses earlier this year, heighten concerns about trust. Crypto.com faced major withdrawals over the weekend after admitting it mishandled a big transaction in late October.
The Democrats have retained control of the Senate, winning at least 50 seats. That could go to 51 if they hold their seat in Georgia’s upcoming run-off election. Republicans are still favored to take the House, but by a wafer-thin majority that is by no means assured.
Dow Jones Futures Today
Dow Jones futures fell 0.3% vs. fair value. S&P 500 futures sank 0.3% and Nasdaq 100 futures lost 0.5%.
Federal Reserve Gov. Christopher Waller said Sunday that markets overreacted to the October inflation report.
“It was just one data point,” Waller said, who is one of the Fed’s more-hawkish members. “The market seems to have gotten way out in front over this,” that “We’ve got a ways to go.”
Crude oil futures edged higher. Natural gas prices rose more than 2%.
The 10-year Treasury yield rose 8 basis points to 3.89%.
Stock Market Rally
The stock market rally was ailing as of midweek, but roared back Thursday thanks to the cooler-than-expected inflation report. China eased Covid restrictions on Friday, providing another boost to stocks and commodities.
The Dow Jones Industrial Average gained 4.15% in last week’s stock market trading. The S&P 500 index leapt 5.9%. The Nasdaq composite surged 8.1%. The small-cap Russell 2000 popped 4.6%.
Apple stock, which on Wednesday set its worst close in nearly four months, surged to close with a 8.2% weekly gain. AAPL moved above its 50-day line but is below its 200-day, where it hit resistance in late October. Microsoft stock spiked 11.6%, back above its 50-day line after hitting bear-market lows on Nov. 3.
Tesla stock tumbled 5.5% to 195.97, though it bounced from Wednesday’s two-year low of 177.12. Expanded China incentives, following recent price cuts there, add to demand concerns. But it’s Musk’s chaotic start to his Twitter reign that may be the biggest TSLA stock drag. That includes Musk’s fresh Tesla stock sales and more-ephemeral concerns that the “Twitter circus” is damaging the Tesla brand.
Nvidia soared 15.3% last week to 163.27, its fourth straight weekly advance and one of three double-digit gains.
The 10-year Treasury yield dived 33 basis points to 3.81%. Markets strongly expect a 50-basis-point Fed rate hike in December and are leaning toward a quarter-point move in February.
The U.S. dollar plummeted, suffering its worst weekly loss in years, reflecting tumbling yields.
U.S. crude oil futures fell 3.9% to $88.96 a barrel, despite Friday’s bounce.
Among the best ETFs, the iShares Expanded Tech-Software Sector ETF (IGV) leapt 12.35% for the week, with MSFT stock a major component. The VanEck Vectors Semiconductor ETF (SMH) soared 15.4%, vaulting above the 50-day line and nearing the 200-day. NVDA stock is a key holding.
SPDR S&P Metals & Mining ETF (XME) popped 3.9% last week. The Global X U.S. Infrastructure Development ETF (PAVE) drove 5.4% higher. U.S. Global Jets ETF (JETS) ascended 5.6%, a sixth straight weekly gain. SPDR S&P Homebuilders ETF (XHB) soared 12.1%. The Energy Select SPDR ETF (XLE) rose 1.95%, right at highs. and the Financial Select SPDR ETF (XLF) jumped 5.8%. The Health Care Select Sector SPDR Fund (XLV) rose 1.75%, despite Friday’s slide.
Reflecting more-speculative story stocks, ARK Innovation ETF (ARKK) reversed from a five-year low to run up 14.6% last week and ARK Genomics ETF (ARKG) jumped 11.4%. TSLA stock remains a major holding across Ark Invest’s ETFs.
Growth Stocks Near Buy Points
Arista Networks earnings and sales growth have accelerated for four straight quarters, to 69% and 57%, respectively, in Q3. ANET stock fell 1.9% to 128.55 last week, but after two big weekly gains in heavy volume. Arista stock has a high handle entry of 133.80 in a consolidation going back to Aug. 18 — or a longer consolidation going back to the end of 2021. The ANET stock price to earnings ratio is 32.
PSTG stock gained 1.45% to 30.78 last week. Investors could use 31.62 as a buy point or early entry from either a consolidation going back to Aug. 18 or from a cup-with-handle base starting in late March. Pure Storage earnings rose 129% in the latest quarter on a 30% revenue gain. PSTG stock has a 27 P-E ratio.
MBLY stock jumped 15.7% in the past week to 29.95, just clearing a 29.86 IPO base buy point. Mobileye, which offers driver-assist systems, came public in late October at $21 a share, topping the official range but well below the valuation that owner Intel (INTC) had hoped. Mobileye earnings rose 36% in the latest quarter, with 41% revenue growth. MBLY stock has a P-E of 48.
FOUR stock leapt 17.8% to 47.30, but after a wild week. Shift4 Payments reversed sharply lower Monday following earnings, but then roared back the rest of the week. On Friday, Shift4 stock reclaimed the 200-day line and broke a trendline. FOUR stock has a 51.52 bottoming-base buy point, according to MarketSmith analysis. Shift4 earnings rose 69% and revenue 45%, both accelerating from the prior quarter. FOUR stock has a P-E of 45.
FLEX stock rose 5% in the past week to 20.18, closing in range of a 19.73 buy point. Shares are clearing a short base but also a long consolidation going back to early 2021. FLEX earnings rose 31% in fiscal Q2 with revenue up 25%, both accelerating for a third straight quarter. Flex is part of the highly rated Electronic-Contract Manufacturing Group.
Market Rally Analysis
The stock market rally had a pivotal week. Already under pressure, the uptrend struggled with some notable losses on Wednesday that pushed the S&P 500 below its 50-day line.
But Thursday’s October CPI inflation report was a game changer, signaling slower Fed rate hikes and perhaps a lower peak rate. The major indexes blasted higher, as Treasury yields and the U.S. dollar plunged. The Dow Jones vaulted back above its 200-day line, while the S&P 500 and later the Nasdaq ran up past their 50-day lines and October highs. The Russell 2000 jumped above its 50-day and 200-day lines.
All of that action pushed the market rally back into “confirmed uptrend.”
Meanwhile, actionable stocks have been hard to find. Many of the big winners are beaten-down megacaps such as Apple stock and Microsoft, as well as battered cloud software plays. On the flip side, defensive and defensive growth names that have been leading suddenly came under pressure. That includes many medicals in the pharma, health insurer and drug distributor spaces. Defense contractors, auto parts retailers, restaurants, discounters and food producers also suffered losses.
Building products, networking stocks and many energy plays are doing well. A few traditional automakers, not Tesla, are showing strength. Several steel stocks have been doing well, while miners are now coming up.
Chip names are rebounding too, but most, like Nvidia stock, have a long way to go. Solar and medical products have several interesting names.
What To Do Now
The stock market rally is reviving with positive inflation news providing a tailwind. There appears to be a rotation out of defensive stocks and into growth, but actionable stocks are rather limited.
Investors should be looking to add exposure, but there’s no need to rush. With so few stocks flashing buy signals so far, there will be plenty of opportunities ahead if the market rally has legs.
One option is to buy broad market or sector ETFs until more-promising individual names pop up. Even then, keep exposure modest, letting the market draw you in over time.
As you add exposure, be careful not to get too concentrated in a specific sector.
But build those watchlists. Interesting stocks are setting up while growth names are coming back. You want to be ready to buy the best names as they break out.
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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