Dow Jones futures fell overnight, along with S&P 500 futures and Nasdaq futures, as Microsoft (MSFT) wiped out better-than-feared gains. ASML (ASML), Boeing (BA) and tesla (TSLA) are available on Wednesday.
The stock market rally traded in a relatively tight range on Tuesday after big gains in the previous two sessions. The main indices closed mixed. The Nasdaq fell back as the Justice Department filed a second antitrust lawsuit against Google’s parent company. Alphabet (GOOGL).
Microsoft’s earnings outpaced sentiments about strong growth in cloud computing. But the software giant gave weak guidance. MSFT shares, which rose strongly at first, reversed lower.
intuitive surgical (ISRG) and Texas Instruments (TXN) also reported. ISRG earnings were not earned from online revenue. Texas Instruments slightly outperformed but led lower. ISRG shares fell while TXN shares fell slightly.
Early Wednesday, chip equipment giant ASML reports, with other semiconductor equipment makers Lam Research (LRCX), Theradine (TER) and Wolfspeed (WOLF) due after closing.
Boeing and Freeport-McMoRan (FCX) also report early Wednesday.
Tesla will lead the gains on Wednesday night. Tesla’s earnings will be substantial, but investors are likely to focus on guidance for 2023, especially after big price cuts around the world to start the year. Those price cuts have boosted demand for Tesla, at the expense of margins, but will that boost last?
After the shutdown, Tesla said it will spend $3.6 billion in or around its original “Gigafactory” outside Reno, Nevada. It will be used for a Tesla Semi line and for the mass production of 4680 battery cells.
Tesla shares fell 2% overnight. The shares rose 0.1% on Tuesday to 143.89, nearing the 50-day line. TSLA shares are up nearly 17% so far in 2023.
Dow Jones Futures Today
Dow Jones futures fell 0.2% against fair value. S&P 500 futures fell 0.45%. Nasdaq 100 futures sank 0.7%, reversing modest early gains. MSFT stocks are a component of the Dow Jones, S&P 500, and Nasdaq.
Remember that overnight action in Dow futures and elsewhere doesn’t necessarily translate into actual trading at the next regular stock market session.
Join IBD experts as they discuss actionable actions in the stock market rally on IBD Live
After a failure on the New York Stock Exchange disrupted about 100 tickers at the open, the stock market rally traded modestly lower in the morning before gradually improving to mixed.
The Dow Jones industrial average rose 0.3% in trading on Tuesday. The S&P 500 index fell 0.1%. The Nasdaq Composite fell 0.3%. The small-cap Russell 2000 lost 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 Treasury yield fell basis points to 3.47% amid mixed-to-weak manufacturing data.
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DOJ sues Google again
The Justice Department sued Google over its dominance of online ads, seeking to force the company to divest itself of certain assets. In October 2020, the Department of Justice filed an antitrust lawsuit for alleged misuse of online search power. Groups of states have three antitrust lawsuits against Google, including one related to advertising.
Google shares fell 2.1% to 97.70 on Tuesday, though that is after rising 10% on heavy volume in the previous three sessions.
Google reports fourth-quarter earnings on February 2.
Among growth ETFs, the Innovator IBD 50 ETF (FFTY) and the Innovator IBD Breakout Opportunities ETF (BOUT) rose. The iShares Expanded Technology Software (IGV) Sector ETF declined 0.6%. Microsoft shares are an important component of IGV.
The VanEck Vectors Semiconductor (SMH) ETF fell 0.7%, ASML shares are a big holding, with TXN, LRCX and TER also in SMH.
Reflecting stocks with more speculative histories, ARK Innovation ETF (ARKK) sank 1.6% and ARK Genomics (ARKG) lost 1.4%. Tesla stock is a major holding in Ark Invest ETFs. Cathie Wood’s Ark has been bolstering its position at TSLA in recent weeks, adding stock as recently as Monday.
The SPDR S&P Metals & Mining ETF (XME) rose 0.2%, and the Global X US Infrastructure Development ETF (PAVE) rose 0.4%. The US Global Jets (JETS) flickered lower. SPDR S&P Homebuilders ETF (XHB) advanced 0.4%. The Energy Select SPDR ETF (XLE) fell 0.4% and the Financial Select SPDR ETF (XLF) rose 0.1%. The Select Healthcare Sector (XLV) SPDR Fund fell 0.7%.
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Microsoft’s profit fell 6% from a year earlier, excluding several items, beating expectations for the fiscal second quarter. Revenue rose 1.9%, the smallest increase in more than six years and below forecasts. Azure and other cloud computing services revenue increased 31%, or 38% excluding currency fluctuations, slightly exceeding consensus views. Analysts were concerned about Azure’s growth.
Investors were relieved by decent results from the tech titan Dow Jones. But Microsoft gave weak guidance, warning of slowing activity.
MSFT shares fell 1% after initially jumping 5% or more after hours.
Last week, Microsoft announced plans to cut 10,000 jobs, about 4.5% of the staff.
The shares fell 0.2% to 242.04 on Tuesday, holding the 50-day line after retaking that key level on Monday. Microsoft stock is arguably bottom-based with a buy point of 264.02. It formed below the 200-day line, but a break would imply breaking above that level and breaking a long downtrend.
Microsoft’s earnings and guidance are important to other software makers, PC-related stocks and cloud computing games like Google and amazon.com (AMZN). Microsoft’s recent big involvement and alliance with ChatGPT creator OpenAI could be another threat to Google and Amazon.
Amazon and several cloud software companies fell overnight after initially rebounding on Microsoft’s gains.
Market recovery analysis
The stock market rally came to a halt on Tuesday and the major indices ended mixed. But that was normal action after the big gains on Friday and Monday, especially in the face of a big earnings rush.
The S&P 500, which broke above last week’s highs and the 4,000 level on Monday, held those key levels.
The Nasdaq Composite fell and is still modestly below the 200-day line and December highs.
The Dow Jones extended its rise from the 50-day line after retaking that key level on Monday
The small-cap Russell 200 is down, but is close to its late-2022 peaks.
The market rally looks strong, but all major indices are facing resistance levels. Technology has been leading the market in 2023, but now we are going to receive a barrage of technological gains. Even if the macroeconomic outlook stabilizes and the Fed’s rate hikes ease, companies could cut guidance in the coming weeks.
Microsoft could just be the beginning.
In addition to Tesla, ASML and Boeing on Wednesday, Apple (AAPL), father of Facebook metaplatforms (META), Amazon, AMD (AMD), Google and many more due to report next week
If the market rally has breached the late-2022 highs by the end of next week, it would be a strong sign that a sustained uptrend is underway.
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What to do now
The stock market rally has been showing more strength and offering a number of buying opportunities.
Investors should gradually add exposure and not focus too much on a specific stock or sector. Earnings season could shake up the market, but especially individual stocks. One option for investors is to buy market or sector ETFs, along with individual names.
Definitely focus on creating your watch lists. Consider the key earnings for the market and your holdings, including rivals, customers and suppliers of the companies in which you have positions.
Read The Big Picture every day to stay in sync with market direction and major stocks and sectors.
Follow Ed Carson on Twitter at @IBD_ECarson for stock market updates and more.
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