Dow Jones futures and S&P 500 futures rose slightly Wednesday morning while Nasdaq futures climbed solidly as Microsoft, Google parent Alphabet and Boeing headlined big earnings.
The stock market rally fell sharply Tuesday, with investors wary heading into major earnings Tuesday night and beyond. First Republic Bank crashed on deposit flight reviving banking fears. FRC stock kept tumbling Wednesday amid desperate attempts to avoid a collapse.
Concerns about China growth, exacerbated by reports of a new Covid wave there, also weighed on stocks, as well as Treasury yields and commodity prices on Tuesday. U.S. government default risks are looming over the horizon.
Microsoft stock jumped overnight on strong results and guidance, signaling a move back into a buy zone. Visa and Chipotle Mexican Grill also rose. Google stock turned slightly lower early Wednesday. Enphase Energy dived on mixed results and guidance.
Boeing rose solidly Wednesday after reporting mixed results before the open.
Microsoft stock is on IBD Long-Term Leaders.
The video embedded in this article discussed Tuesday's market action and analyzed Rambus, ServiceNow and BJ's Wholesale.
Dow Jones Futures Today
Dow Jones futures were 0.1% above fair value, with Microsoft stock, Boeing and Visa all Dow Jones components. S&P 500 futures rose 0.15%. Nasdaq 100 futures jumped 0.95%, off overnight highs.
The 10-year Treasury yield rose 2 basis points to 3.42%.
Remember that overnight action in Dow futures and elsewhere doesn't 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
Microsoft, Google Earnings
Microsoft earnings topped fiscal Q3 views comfortably as Azure cloud-computing growth slowed but was perhaps better than feared. The Dow Jones tech titan also guided slightly higher on Q4 revenue.
MSFT stock leapt 8% early Wednesday. Shares fell 2.25% to 275.42 in Tuesday's regular session. Microsoft closed back below a 276.86 flat-base buy point, according to MarketSmith analysis, but is signaling a move above that level on Wednesday.
In fact, MSFT stock could clear the April 6 high of 292.08. Investors could view the recent action as a handle to a consolidation going back to August or even late 2021.
Meanwhile, a U.K. regulator on Wednesday blocked the Microsoft takeover of video game publisher Activision on competition grounds. The $69 billion Microsoft-Activision deal faces FTC opposition as well. ATVI stock dived in premarket trade.
Google earnings topped views with the internet giant also authorizing up to $70 billion in share buybacks. Google Cloud revenue climbed 28%.
GOOGL stock fell a fraction in overnight action, reversing from strong Tuesday evening gains. Shares closed down 2% to 103.85 on Tuesday. Google stock has a 106.69 cup-with-handle buy point.
Microsoft and Google earnings and guidance, along with Meta Platforms and Amazon.com later in the week, have big implications for cloud software, networking, artificial intelligence and many other tech plays. Meta, Amazon, Nvidia and many cloud software names also rose modestly to solidly overnight.
Other Key Earnings
Boeing reported a wider-than-expected loss, but a 28% revenue gain topped. The aerospace giant stuck to full-year 737 Max jet delivery targets and plans to boost monthly output soon, despite a recent production halt. BA stock stock rose 4% in premarket trade, signaling a possible test of its 50-day line. Shares are working on a 221.43 flat-base buy point.
Visa earnings exceeded forecasts, boosted by strong cross-border payments. Shares rose 1% in extended action. Visa stock sank 1.4% to 229.59 on Tuesday, holding in range of 230.15 cup-with-handle buy point.
Chipotle earnings topped views with strong same-store sales growth and profit margins. CMG stock spiked 8% in premarket trade. Shares slipped 0.9% to 1,780, at the edge of a buy zone from a cup base.
Enphase earnings topped but revenue slightly missed and the solar power inverter maker guided low on Q2 revenue. ENPH stock plunged 16% overnight. Shares fell 1.8% on Tuesday to 220.60, pausing in recent days after retaking the 50-day line. Enphase stock is well below its 200-day line and its December all-time highs. Group leader First Solar reports Thursday.
Stock Market Rally
The stock market rally suffered significant damage Tuesday, with the underlying action even worse than the major indexes.
The Dow Jones Industrial Average sank 1% in Tuesday's stock market trading. The S&P 500 index lost 1.6%, with FRC stock far and away its worst performer. The Nasdaq composite tumbled 2%. The small-cap Russell 2000, with a heavy exposure to regional banks, plunged 2.4%.
U.S. crude oil prices slid 2.15% to $77.07 a barrel, a new low for April.
Copper futures sank 2.7% to the lowest close since Jan. 5. The key industrial metal is down nearly 6% in a five-session losing streak. China demand for metals hasn't recovered as much as hoped, with Covid outbreak fears adding to the downside pressure.
The 10-year Treasury yield gapped down 12 basis points to 3.4%. The 2-year Treasury yield tumbled 19 basis points to 3.95%. The odds of another Fed rate hike on May 3 fell modestly on Tuesday but remain high. Markets are growing more confident a May rate hike would be the last one.
ETFs
Among growth ETFs, the Innovator IBD 50 ETF gave up 2.7%, while the Innovator IBD Breakout Opportunities ETF fell 1.2%. The iShares Expanded Tech-Software Sector ETF slid 3%, with MSFT stock a major holding. The VanEck Vectors Semiconductor ETF slumped 3.2%.
Reflecting more-speculative story stocks, ARK Innovation ETF tumbled 3.3% and ARK Genomics ETF 3.35%.
SPDR S&P Metals & Mining ETF skidded 3% and the Global X U.S. Infrastructure Development ETF 1.7%. U.S. Global Jets ETF descended 2.3%. SPDR S&P Homebuilders ETF gave back 1.5%. The Energy Select SPDR ETF gave up 1.9% and the Health Care Select Sector SPDR Fund sank 1.1%
Bank Stocks
FRC stock crashed 49% to a record low. First Republic Bank late Monday reported deposits plunged 41%, or $72 billion, in Q1. That's more than $100 billion excluding bank giants depositing $30 billion in March. Deposits were far worse than expected, and much worse than other regional banks that have reported Q1 results.
First Republic will cut up to 25% of staff and pursue strategic alternatives. It's exploring a sale of up to $100 billion in assets in a desperate effort to avoid an FDIC seizure. That might require extra incentives, perhaps even government guarantees, to find buyers to pay above market value and closer to book value. A solution needs to come soon.
First Republic's woes could spur fresh deposit flight from other regional banks, even though regulators have sent strong signals that they'll protect all deposits. But bank stocks won't get a bailout. More broadly, regional bank woes could chill lending with recession fears rising. Longer term, regional banks may face significantly higher funding costs, squeezing profitability.
The SPDR S&P Regional Banking ETF tumbled 4.2% on Tuesday, hitting their lowest levels since late 2020. FRC stock and PacWest are KRE components.
The Financial Select SPDR ETF retreated 1.7%. XLF, dominated by financial giants including Visa, is well off its March bottom.
FRC stock sold off 10% early Wednesday but off morning lows.
PacWest Bancorp, among the hardest hit in March, jumped 15% in premarket trade after saying deposits stabilized at the end of March. PACW stock fell 8.9% on Tuesday.
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Market Rally Analysis
The stock market rally showed more strains Tuesday.
The Nasdaq composite fell below the 21-day line and 12,000 level, undercutting the past few weeks of trading. It's now just above its 50-day line. Notably, the Nasdaq closed below the low of its March 29 follow-through day, a very bearish sign for the market rally.
The S&P 500 undercut its 21-day moving average, not far from its 50-day either. But the S&P 500 is above the low of its March 29 FTD.
The Dow Jones has come down to its 21-day line.
Damage was worse below the surface. The First Trust Nasdaq-100 Equal Weighted Index ETF skidded 2.1%, below the 50-day line. The Invesco S&P 500 Equal Weight ETF slid 1.7%, back below its 50-day line and right at the 200-day.
Chip stocks are looking weak, with many big recent winners fading or selling off. The SMH ETF is decisively below the 50-day line, erasing all of its late March gains.
Software is struggling once again. The IGV ETF is also below its 50-day line, with the technical action far worse in many cloud software plays.
Homebuilders are looking strong, as well as many medicals and some footwear plays, discounters and restaurants such as CMG stock. But many of those are now extended, and even some of these names took hits on Tuesday. Overall leadership has narrowed considerably
Losers overwhelmingly beat winners on Tuesday.
The market rally could revive over the next several days if earnings are strong and there's a positive reaction to economic data and the Fed meeting.
Even Nasdaq futures are only recouping a portion of Tuesday's losses. Even if that holds on Wednesday, a rebound wouldn't be that meaningful if it's largely a few megacaps rebounding.
But it wouldn't take much for the indexes to break decisively lower. Whipsaw action is quite possible, with earnings and other news spurring big gains or losses one day followed by a reversal in the next session.
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What To Do Now
Investors should have been cutting exposure somewhat in recent days, if only because of individual holdings' performance. The recent market pullback has trigged sell signals in some recent buys, while cutting cushions for bigger winners heading into earnings season.
If the market rally bounces back in the coming days, buying opportunities will return, but perhaps not right away. Many stocks remain near buy points, though most have backed off somewhat in recent days.
In this scenario, investors could try to add exposure gradually once again. But don't get excited by overnight action or a bounce at the market open.
But you also have to be ready for the market to keep deteriorating, spurring a big move into cash.
Staying engaged, flexible and prepared is always important, but especially in the current environment.
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