Dow Jones futures rose modestly early Friday, along with S&P 500 futures and Nasdaq futures, amid reports that a debt-ceiling deal isn't far off. Key inflation data is on tap before the market open.
Costco Wholesale, Ulta Beauty, Workday, Deckers Outdoor and Marvell Technology headlined earnings reports Thursday night.
The stock market rally had a wildly divergent Thursday. The Nasdaq and especially the Nasdaq 100 surged as Nvidia skyrocketed on strong earnings and blowout guidance. That also sent Advanced Micro Devices, Taiwan Semiconductor and Arista Networks soaring as well, with solid gains for ASML, Microsoft, Google parent Alphabet and other AI or chip plays.
But outside of a limited number of big winners, the market showed tepid or weak action amid ongoing debt-ceiling talks, Fed rate hike concerns and more. Decliners easily beat winners while the Dow Jones dipped below its 200-day line.
ASML and fellow chip-gear giants Applied Materials and KLA Corp. moved back above buy points on Thursday, along with chip-design software maker Cadence Design Systems. ANET stock and Mobileye flashed early entries.
But investors should be cautious about new buys amid the split market action and super-concentrated market leadership.
Debt-Ceiling Talks
Debt-ceiling talks have continued, with reports that negotiators for the White House and House Republicans are approaching a debt-ceiling deal that would limit nondefense discretionary spending for the next two years.
Any tentative deal would need to get through Congress.
The U.S. could default in early June if there's no agreement to lift the debt limit by then.
Moody's said Thursday that the U.S. must make a mid-June interest payment on Treasurys to avoid losing its AAA credit rating. Fitch Ratings late Wednesday placed the U.S.' AAA rating on negative watch due to rising default risks.
The Debt Ceiling Is Just The Start. These Drags Could Derail The Economy.
PCE Inflation Data
The Commerce Department will release the personal consumption expenditures price index, the Fed's favorite inflation gauge, at 8:30 a.m. ET Friday.
Economists expect the PCE price index to rise 0.3% in April. That would lift the 12-month PCE inflation rate to 4.3%. Core PCE, which strips out food and energy, are also seen rising 0.3%, leaving the core PCE inflation rate unchanged at 4.6%.
Fed chief Jerome Powell has signaled he's paying extra attention to core PCE services excluding housing. So look for this supercore services inflation reading.
The odds of another Fed rate hike on at the June 13-14 policy meeting hit 52% on Thursday, up sharply over the past several days. That went to 66% by the late July Fed meeting.
The PCE inflation data is part of Commerce's income and spending report. Economists see both income and spending up 0.4% in April.
Dow Jones Futures Today
Dow Jones futures climbed 0.2% vs. fair value. S&P 500 futures advanced 0.2% and Nasdaq 100 futures rose 0.4%.
The 10-year Treasury yield fell 2 basis points to 3.79%. But the 1-month T-bill rate is near 6% amid the debt-ceiling fight.
The dollar, which has rallied considerably over the last several days, weakened slightly on reports of a debt-limit deal taking shape.
Crude oil futures rose 1% while copper prices climbed more than 2%. Gold edged higher.
Remember that overnight action in Dow futures and elsewhere doesn't necessarily translate into actual trading in the next regular stock market session.
Earnings
Costco earnings came in below fiscal Q3 views. COST stock was little changed in extended trade after closing modestly below all its moving averages.
Ulta earnings just above Q1 views while sales just missed. ULTA stock plunged in overnight action, signaling a drop below the 200-day after sliding from record highs on May 1.
Workday topped Q1 earnings views and guided in line on Q2 subscription revenue. WDAY stock still jumped in late trade, signaling a move above multiple buy points. Shares edged up 0.1% to 196.41 on Thursday. The software giant is working on a 206.78 cup-base buy point, with 199.17 as an early entry from a proto-handle.
Deckers earnings topped views, but DECK stock fell solidly overnight. The maker of Ugg boots and Hoka running shoes had tumbled below its 50-day line following recent On Holding and Foot Locker earnings.
Marvell earnings and revenue slightly exceeded Q1 views. The chipmaker also guided higher, predicting AI revenue will double in the second half of the fiscal year. MRVL stock skyrocketed overnight. Shares jumped 7.6% on Thursday to 49.47. That was on the cusp of a 49.58 cup-shaped bottoming base, but Marvell stock was extended from its 50-day and 200-day lines.
Nvidia stock and ASML are on IBD Leaderboard. Microsoft, KLA and CDNS stock are IBD Long-Term Leaders. WDAY stock and ASML are on the IBD 50. ASML, Workday, Microsoft, Cadence Design and AMAT stock are on the IBD Big Cap 20.
Join IBD experts as they analyze actionable stocks in the stock market rally on IBD Live
Stock Market Rally
The stock market rally showed highly divergent action, with the Nasdaq leading thanks to a handful of big-cap techs.
The Dow Jones Industrial Average dipped 0.1% in Thursday's stock market trading. The S&P 500 index climbed 0.9%. The Nasdaq composite jumped 1.7%. The small-cap Russell 2000 declined 0.8%.
Nvidia stock skyrocketed 24%. AMD stock leapt 11% and Taiwan Semi 12%. ANET stock bolted nearly 11%. ASML, KLA and AMAT stock popped 6%-7%. Microsoft stock rallied nearly 4% to a 52-week high, while Google gained 2.1%%. Except for Arista and KLAC stock, these are have market caps of at least $100 billion. Nvidia is nearly at $1 trillion, with GOOGL stock above $1.5 trillion and Microsoft topping $2 trillion.
U.S. crude oil prices tumbled 3.4% to $71.83 a barrel. Copper prices rose 0.8%, but from their lowest levels in nearly seven months.
The 10-year Treasury yield jumped 10 basis points to 3.81%.
The U.S. dollar kept rising, closing in on its 2023 highs set in early March.
ETFs
Among growth ETFs, the iShares Expanded Tech-Software Sector ETF 2.5%, hitting a 10-month high. MSFT stock is a major IGV holding. The VanEck Vectors Semiconductor ETF spiked 8.6% to a 52-week high. NVDA stock, Taiwan Semiconductor, AMD ASML, Applied Materials and KLA Corp. are all notable SMH components. CDNS stock is in the IGV and SMH ETFs.
Reflecting more-speculative story stocks, ARK Innovation ETF sank 2.7% and ARK Genomics ETF 2.5%.
SPDR S&P Metals & Mining ETF fell 0.8%. U.S. Global Jets ETF ascended 1.2%. SPDR S&P Homebuilders ETF edged up 0.3%. The Energy Select SPDR ETF slumped 1.8% and the Health Care Select Sector SPDR Fund gave up 1%.
The Financial Select SPDR ETF closed just below break-even. The SPDR S&P Regional Banking ETF retreated 0.8%
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Market Rally Analysis
The stock market rally showed extreme divergence on Thursday. The Nasdaq 100 spiked more than 2% while losing stocks outpaced winners by two-to-one.
The Nasdaq composite recouped nearly all the losses from the prior two days. The S&P 500 regained the 21-day line in a solid advance. But those reflected big-to-huge gains in Nvidia, AMD, Microsoft, Google and more.
Meanwhile, debt-ceiling default concerns, along with rising Treasury yields and the dollar, weaker overseas economies and growing odds of further Fed rate hikes, weighed on the broader market.
The Dow Jones, even MSFT stock as a component, just dipped below its 200-day line, though it closed off lows. The Russell 2000 dropped below its 50-day line.
The First Trust Nasdaq 100 Equal Weighted Index ETF gained just 0.5%, bouncing from the 21-day.
The Invesco S&P 500 Equal Weight ETF edged down less than 0.1%, but well off session lows. RSP is down 2.1% for the week, below all its moving averages.
New lows easily beat new highs.
Aside from AI and chip plays, there weren't many stocks flashing buy signals, though ELF Beauty was an exception.
Some names showed solid action, but many stocks in or near buy zones fell significantly. That's been a disquieting trend this week.
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What To Do Now
The bifurcated market rally continues to show unusual action. A number of stocks have been huge winners but the overall market has been lackluster at best.
Investors can have modest exposure. How much depends greatly on whether you're in the winning stocks.
If you're not in some of 2023's great winners and are struggling to make headway, don't beat yourself up. A narrow market rally, with various sector rotations, is hard to navigate. A lot of stocks have looked promising, only to have the breakouts or entries quickly fizzle, or solid gains quickly round-trip.
What you don't want to do is chase extended stocks. Nvidia stock is more than 90% above its 200-day moving average. A significant pullback and perhaps a new base over the next several weeks would not be a surprise. That could offer new entries down the road, but for now NVDA is out of reach.
Don't get too concentrated. Among the many issues with a divided market rally and narrow leadership is that traders can become extremely exposed to a specific stock, group or theme. Clearly, anyone who was heavily invested in Nvidia and related plays was a big winner Thursday, but the downside portfolio risks are high. Investors could have bought ANET stock, ASML, KLA or a few other names Thursday, but probably wouldn't want to buy several of them.
The time to get heavily invested is when there is a clear, broad market uptrend, with a large number of stocks from a variety of sectors flashing buy signals and continuing to march higher. At various points, the market rally has teased such a transformation, only to back off again.
But you want to be ready to act. So keep working on watchlists.
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