Stock market indexes leapt off lows Thursday and added to gains after Facebook parent Meta Platforms delivered strong results. Blue chip and Big Tech stocks led the upside while small caps posted limited upside.
The first look at Q1 GDP came in at 1.1%, well below the 2.0% forecast, but report internals were stronger than the headline numbers. CME FedWatch odds for a quarter point hike at next week's meeting surged from 72.2% to nearly 84.8% after the release.
Meta stock soared 14% after beating Q1 top- and bottom-line estimates. The social media giant also raised Q2 revenue guidance and lowered expense guidance, signaling progress on Facebook's widely-touted restructuring.
Southwest Airlines cratered nearly 5% after posting a big Q1 loss, driven by self-inflicted wounds and delays in planned Boeing deliveries. LUV lost 27 cents per share in Q1 even though revenue rose 21% to $5.7 billion. Fallout from the holiday weather debacle continues to plague the once well-regarded air carrier, with new delays reported just last week.
In other earnings news, pharma giant Eli Lilly popped above a 375.35 buy point with a 1.8% rally despite missing earnings estimates and reporting a 10.9% year-over-year revenue decline. Investors took a second look after Lilly raised fiscal 2023 guidance.
Analyst Warns Of Chip Stocks Breakdown
BTIG's Jonathan Krinsky just released a highly bearish research report on the semiconductor sector, warning about a major breakdown.
He notes the firm continues "to be cautious here with internal breadth much weaker than the broad indexes suggest and expects the cap-weighted indexes to continue moving lower in the weeks ahead. By now the breadth picture is pretty widely known. What's amazing, however, is just how consistently breadth drops off as you go down the market cap scale."
Krinsky points to the same divergences we're seeing in relative performance between big caps and small caps as we head through the second quarter.
"If we anchor to the Oct. 12th low, here are the return profiles: Top 6 NDX (Nasdaq 100) Names (equally-weighted) +45%, SPX (S&P 500) +14%, MDY (Midcap S&P 400) +8%, IWM (Russell 2000 ETF) +3%, IWC (microcap ETF) -3%. Today we have the equally-weighted Semiconductors (XSD) down 4.5% while QQQ is up over 1%. If we closed here, it would be the worst day for XSD vs. QQQ since Nov. '08."
He admits this internal rotation may be interpreted as constructive but notes "a full-fledged breakdown in semis is hard to argue as being bullish."
Stock Market By The Numbers
The Dow Jones Industrial Average gained 0.9% in the first half while the S&P 500 jumped 1.2%. The Russell 2000 small-cap index underperformed blue chips, adding just 0.6%. The Nasdaq composite led the upside, with everyone focused on tech stocks, gaining 1.7% at this hour.
Earnings busts weighed on the growth-heavy Innovator IBD 50 ETF, dropping the fund 1.8%.
NYSE and Nasdaq volume drifted below Wednesday levels at the noon hour. Asian and European markets closed quietly mixed to higher.
The 10-year Treasury surged 8 basis points to 3.51%. Bitcoin added 2.5% but has recovered just half of the weekend breakdown through the $30,000 level.
The Nasdaq, S&P 500 and Dow Jones remain above their 50-day and 200-day moving averages but distribution days have taken their toll, supporting IBD's more cautious "market under pressure" outlook.
The Russell 2000 and small caps highlight the growing challenge for bulls, slumping below all major benchmarks and threatening to test 2022 and 2023 lows.
Weak Commodities Could Signal Strong Stock Market
The gold futures contract crisscrossed the $2,000 level while stock market players tried to figure out where inflation will be in six to 12 months.
Canadian gold miner Agnico-Eagle Mines just made it to the IBD 50 list and is the top play in that speculative sector. AEM stock has carved a yearlong cup-with-handle pattern with a 59.63 buy point. The Composite Rating has surged to 98 but earnings have not kept pace, yielding a more modest 75 Earnings-Per-Share Rating.
Earnings for Agnico-Eagle are due after Thursday's close, with estimates for a profit of 49 cents per share on $1.48 billion in revenue. Longer-term, EPS is forecast to shrink 10% to $2.05 this year but surge 13% to $2.23 in 2024.
West Texas Intermediate crude oil continued to retreat from the rapid advance above $80 per barrel after the OPEC production cut, falling to a three-week low $74.60. Copper futures also declined and are testing March support around $3.82 per pound.
The growing commodities downturn, if it continues, suggests that Fed inflation policy is having its intended effect on raw materials prices. The stock market could trade at much higher prices if this beneficial trend persists.
Inside The IBD 50
IBD 50 component Mobileye plunged 24% after beating Q1 earnings but sharply lowering fiscal 2023 guidance. The Israeli auto AI upstart cited Chinese and global EV price reductions for the expected shortfall. MBLY stock gapped down through a 48-day consolidation pattern and key moving averages, setting off a major sell signal.
Also in the IBD 50, Crocs got slammed for a 20% loss after meeting Q1 estimates but sharply lowering Q2 profit guidance. CROX stock failed a rally above the 143.60 buy point and sliced through 21- and 50-day lines.
Finally, Tractor Supply marked the third IBD 50 component having a bad day.
The farm- and yard-supply retailer trimmed a 3% loss to 1% and undercut the buy zone after missing Q1 profit estimates. TSCO stock remains well above the 7% sell zone.
Follow Alan Farley on Twitter at @msttrader.
