Dow Jones futures fell slightly Thursday morning, along with S&P 500 futures and Nasdaq futures. Tesla stock continued to slide solidly on its second downgrade in as many days.
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The stock market rally pulled back Wednesday, with the Nasdaq leading the decline. Nvidia (NVDA) and Tesla (TSLA) retreated after powering higher Tuesday. Advanced Micro Devices (AMD) and Google parent Alphabet (GOOGL) both broke below a key level, while turbocharged artificial intelligence plays Palantir Technologies (PLTR) and AI stock tumbled.
Fed chief Jerome Powell reiterated Wednesday that more rate hikes are likely, but didn’t really change the outlook from his post-Fed meeting comments a week earlier. At most, Powell provided another catalyst for the market pullback.
In hot tech and growth sectors, investors should be watching the leaders to see which ones hold up the best during the nascent pullback. Nvidia stock, despite Wednesday’s slide, looks a lot better right now than AMD stock.
But outside of the megacap growth and AI spaces, selling was muted. Investors could choose to make purchases in some non-tech fields. Chipotle Mexican Grill (CMG) flashed buy signals Wednesday.
C3.ai (AI) will hold an analyst day Thursday.
Spirit AeroSystems (SPR) tumbled Thursday after announcing it’s halting production due to a looming workers’ strike. Spirit Aero makes Boeing (BA) 737 Max fuselages. Boeing stock fell 3%, signaling a drop below the 50-day line.
Tesla stock and Nvidia are on IBD Leaderboard, with Chipotle on the Leaderboard watchlist. CMG stock is on SwingTrader. TSLA stock is on the IBD Big Cap 20. Chipotle was Wednesday’s IBD Stock Of The Day.
The video in this article reviewed Wednesday’s market action, analyzed Chipotle and compared AMD stock vs. Nvidia.
Dow Jones Futures Today
Dow Jones futures lost 0.25% vs. fair value, with BA stock weighing on blue chips. S&P 500 futures declined 0.2% and Nasdaq 100 futures fell 0.3%. Tesla stock and Nvidia weighed on Nasdaq futures.
The 10-year Treasury yield rose 2 basis points to 3.74%.
Crude oil prices fell 2%.Copper futures rose slightly.
The Bank of England raised rates by 50 basis points on Thursday, more than expected, with U.K. core inflation at a 30-year high. Norway also hiked rates by 50 basis points today, with Switzerland’s central bank raising rates by a quarter point.
Remember that overnight action in Dow futures and elsewhere doesn’t necessarily translate into actual trading in the next regular stock market session.
Key Earnings
KBH stock fell 2% in extended trade after KB Home (KBH) earnings solidly beat with revenue unexpectedly up 1%. The homebuilder also guided higher. KB Home stock rose 1.9% to 52.01 Wednesday, extended from various entries.
Accenture (ACN) reported better-than-expected fiscal Q3 earnings, but bookings missed while current-quarter revenue guidance was generally below views. ACN stock declined 5% early Thursday.. The IT consulting giant on Wednesday announced AI ties with Microsoft (MSFT), Google and Amazon (AMZN). ACN stock dipped 1.3% to 313.20 on Wednesday, a third straight decline after a strong run-up since early May.
Olive Garden parent Darden Restaurants (DRI) slightly beat fiscal Q4 views, though same-store sales slightly missed. Darden’s 2024 revenue guidance a little light at the midpoint. DRI stock fell 4% in premarket trade, signaling a drop back into a buy zone.
Join IBD experts as they analyze actionable stocks in the stock market rally on IBD Live
Stock Market Rally
The stock market rally saw losses on the major indexes, but the Nasdaq bore the brunt of the selling.
The Dow Jones Industrial Average fell 0.3% in Wednesday’s stock market trading. The S&P 500 index fell 0.52%. The Nasdaq composite tumbled 1.2%. The small-cap Russell 2000 edged down 0.2%.
U.S. crude oil prices climbed 1.9% to $72.53 a barrel.
The 10-year Treasury yield edged down fractionally to 3.72%. The odds of a July rate hike barely budged at 72% chance of a July rate hike. Markets are still pricing in less than a 20% chance of a second additional rate hike this year.
ETFs
Among growth ETFs, the Innovator IBD 50 ETF (FFTY) retreated 0.6%, while the Innovator IBD Breakout Opportunities ETF (BOUT) edged down 0.2%. The iShares Expanded Tech-Software Sector ETF (IGV) slumped 1.85%. The VanEck Vectors Semiconductor ETF (SMH) fell back 2.3%. Nvidia stock is the No. 1 component in SMH, with AMD also a major weight.
Reflecting more-speculative story stocks, ARK Innovation ETF (ARKK) slumped 3.6% and ARK Genomics ETF (ARKG) 2.7%. TSLA stock is the No. 1 holding across Ark Invest’s ETFs.
SPDR S&P Metals & Mining ETF (XME) climbed 0.85% and the Global X U.S. Infrastructure Development ETF (PAVE) 0.9%. U.S. Global Jets ETF (JETS) dipped 0.1%. SPDR S&P Homebuilders ETF (XHB) stepped up 0.5%. The Energy Select SPDR ETF (XLE) climbed 0.8% and the Health Care Select Sector SPDR Fund (XLV) was fractionally higher.
The Financial Select SPDR ETF (XLF) edged down 0.1%. The SPDR S&P Regional Banking ETF (KRE) slumped 1.5%.
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Tesla Stock
TSLA stock tumbled 5.5% to 259.46 in a downside, outside Wednesday session, but was still above the 10-day line. Tesla stock fell 3% early Thursday. Morgan Stanley downgraded Tesla but raised its price target, a day after Barclays did the same.
Nvidia Vs. AMD Stock
Nvidia fell 1.7% to 430.45 on Wednesday, off session lows. AMD stock stumbled 5.7% to 112.13. But the real divergence is in the charts. NVDA stock fell after hitting a record high Tuesday. It’s still well above the 10-day and 21-day lines. Shares fell 1% early Thursday.
In contrast AMD stock tumbled through the 21-day line Wednesday and undercut recent lows after falling to that level Tuesday. It was the fifth drop in six sessions for AMD, with four coming on above-average volume. It all started with a downside reversal on June 13, as AMD unveiled AI chips to challenge Nvidia.
If AMD investors hadn’t started scaling out before, Wednesday’s damaging losses were a place to take at least partial profits.
Nvidia stock and AMD have tended to trade off chip leadership in recent years, and that could happen again. But right now, Nvidia is the leader while AMD is struggling somewhat.
Meanwhile, Google stock fell 2.1% in light volume Wednesday. But GOOGL stock dropped below the 21-day line for the first time since May 5, according to MarketSmith. One good day could change the picture. But for now, GOOGL stock is looking weaker than the other megacap techs.
CMG Stock
Chipotle stock rose 1.2% to 2,073.67 on Wednesday, after Wedbush raised its price target to 2,300 from 2,200. Shares rebounded modestly from the 21-day and 10-week lines, breaking a downtrend and clearing some short-term levels. All of those offered reasons for an early entry, though shares came off intraday highs of 2,092.51. CMG stock has been trading very tightly. It boasts a four-weeks tight with a 2,139.88 buy point that is on track to be a flat base after Friday.
AI Stock Investor Day
C3.ai will hold an investor day event at 1:30 p.m. ET Thursday. Will the hot AI play provide some new financial guidance, perhaps before the open? C3’s news and commentary could fuel or deflate AI enthusiasm.
AI stock tumbled 9.6% to 39.04, its third straight down day in above-average volume. Shares are still more than double their early May lows and found support at the 21-day line.
PLTR stock tested its 21-day line Wednesday, falling 7.3% to 14.64. That was also Palantir’s third straight drop in above-average trade.
Market Rally Analysis
The stock market retreated for a third straight session, with a Nasdaq pullback now clearly underway.
The Nasdaq and Nasdaq 100 led Wednesday’s sell-off. That’s a switch from Tuesday, when Tesla and Nvidia kept running higher. The Nasdaq just tested its 10-day moving average on Wednesday, still 2% above the 21-day line and 7.1% from the 50-day.
The First Trust Nasdaq 100 Equal Weighted Index ETF (QQEW) fell 1% on Wednesday, not as bad as the Nasdaq or Nasdaq 100.
The Invesco S&P 500 Equal Weight ETF (RSP) only lost 0.1%, trading slightly higher for much of the session like the Dow and Russell 2000.
Decliners topped advancers on the Nasdaq, but it wasn’t a wipeout. Meanwhile, winners slightly topped losers on the NYSE. New highs led on the NYSE, but lagged somewhat on the Nasdaq.
All of this together looks positive. The Nasdaq and Nasdaq 100, fueled by big-cap techs, had gotten extended while the Dow, Russell 2000 and the RSP ETF were just gaining momentum, along with various non-tech sectors. Ideally, the Nasdaq would pull back gradually over several days or weeks so it’s no longer extended, while the rest of the market just edges lower or moves sideways. That would create new buying opportunities across a slew of stocks and sectors.
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What To Do Now
The stock market rally so far is in a normal, healthy pullback.
Investors could look outside tech for new buys now. But a Nasdaq-led market retreat is still a market retreat. Sideways-to-down action is not a great environment for making buys in the short run.
Right now investors should wait to see how big 2023 AI-infused winners respond. Do they resist selling, and find support at the 10-day or 21-day lines?
Also keep an eye on stocks holding around buy points, such as Monday.com (MNDY), Shockwave Medical (SWAV) and Rockwell Automation (ROK).
The ones that look the strongest when the pullback is largely spent will be ones that you want to target. Remember, big winners that look strong or find support could yet falter, while harder-hit names like AMD could shore up.
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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