Dow Jones futures rose modestly after hours, along with S&P 500 futures and Nasdaq futures, amid positive earnings reactions ServiceNow (NOW), IBM (IBM) and more. Key inflation data is tap.
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Techs Lead Market Sell-Off; Tenet Healthcare, Fiserv, Microsoft In Focus
United Rentals (URI), KLA (KLAC) and Universal Health (UHS) were also notable earnings after the close.
The stock market rally had a rough Wednesday. The Nasdaq composite and S&P 500 tumbled to below their 50-day lines. The small-cap Russell 2000 also fell sharply, though looks less damaged.
Tesla (TSLA) dived on earnings while Google-parent Alphabet (GOOGL) fell solidly. The rest of the Magnificent Seven — Nvidia (NVDA), Microsoft (MSFT), Meta Platforms (META), Amazon.com (AMZN) and Apple (AAPL) — retreated in sympathy, among with dozens of leading techs,
The Magnificent Seven suffered its worst one-day loss since October 2022.
Nvidia stock is on IBD Leaderboard. Microsoft stock is on IBD Long-Term Leaders. Nvidia and Google stock are on the IBD 50.
The video embedded in the article reviewed Wednesday’s market action and analyzed Tenet Healthcare (THC), Fiserv (FI) and Microsoft stock.
Dow Jones Futures Today
Dow Jones futures rose 0.2% vs. fair value, with IBM a Dow component. S&P 500 futures climbed 0.25%. Nasdaq 100 futures gained 0.45%. ServiceNow and KLA are Nasdaq 100 components. All are S&P 500 members.
The 10-year Treasury yield dipped to 4.26%.
China’s central bank cut a one-year lending rate by 20 basis points to 2.3% overnight. That comes just days after trimming a 7-day rate by 10 basis points to 1.7%. The PBOC is offering modest monetary stimulus with China eschewing major fiscal stimulus for now.
Remember that overnight action in Dow futures and elsewhere doesn’t necessarily translate into actual trading in the next regular stock market session.
GDP, Inflation Data Due
Before Thursday’s open, investors will get the first reading for second-quarter GDP. Economists expect a 1.9% annualized gain after Q1’s 1.4% rise. The report will also include a Q2 reading for the PCE price index. That comes ahead of Friday’s June PCE price index. The Federal Reserve uses the core PCE price index as its primary inflation gauge.
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Stock Market Rally
The stock market rally saw sharp, broad losses, led by megacaps and techs.
The Dow Jones Industrial Average fell 1.25% in Wednesday’s stock market trading, undercutting the 40,000 level and 21-day moving average. The S&P 500 index sank 2.3% to just below its 50-day average. The Nasdaq composite slumped 3.6%, clearing undercutting its 50-day.
The small-cap Russell 2000 fell 2.1%, but only to around its 10-day line.
This is a big test for the market rally. The S&P 500 and Nasdaq could rebound from these levels, or break lower in some form of intermediate correction, at least for techs.
One positive: The CBOE Volatility Index, or VIX, spiked 22.55% to 18.04, its biggest one-day increase since June 2022. While still below the April peak during that correction, the market fear gauge is showing signs of life.
U.S. crude oil prices rose 0.8% to $77.59 a barrel.
The 10-year Treasury yield rose 4.5 basis points to 4.285%.
ETFs
Among growth ETFs, the Innovator IBD 50 ETF (FFTY) tumbled 4%. The iShares Expanded Tech-Software Sector ETF (IGV) gave up 3.4%, with Microsoft and NOW stock as major components. The VanEck Vectors Semiconductor ETF (SMH) plunged 5.45%. Nvidia stock is the No. 1 holding in SMH, with KLA Corp. in the ETF as well.
Reflecting more-speculative story stocks, ARK Innovation ETF (ARKK) sold off 6.4% and ARK Genomics ETF (ARKG) 3.1%. Tesla stock is the No. 1 holding across Ark Invest’s ETFs.
SPDR S&P Metals & Mining ETF (XME) gave up 2% and the Global X U.S. Infrastructure Development ETF (PAVE) lost 3.4%. SPDR S&P Homebuilders ETF (XHB) retreated 2.9%. The Energy Select SPDR ETF (XLE) edged up 1 cent and the Health Care Select Sector SPDR Fund (XLV) climbed 0.8%.
The Industrial Select Sector SPDR Fund (XLI) retreated 2.15%, with URI stock a member. The Financial Select SPDR ETF (XLF) declined 1.4%.
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Key Earnings
IBM, software giant ServiceNow, chip-equipment maker KLA and hospital operator Universal Health all beat earnings Wednesday night.
IBM stock rose 3% overnight, eyeing a breakout from a new 189.47 cup-with-handle buy point.
ServiceNow leapt 7% late after closing down 4.5% to 730.87. Its results and guidance could have a big impact on other software plays.
KLAC climbed 4% in extended action after skidding 6.4% on Wednesday, below its 50-day line.
Universal Health advanced nearly 2%. Shares had already reclaimed a buy zone this week on strong results from rivals HCA Healthcare (HCA) and Tenet.
Meanwhile, United Rentals topped EPS views but just missed on sales. URI stock edged higher late. Shares fell 3.8% on Wednesday, back below a buy point.
Tesla Stock
Tesla stock plunged 12.3% on Wednesday to 215.99, diving below its 21-day moving average. Technically, TSLA stock still has a 271 handle on a long consolidation, but it’s no longer tight.
Late Tuesday, Tesla reported a 43% EPS decline in Q2, the fourth straight big year-over-year decline and once again missing views. Revenue rose 2% to $25.5 billion, slightly beating. But automotive revenue fell nearly 7%, even with a spike in regulatory tax credits.
Elon Musk on the Tesla earnings call didn’t offer much new on upcoming vehicles, self-driving and other future potential growth drivers.
Google Stock
Google stock tumbled 5% to 172.63, clearly below the 50-day line and to its worst levels since early June.
Google earnings and revenue cleared estimates, thanks to Google Cloud and online advertising, though YouTube ad revenue fell short. Google signaled higher expenses in Q3, raising margin concerns.
Other Magnificent Seven Stocks Damaged Too
While Tesla had the bigger drop, Google probably had the bigger market impact. For one, it has a larger market cap. More importantly, its results and guidance weighed on fellow megacaps Microsoft, Meta Platforms, Amazon, Apple and Nvidia — along with many other tech firms.
Microsoft stock fell 3.6% and Nvidia stock tumbled 6.8%, both dropping below their 50-day lines. MSFT stock also undercut a prior buy point.
Meta stock sold off 5.6% while Amazon lost 3%, after both hit resistance at their 50-day lines Tuesday.
Apple stock slumped 2.9%, below its 21-day line for the first time since May 1.
Overall, the Magnificent Seven stocks lost 4.6% on Wednesday, their worst collective loss since Sept. 13, 2002.
Microsoft, Meta, Amazon and Apple stock all report earnings next week.
What To Do Now
Tech stocks are looking weak, and it’s not just the megacaps. Investors have to recognize that, getting out of losing positions and taking some profits. If you want to hold core positions in a couple of long-term winners, that’s a different story, but the market has been signal the need to scale back overall tech exposure for some time.
A divided-to-weakening market in the middle of earnings season is not an ideal time to be ramping up exposure. If the Nasdaq does break lower, there’s a high risk that the rest of the market will also come under pressure. The Russell 2000 and many non-tech sectors still look fine, but another day or two like Wednesday and it’ll be another matter.
Investors may be better served reducing exposure on net, even if only by cutting positions on an individual basis.
Watchlists presumably need significant changes from just a few weeks ago. So make sure you’re up to date.
Read The Big Picture every day to stay in sync with the market direction and leading stocks and sectors.
Please follow Ed Carson on Threads at @edcarson1971 and X/Twitter at @IBD_ECarson for stock market updates and more.
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