Dow Jones futures rose sharply Wednesday morning along with S&P 500 futures and Nasdaq futures. Salesforce and Zscaler headlined after-hours earnings while Tesla rivals Xpeng, Li Auto and Nio reported strong deliveries early Wednesday.
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The stock market rally retreated Tuesday as Fed chief Jerome Powell said he’s open to a faster bond taper at the December Fed meeting. Earlier, Moderna (MRNA) said existing vaccines may be significantly less effective vs. the omicron Covid variant.
Apple stock was a rare bright spot Tuesday, with Apple (AAPL) iPhone sales reportedly booming in China. The major indexes also did close off lows somewhat. But the major indexes are testing or undercutting key levels, while market breadth deteriorates.
Zscaler (ZS) and Salesforce.com (CRM) reported after the close. Chip foundry giant Global Foundries (GFS) and vision-chip maker Ambarella (AMBA) also released results, along with NetApp (NTAP).
Zscaler stock popped in extended trade, while Ambarella soared. NTAP stock and Global Foundries stock rose modestly. CRM stock skidded in premarket trade.
Early Wednesday, China EV startups Xpeng (XPEV), Li Auto (LI) and Nio (NIO) reported a big increase in monthly sales as chip shortages start to ease for the industry. China EV giant BYD Co. (BYDDF) should follow in a few days, with Tesla (TSLA) China sales and exports likely due in a week or two.
Tesla stock is on IBD Leaderboard. ZS stock, Xpeng and Tesla are on the IBD 50.
The video embedded in this article discussed the market action and analyzed Apple stock, Pfizer (PFE) and Fox Factory (FOXF).
Fed Chief Powell
Powell, speaking before a Senate panel on Tuesday morning, said policymakers will likely discuss scaling back asset purchases even faster to combat inflation at the Dec. 14-15 meeting.
“The economy is very strong and inflationary pressures are higher, and it is therefore appropriate in my view to consider wrapping up the taper of our asset purchases … perhaps a few months sooner,” Powell said. “I expect that we will discuss that at our upcoming meeting.”
The Fed chief also said it may be time to “retire” describing inflation as “transitory,” as the central bank now sees price pressures as staying elevated for a much longer time.
Powell acknowledged that the omicron Covid variant hasn’t been factored in, but said it creates increased “uncertainty” for inflation. He may just be preserving flexibility. If the omicron variant is seen as no big deal by the mid-December Fed meeting, policymakers may want to go ahead with a faster bond taper.
Dow Jones Futures Today
Dow Jones futures were 0.95% above fair value, even with CRM stock weighing on blue-chip futures. S&P 500 futures rose 1.3%. Nasdaq 100 futures jumped 1.5%.
Crude oil futures rebounded more than 3% after tumbling again Tuesday. OPEC+ could decide to pause its monthly production increases of 400,000 barrels per day in the wake of the omicron variant and the plunge in crude prices.
The 10-year Treasury yield rose 4 basis points to 1.48%, while the two-year yield ran up even more.
The ADP Employment Report said private payrolls rose by 534,000 last month, just ahead of consensus.
ISM’s U.S. manufacturing index for November is due today at 10 a.m. ET.
The Caixin China manufacturing index fell 0.7 point in November to 49.9. Economists expected an unchanged 50.6. Readings below 50 signal contraction. Earlier, the official China manufacturing index rose 0.9 point to 50.1.
Remember that overnight action in Dow futures and elsewhere doesn’t necessarily translate into actual trading in the next regular stock market session.
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Moderna CEO Questions Vaccine Efficacy Vs. Omicron
Moderna CEO Stephane Bancel told the Financial Times that the omicron variant will have a “material drop” in coronavirus vaccine effectiveness, due to the high number of its mutations. That largely reiterated comments by Moderna’s chief medical officer over the weekend. Pfizer and BioNTech (BTNX), which make the other mRNA-based Covid vaccine, have taken a more positive view, stressing that vaccines will likely provide strong protection vs. serious illness.
The vaccine makers may start to have an idea of how effective their treatments are as soon as the end of next week, while health officials try to get a better idea of the omicron variant’s infectiousness and severity.
A World Health Organization official on Wednesday said most Omicron cases so far have been mild, echoing similar statements over the weekend.
Both Moderna and Pfizer/BioNTech are working on possible tweaks to their vaccines.
Moderna stock fell 4.4% on Tuesday, while BNTX stock gave up 3%. Pfizer rose 2.5%. MRNA stock, Pfizer and BioNTech have soared since Thanksgiving.
Coronavirus cases worldwide reached 263.23 million. Covid-19 deaths topped 5.23 million.
Coronavirus cases in the U.S. have hit 49.42 million, with deaths above 803,000.
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Stock Market Rally
The stock market rally opened lower on the Moderna vaccine comments, but briefly turned mixed until the Fed chief weighed in.
The Dow Jones Industrial Average retreated 1.85% in Tuesday’s stock market trading. The S&P 500 index sank 1.9%. The Nasdaq composite gave up 1.55%. The small-cap Russell 2000 skidded 2%
U.S. crude oil prices fell 5.4% to $66.18 a barrel, easily wiping out Monday’s modest rebound from Friday’s 13% dive. Natural gas prices continued to tumble. The 10-year Treasury yield gave up 9 basis points to 1.44%, with Powell’s comments not having much lasting effect. But the two-year yield, more closely tied to Fed policy, rose 5 basis points to 0.56%.
Apple stock rose 3.2% to 165.30, a new closing high and just below last week’s intraday peak, providing some support to the Dow Jones, S&P 500 and Nasdaq. AAPL stock had paused for a few days around the top of a buy zone. Apple iPhone sales are booming in China, according to Counterpoint Research, which said the iPhone took the No. 1 sales spot there for the first time since the end of 2015.
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ETFs
Among the best ETFs, the Innovator IBD 50 ETF (FFTY) sank 2.3%, while the Innovator IBD Breakout Opportunities ETF (BOUT) gave up 2.5%. The iShares Expanded Tech-Software Sector ETF (IGV) fell 2.7%. The VanEck Vectors Semiconductor ETF (SMH) lost 2.1%.
SPDR S&P Metals & Mining ETF (XME) retreated 3.3% and Global X U.S. Infrastructure Development ETF (PAVE) faltered 3.2%. U.S. Global Jets ETF (JETS) slid 1.3%. SPDR S&P Homebuilders ETF (XHB) declined 2.5%. The Energy Select SPDR ETF (XLE) slid 2.3% and the Financial Select SPDR ETF (XLF) 2.4%.
Reflecting more-speculative story stocks, ARK Innovation ETF (ARKK) shed 1.15% and ARK Genomics ETF (ARKG) 0.5%. Tesla stock is still the largest holding across ARK Invest’s ETFs.
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Key Earnings
Zscaler earnings beat views. ZS stock rose 7% in overnight trade. Zscaler stock fell 2.5% on Tuesday to 346.97, greatly extended from any buy point.
Salesforce earnings topped consensus but the software giant guided low. Salesforce also named Bret Taylor co-CEO, joining Marc Benioff. CRM stock slumped 6% in premarket action. Salesforce stock gave up 4% to 284.96 on Tuesday, back below its 50-day line.
Zscaler and Salesforce earnings kick off a busy week of software results, with Snowflake (SNOW), CrowdStrike (CRWD), Okta (OKTA), DocuSign (DOCU) and Veeva Systems (VEEV) all on tap.
NetApp earnings modestly beat. NTAP stock rose 3.5% overnight. NetApp stock slid 2.9% to 88.88 on Tuesday. The data storage giant is working on a 94.79 flat-base buy point, according to MarketSmith analysis.
Ambarella earnings exceeded forecasts. AMBA stock surged 16% before the open. Shares dipped 1.3% to 179.52 on Tuesday. Ambarella stock is set to rebound from its 50-day line and break a short trend line. AMBA is threatening to hit a record high.
Global Foundries earnings surprised in the chip foundry’s first post-IPO quarterly report, while sales were in line. GFS stock climbed 3% early Wednesday. Shares fell 1.8% on Tuesday to 69.24. Global Foundries stock is extended from a short IPO base cleared recently.
China EV Sales
Nio, Xpeng and Li Auto reported November deliveries on Wednesday. All three China EV startups have struggled with chip woes and other supply chain issues in 2021, but there are signs those issues may be starting to ease.
Nio delivered 10,878 vehicles in November, 106% above a year earlier. That’s up sharply from October deliveries of just 3,667 amid production line shutdowns to prepare for new models. Nio has expected to deliver 23,500-25,500 EVs in the fourth quarter, little changed vs. Q3.
Xpeng delivered 15,613 EVs, up 270% vs. a year earlier and 10,138 in October. It had forecast Q4 deliveries of 34,500-36,500, well above Q3’s 25,666.
Li Auto delivered 13,485 Li One hybrid SUVs in November, up 190% vs. a year earlier and a big increase from 7,649 in October. Li said in Monday’s Q3 earnings report that it expected Q4 deliveries of 30,000-32,000.
Nio stock rose 4% early Wednesday, signaling another test of its 200-day line. Shares gave up 3.3% to 39.13 on Tuesday.
Xpeng stock popped nearly 4% in premarket trade after jumping 7.1% to 55 on Tuesday. XPEV stock is now extended from the 48.08 buy point or a 50.50 alternate entry.
Li Auto stock revved almost 6% higher before the open. That’s after climbing 2.8% to 35.44 on Tuesday and 6.4% on Monday following Li Auto earnings. Shares are above a 34.93 buy point.
BYD stock is not yet trading after rising 1.15% to 39.55 on Tuesday. Shares have a 41.34 three-weeks-tight entry as the China EV giant trades around record highs, which it has done since late October. BYD will likely report November sales later this week or by early next week. In October, BYD’s EV sales hit 41,232. Including hybrids, BYD’s new energy vehicles surged to 81,040, increasing by roughly 10,000 for a fifth straight month.
Tesla China sales, released as part of industry data, will likely follow in a week or two. Tesla exports the bulk of its Shanghai plant production in the first two months of the quarter, largely to Europe, limiting local sales.
Early Wednesday, Tesla stock rose nearly 2%. TSLA stock could be developing a new base, finding support at its 21-day line.
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Market Rally Analysis
The stock market rally came under renewed selling Tuesday on the Moderna vaccine and Powell comments. Some promising moves at the open quickly reversed lower.
The Nasdaq briefly undercut Friday’s lows. While Apple stock continued to shine, other megacap techs such as Microsoft (MSFT), Google parent Alphabet (GOOGL) and Nvidia (NVDA) are starting to come off highs, while Amazon.com (AMZN) and Meta Platforms (FB) are slumping.
The S&P 500 undercut Friday’s lows and moved toward the 50-day line. The Dow Jones, which knifed below its 50-day line on Friday, retreated to just above its 200-day. The small-cap Russell 2000, which was trying to stay near its 200-day, fell solidly again as it works on its fourth weekly decline.
Losers continued to trounce winners, with new lows easily outstripping new highs.
Investors are still trying to assess the omicron variant’s market impact. But so little is known about the new Covid variant.
Don’t forget that the market rally has been showing some strain for several weeks. The advance/decline lines deteriorated in early November even as the Nasdaq kept hitting new highs thanks to Apple, Tesla stock and other megacaps. Then highflying software stocks dived early last week, leading a growth sell-off. Plus, Covid cases were already rising, especially in Europe, with Austria in a lockdown.
So the stock market rally wasn’t in great shape before the omicron Covid variant news. If omicron turns out to be no big deal, oil prices and the 10-year Treasury yield would likely rebound, while Covid plays such as Moderna would likely back off. But it wouldn’t mean that the market rally’s troubles are necessarily over.
Aside from Apple, chip stocks are holding up the best. A number of EV plays, including Tesla but also Li Auto, BYD, XPEV stock and more, are also doing relatively well. But are these pockets of resilience poised to power ahead or will they simply be the last to fall?
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What To Do Now
With the stock market rally facing growing strain, investors should probably avoid new buys for now. The market conditions are not favorable in the very near term. The risk of market-shaking headlines — such as Powell’s faster taper comment — are very high, at least until there’s greater understanding of the omicron variant, and what that might mean for the economy.
Investors should consider taking further profits in winners, especially if they’re slashing gains, while being quick to cut losses. Taking a more-defensive approach, simply cutting back exposure on principle — and for principal — also is a sound strategy.
Could the market rally rebound at Wednesday’s open? Dow Jones futures look promising. But investors won’t know if that’s something meaningful or just a one-day (or intraday) bounce. If stocks do have a lasting run over a few weeks, you’ll have time to take advantage again.
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