Dow Jones futures were little changed Wednesday night, along with S&P 500 futures and Nasdaq futures, with Walt Disney (DIS), Affirm Holdings (AFRM) and SOFI stock among the key earnings movers overnight. The stock market rally pulled back again on Wednesday, despite a solid Rivian IPO debut and a rebound in Tesla stock, as Treasury yields rebounded on hot inflation data.
Several big IPO winners, including Upstart Holdings (UPST), sold off sharply Wednesday on earnings. But Apple, Microsoft (MSFT) and Google parent Alphabet (GOOGL), while many chip names such as Nvidia (NVDA) and Advanced Micro Devices (AMD) suffered bigger losses.
So far, the stock market rally seems to be having a normal pullback after getting slightly extended.
Rivian IPO Debuts
Rivian (RIVN) jumped 29% to 100.73 in Wednesday’s trading debut. RIVN stock closed with a market cap of $85.9 billion, almost equal to that of General Motors (GM) ($86 billion) and above Ford Motor (F) ($77 billion).
Shares rose as high as 119.45 and as low as 95.20.
RIVN stock rose about 3% overnight.
Rivian sold an upsized 153 million shares Tuesday night at $78 a share, above an-already raised price range of $72-$74. The much-anticipated RIVN IPO raised $11.9 billion, making it the biggest new issue in years.
Rivian has already begun limited deliveries of its R1T electric pickup, with the R1S, a large SUV, due out by year-end. But much of its near-term focus will be on making 100,000 electric vans for Amazon.com (AMZN).
Amazon owns 20% of Rivian, with Ford holding 12%.
Despite the strong first-day performance for Rivian stock, investors shouldn’t buy a new issue right away. Let some price discovery take place, and look for an IPO base to form.
Tesla Stock Bounces
Meanwhile Tesla stock rose 4.3% to 1,067.95, rebounding from an intraday low of 987.13 and reclaiming its 21-day moving average. TSLA stock is still down nearly 13% for the week after slumping 4.8% on Monday and tumbling 12% on Tuesday. Those declines after CEO Elon Musk signaled over the weekend that he would sell 10% of his huge Tesla stock stake. Musk has not spelled out how or when he might sell shares.
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Key Earnings
Disney stock as well as 2021 IPOs AFRM stock, Applovin (APP), Taskus (TASK) and Dutch Bros (BROS) reported after the close. So did SoFi Technologies (SOFI), which came public via a SPAC merger earlier this year.
Disney earnings missed while Disney+ subscribers came in well below estimates. DIS stock fell overnight after closing below its 200-day and 50-day lines.
Affirm earnings missed but revenue topped along with other key metrics. AFRM stock spiked more than 25% in extended trade after tumbling 15% on Wednesday, wiping out most of October’s gains.
SoFi earnings topped forecasts amid booming lending SOFI stock shot up 12% to nearly 23 in overnight action. Shares of the fintech tumbled 7.8% back below a 21.88 buy point.
Applovin earnings missed but revenue exceeded consensus. APP stock rose solidly after slumping 7.6% on Wednesday, retreating from record highs.
Taskus earnings were in line while revenue beat. TASK stock rose modestly in overnight trade after Wednesday’s 5.1% slide, below their 50-day line. Taskus could offer an early entry above the 50-day and breaking a trend line.
Dutch Bros earnings and guidance cleared views. BROS stock jumped late. Dutch Bros stock had fallen to just above a buy point Wednesday. A strong move Thursday could offer an aggressive entry.
Tesla, AMD, Nvidia, Microsoft and Google stock are on IBD Leaderboard. Google and MSFT stock are on IBD Long-Term Leaders. AFRM stock, Nvidia, Upstart, Applovin, Tesla and Dutch Bros stock are on the IBD 50.
The video embedded in this article analyzed the market rally’s slide and covered UPST stock, DoorDash (DASH) and the VanEck Gold Miners ETF (GDX).
Dow Jones Futures Today
Dow Jones futures were about flat vs. fair value, with Disney stock a drag on blue chips. S&P 500 futures edged higher and Nasdaq 100 futures rose about 0.1%.
Remember that overnight action in Dow futures and elsewhere doesn’t necessarily translate into actual trading in the next regular stock market session.
Join IBD experts as they analyze actionable stocks in the stock market rally on IBD Live
Stock Market Rally Wednesday
The stock market rally retreated for a second straight session, led by growth names. The Dow Jones Industrial Average fell 0.7% in Wednesday’s stock market trading. The S&P 500 index gave up 0.8%. The Nasdaq composite tumbled 1.7%. The small-cap Russell 2000 slid 1.6%.
The 10-year Treasury yield jumped 13 basis points to 1.56%. The consumer price index came in hot, with inflation hitting a 31-year high of 6.2%. Core inflation rose to 4.6%. High inflation could spur the Federal Reserve, which just agreed to taper bond buys, to hike interest rates sooner than expect. Higher interest rates are bad news for highly valued growth stocks, because investors will discount future growth prospects more.
U.S. crude oil futures fell 3.3% to $81.34 a barrel.
Apple stock fell 1.9% and Microsoft 1.5%, weighing on the Dow Jones, S&P 500 and Nasdaq. Google stock fell 2%, back below a recent buy point. So did Adobe (ADBE), which lost 3.1%. Nvidia stock shed 3.9% and AMD 6.1%, pulling back after big gains in recent weeks.
UPST stock plunged 18%, with FuboTV (FUBO), Doximity (DOCS) among the notable IPO earnings losers.
ETFs
Among the best ETFs, the Innovator IBD 50 ETF (FFTY) skidded 4.3%, while the Innovator IBD Breakout Opportunities ETF (BOUT) slumped 1.9%. The iShares Expanded Tech-Software Sector ETF (IGV) retreated 2.85%. The VanEck Vectors Semiconductor ETF (SMH) gave up 3.2%, with Nvidia and AMD stock among the notable components.
SPDR S&P Metals & Mining ETF (XME) fell 2.7% and Global X U.S. Infrastructure Development ETF (PAVE) declined 1%. U.S. Global Jets ETF (JETS) descended 2.55%. SPDR S&P Homebuilders ETF (XHB) slid 1.5%. The Energy Select SPDR ETF (XLE) gave up 2.6% and the Financial Select SPDR ETF (XLF) dipped 0.2%.
Reflecting more-speculative story stocks, ARK Innovation ETF (ARKK) lost 3.3% and ARK Genomics ETF (ARKG) 4%. Tesla stock remains the No. 1 holding across ARK Invest’s ETFs.
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Market Rally Analysis
The stock market rally is in the midst of a pullback. The Dow Jones and S&P 500 are at their 10-day lines, while the Nasdaq is still above its rising 21-day average. This retreat so far is normal and not surprising.
This pullback could be almost over, or it end up being longer and deeper. There’s certainly a case for an extended pause, especially for growth names.’
The FFTY ETF tumbled to its 50-day line on Tuesday.
Tesla, Nvidia, AMD and some other hot stocks had been going vertical until this week. That had to come to an end, even if only for a short span. Titans such as Microsoft and Google stock have been market leaders since the coronavirus crash. A slew of recent IPOs with eye-watering valuations have skyrocketed in 2021.
UPST stock plunging 18% — despite strong results and guidance — along with many other big IPO losers Wednesday, also suggests highly value growth needs a rest as well. Then again, Sofi and AFRM stock suggest that some hot new issues haven’t cooled off.
And while growth was hardest hit Wednesday, the losses were broad-based, with energy, steel, shipping, retail and housing sectors all retreating.
Perhaps the Rivian IPO, along with Tesla stock and Lucid (LCID) surging on initial deliveries, will mark a short-term peak for EV plays. Perhaps not.
A market pullback over several weeks would be no fun, especially if it turned into an outright correction. But it would also allow leading stocks to set up real bases or pull back to moving averages.
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What To Do Now
The current pullback shows the merits of taking partial profits on the way up, especially when the market rally starts to get extended. If you take further profits now, or close out a position entirely, your average sell price will likely still be reasonably high. Alternatively, by locking in some gains on the way up, you have more leeway to let a stock pull back, hoping to ride it out and see long-term gains.
It’s not a great time to making new buys. Recent breakouts and early entries generally have been struggling. Make sure to cut losses quickly, and don’t let double-digit gains turn into losers.
Taking these steps will reduce exposure somewhat.
Beyond that, you can take more-explicit steps to reduce exposure, depending on how highly invested you currently are. Other factors include your willingness to risk further losses now for the hopes of bigger gains down the road, as well as the cost basis for your positions.
There’s not an obvious “right” answer. If the market rally revs higher on Thursday, you’re better off holding tight. If stocks fall into a correction, you’re better off going to cash or holding a few core positions.
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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