Dow Jones futures were little changed late Tuesday, along with S&P 500 futures and Nasdaq futures. The stock market rally retreated modestly amid a hot inflation report even as Apple stock and Microsoft (MSFT) continued to advance. Federal Reserve chief Jerome Powell will speak during Wednesday’s session.
The trio of bank earnings follow Tuesday results from Dow Jones giants JPMorgan Chase (JPM) and Goldman Sachs (GS). Both JPMorgan and Goldman earnings beat views, despite lower fixed-income trading revenue. JPMorgan released $3 billion from loan loss reserves, boosting profits. Meanwhile, the June consumer price indexes boosted the 10-year Treasury yield.
Goldman stock fell 1.2% and JPMorgan 1.5%. BAC stock and Wells Fargo lost about 2% while Citigroup slid 1.5%.
Meanwhile, Delta stock slumped 3.55%. Shares closed below their 200-day line Tuesday as fears and restrictions related to the Delta Covid variant hits airlines, hotels and other travel-related stocks.
Overnight, DAL stock rose a fraction. Late Tuesday, American Airlines (AAL) said Q2 preliminary revenue was slightly above views. AAL stock rose 1% in extended trade after slumping 3.9% on Tuesday.
The stock market rally continues to move along nicely. However, the Nasdaq composite is starting to looking extended. The big-cap Nasdaq 100, which includes Apple (AAPL), Microsoft stock, Amazon.com (AMZN), Facebook (FB) and Google parent Alphabet (GOOGL), is increasingly extended. Meanwhile, the breadth of the advance is looking somewhat weaker. Highly valued growth names in particular have come under pressure in July, as reflected in some ARK Invest ETFs. Tesla (TSLA), which has held up better than many ARK-type stocks, fell back Tuesday.
Dow Jones Futures Today
Dow Jones futures were roughly flat vs. fair value. S&P 500 futures and Nasdaq 100 futures just edged lower.
Fed chief Jerome Powell testifies before the House Financial Services Committee at 12 p.m. ET on Wednesday. Powell will speak before the Senate Banking Committee on Thursday. Investors will listen for any clues on whether policymakers will begin discussing scaling back asset purchases at the July Fed meeting, with inflation picking up steam. But Powell may drop few new hints on monetary policy
Stock Market Rally
The stock market rally gave up modest losses after the Nasdaq and S&P 500 index hit record highs intraday.
The 10-year Treasury yield rose 5 basis points to 1.415%, following a stronger-than-expected CPI report. Consumer inflation hit 5.4% in June, with core inflation at 4.5%.
The Dow Jones Industrial Average fell 0.3% in Tuesday’s stock market trading, weighed down by JPMorgan, Goldman Sachs and Boeing (BA). The S&P 500 index lost 0.35%. The Nasdaq composite gave up 0.4%, but the big-cap Nasdaq 100 was flat. The Russell 2000 sank 1.9%, back below the 50-day line, as banks struggled and AMC Entertainment (AMC), a big weight in the small-cap index, slumped x%.
Apple stock rose 0.8% and Microsoft 1.3%, boosting the Dow Jones, S&P 500 and Nasdaq.
Tesla stock, the sixth-largest Nasdaq weight, fell 2.5%, but that’s after rising for three straight sessions following a 50-day/200-day line test. TSLA stock reversed lower Tuesday after coming close to a 700.10 aggressive entry.
Among the best ETFs, the Innovator IBD 50 ETF (FFTY) dipped 0.3%, while the Innovator IBD Breakout Opportunities ETF (BOUT) off 0.6%. The iShares Expanded Tech-Software Sector ETF (IGV) edged down less than 0.1%, with MSFT stock a major component. The VanEck Vectors Semiconductor ETF (SMH) gave up 0.2%.
SPDR S&P Metals & Mining ETF (XME) retreated 2.3% and Global X U.S. Infrastructure Development ETF (PAVE) 1.5%. U.S. Global Jets ETF (JETS) gave up 2.6%, with Delta stock a component. SPDR S&P Homebuilders ETF (XHB) pulled back 2.2. The Energy Select SPDR ETF (XLE) slipped 0.8%, even as crude oil rallied. The Financial Select SPDR ETF (XLF), which includes JPMorgan, Goldman Sachs, Citigroup, Bank of America and other banking giants, gave up 1.1%. The SPDR Regional Bank ETF (KRE), slumped 2.2%.
ARK ETFs Slump
Reflecting more-speculative story stocks, ARK Innovation ETF (ARKK) skidded 2%. ARK Genomics ETF (ARKG) fell 2.4%, below its 200-day line. Both have been trending lower since the tail end of June after running up sharply from mid-May. Tesla stock is the No. 1 holding across ARK Invest’s ETFs.
After such big run-ups, it’s not surprising that the stocks that make up ARK ETFs are taking a breather.
UPWK stock jumped as high as 64.49, clearing a 61.31 cup-with-handle buy point, according to MarketSmith analysis. However, with the market rally retreating Tuesday afternoon, Upwork stock closed 5.8% to 60.70. That’s still actionable from a downward-sloping trend line in the handle, slightly under 60. UPWK stock cleared an early entry just below 52 on June 22.
MA stock popped 2.2% to 383.71 in strong volume. Shares continued to rebound from the 50-day/10-week lines while also crossing short-term resistance near 381. The relative strength line for Mastercard stock has been lagging for the past four months and more broadly since late August. But before then, MA stock had a long record of outperformance.
Mastercard and Verizon (VZ) on Tuesday announced a partnership to work on contactless payments at retail locations without merchants needing point-of-sale terminals. It’s not clear how long before this 5G-related offering would be available.
Market Rally Analysis
The stock market rally had modest losses Tuesday, with the S&P 500 and Nasdaq backing off highs.
It’s probably healthy for the Nasdaq to cool off. The tech-heavy index is 5.2% above its 50-day line, after topping 6% intraday. The Nasdaq 100 is now 6.7% above its 50-day line after trading well above 7% intraday. When the Nasdaq gets to 6% or more above the 50-day line, the odds of a pullback rise with the risks that any such pullback will be larger. However, the Nasdaq has shown it can become significantly more extended, while pullbacks sometimes are a short-lived affair.
The Nasdaq 100 continued to outperform the Nasdaq and other major indexes. Ideally, the big-tech giants would pause or pullback over several days or a few weeks. That could offer a chance for more stocks to pick up. The Nasdaq advance-decline has been lackluster, at best, even as the composite has rallied strongly over the past several weeks.
Investors may want to be cautious about adding net exposure in the near term. The stock market rally could soon hit some short-term limits, especially on the tech side. A narrowing advance, especially among highly valued growth, also makes stock picking harder. But the market so far isn’t flashing sell signals. If your stocks are still working, there’s no need to get especially defensive. But if they’re hitting your price targets or looking extended you may want to sell some into strength.
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