Dow Jones futures were relatively unchanged on Sunday night, while S&P 500 futures and Nasdaq futures followed a similar trend.
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The stock market had a strong showing last week despite the flurry of earnings and economic news. The Dow Jones and S&P 500 reached record highs on Friday, and the Nasdaq also rebounded, hitting a two-year high due to the performance of Meta Platforms (META) and Amazon.com (AMZN).
Although Big Tech earnings were a mixed bag, they were generally positive, bolstering the sector.
Market breadth was weak, as small caps faced challenges. Despite this, there were plenty of stocks to choose from in what is being termed a stock picker’s market.
On Friday, Adobe (ADBE), Axon Enterprise (AXON), MongoDB (MDB), Samsara (IOT), and Synopsys (SNPS) all showed buy signals.
SNPS stock is on IBD Long-Term Leaders. Synopsys, Samsara, and MDB stock are part of the IBD 50. Additionally, Synopsys and Axon stock are on the IBD Big Cap 20, with Axon being Friday’s IBD Stock Of The Day.
The embedded video in this article provides an in-depth discussion on the market’s action and analyzes MongoDB, Axon and SNPS stock.
Earnings will continue to take center stage in the coming week, with notable companies such as Caterpillar (CAT), Chipotle Mexican Grill (CMG), Eli Lilly (LLY), ELF Beauty (ELF), Arm Holdings (ARM), and Pinterest (PINS) reporting their results.
Dow Jones Futures Today
Dow Jones futures were slightly above fair value, with S&P 500 futures and Nasdaq 100 futures down 0.1%.
The 10-year Treasury yield increased by 3 basis points to 4.06%.
During a “60 Minutes” interview aired on Sunday night, Fed chief Jerome Powell reiterated his previous comments that a March rate cut is not the “base case.”
While crude oil futures saw a slight rise, Hamas apparently plans to reject a long-term cease-fire deal with Israel.
It is important to note that the overnight movement in Dow futures and other areas is not a guarantee of future trading in the regular stock market session.
Stock Market Rally
The stock market rally faced some challenges midweek as Fed chief Jerome Powell appeared to rule out a March rate cut and Google-parent Alphabet (GOOGL) weighed on the tech sector. However, the major indexes rallied strongly thereafter.
The Dow Jones Industrial Average and the S&P 500 index each rose by 1.4% in last week’s stock market trading, both reaching record highs. The Nasdaq composite saw a 1.1% climb, buoyed by over-1% gains on Thursday and Friday.
Meta Platforms (META) and Amazon.com (AMZN) were significant earnings winners, and ultimately, Microsoft (MSFT) also rallied in its results. These positive outcomes balanced out the tough weeks experienced by Google parent Alphabet (GOOGL) and Apple (AAPL).
Additionally, the positive earnings, guidance, and capital spending plans of these megacap tech companies were good news for peers, partners, and suppliers, notably Nvidia (NVDA) and other related stocks such as MongoDB.
While the major indexes rallied to new highs, market breadth weakened, with losers outpacing winners on Friday.
The small-cap Russell 2000 declined by 0.8% for the week, falling below the 21-day line but maintaining support at the 50-day line.
The Invesco S&P 500 Equal Weight ETF (RSP) and First Trust Nasdaq 100 Equal Weighted Index ETF (QQEW) both rose by 0.4%, significantly lagging behind the S&P 500 and Nasdaq 100. However, RSP and QQEW are close to recent 52-week highs.
The Nasdaq closed Friday 5.4% above its 50-day moving average, with the S&P 500 up 4.9%. The Nasdaq 100 is 6% above its 50-day, a level that is starting to become extended once again.
The 10-year Treasury yield dropped by 13 basis points to 4.03%, despite a 17 basis-point jump on Friday following a strong jobs report. Concerns about regional banks weighed on long-term Treasury yields. However, the two-year Treasury yield, which is closely tied to Fed policy, saw minimal change.
While Fed’s Powell seemed to indicate that a March rate cut is unlikely, he emphasized that labor markets do not need to weaken before rate cuts occur. This explains why Friday’s strong jobs report did not overshadow the rally led by Meta/Amazon.
U.S. crude oil futures dropped by 7.35% to $72.28 a barrel last week due to demand concerns and hopes for an Israel-Hamas cease-fire.
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ETFs
Among growth ETFs, the iShares Expanded Tech-Software Sector ETF (IGV) rose to a two-year high on Monday, with Adobe stock being a major holding and Samsara also part of the ETF. The VanEck Vectors Semiconductor ETF (SMH) also made gains. SNPS stock is part of both IGV and SMH.
The ARK Innovation ETF (ARKK) bounced back from a five-week losing streak, climbing by 1.6%. The ARK Genomics ETF (ARKG) saw a slight increase of 0.2%. Tesla stock continues to be a major holding across Ark Invest’s ETFs.
The Global X U.S. Infrastructure Development ETF (PAVE) jumped to a record high by 3.4%, and the Industrial Select Sector SPDR Fund (XLI) rallied to a record high as well. The Health Care Select Sector SPDR Fund (XLV) also saw a significant climb, nearly 2%, clearing a long consolidation.
The SPDR S&P Metals & Mining ETF (XME) advanced by 0.5% last week. The U.S. Global Jets ETF (JETS) nudged 0.2% higher. The SPDR S&P Homebuilders ETF (XHB) rose by 1.7%, while the Energy Select SPDR ETF (XLE) fell by 0.9%.
The Financial Select SPDR ETF (XLF) rose by 0.85%, but the SPDR S&P Regional Banking ETF (KRE) tumbled by 7.2% due to fresh lending concerns.
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Stocks In Buy Zones
MongoDB stock experienced a 6.6% jump to 436.01 on Friday, breaking out from a 425.51 handle buy point in a two-month consolidation and setting a 22-month closing high. The consolidation is right next to a failed cup-with-handle base, so clearing the Nov. 30 high of 442.84 is a significant test for MDB stock. The database software firm, with AI aspirations, benefited from Amazon’s strong Q4 results.
Axon Enterprise stock rose by 1.7% to 256.99 on Friday, extending Thursday’s move from the 10-week line and offering an early entry. The law enforcement products company is now expanding its body cameras for retail and health-care workers.
Adobe stock saw a 1.1% increase to 634.76 on Friday, just above a 633.89 flat-base buy point. Shares rose by 3.4% for the week, marking their fourth straight weekly gain.
Synopsys stock climbed by 2.2% on Friday to 552.05. The chip and electronics design software maker has a 554.57 buy point from a cup-with-handle base, but Friday’s move offered an early entry. Shares rose by 4.5% for the week, rebounding from the 50-day and 10-week lines. The 50-day line is a good place to start a position in a Long-Term Leader.
Samsara (IOT) stock rose by 2.8% to 32.51 on Friday, retaking the 21-day and 50-day moving averages and clearing a tight trendline. IOT stock has a 36.91 consolidation buy point, according to MarketSmith. Investors could use Friday’s move as an early entry. Decisively clearing Friday’s high of 32.98 would also mean topping the 10-week line.
This Internet of Things software firm, an AI play, is prone to head fakes. Friday’s low could be a place to exit.
Tesla Stock
Tesla stock rose by 2.5% to 187.91, breaking a six-week losing streak. However, it is down by 24.4% in 2024, making it the worst performer in the S&P 500 so far. TSLA stock has not even touched its plunging 10-day line in 2024.
The EV giant’s market cap is now $597 billion, less than half of any of the other Magnificent Seven stocks. However, it still boasts, by far, the highest forward price-to-earnings ratio of those megacaps.
After Tesla’s weak Q4 earnings and 2024 growth warning, Wall Street analysts now see this year’s earnings flat vs. 2023’s tumble to $3.12 a share.
Tesla has already cut prices in China and Europe, with Model Y inventory discounts over 10% in the U.S. All of this in the backdrop of sluggish EV demand worldwide and intense competition in China.
On Sunday, Tesla raised the price of its Model 3 Long Range variant by $1,000 to $46,990, while keeping the base Real-Wheel Drive version at $38,990. This may reflect strong demand for “Highland” Model 3 or limited initial supply in the U.S. as the Fremont plant switch over to the refreshed sedan.
Over the weekend, The Wall Street Journal reported that some Tesla board members felt pressure to do drugs with Elon Musk.
Time The Market With IBD’s ETF Market Strategy
What To Do Now
The stock market rally continues to show strength, although the weak breadth is something to take note of. However, the leadership remains robust, even if many of the biggest winners are in the AI space.
Investors had a few buying opportunities towards the end of the week, and more stocks are setting up for potential gains. Nevertheless, many leaders are extended, often by a significant margin.
As the Nasdaq gets extended once again, caution is warranted in making new buys, even though investors should maintain significant or heavy exposure.
It is advisable to continue working on building watchlists.
The weekend is also a good time to review your portfolio. Are there laggards that need to be pruned? With big winners, should you consider taking profits or finding opportunities to add more shares? The answers to these questions will depend greatly on your investing style.
Be sure to read The Big Picture every day to stay in sync with the market direction, leading stocks, and sectors.
Please follow Ed Carson on Threads at @edcarson1971, X/Twitter at @IBD_ECarson, and Bluesky at @edcarson.bsky.social for stock market updates and more.
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