Dow Jones futures fell solidly early Monday morning, along with S&P 500 futures and Nasdaq futures. Twitter reportedly is warming to a takeover by Tesla (TSLA) CEO Elon Musk, with reports that a deal could come as soon as today.
The stock market suffered yet another week of losses while Treasury yields continued to climb. The major indexes hit resistance last week and broke below support levels. It was even worse beneath the surface. Leading stocks and sectors that had held up well showed strain, with miners in particularly selling off hard. Buying opportunities quickly reversed lower. Growth stocks continued to tumble.
It’s the peak week for earnings, with Apple (AAPL), Microsoft (MSFT), Amazon.com (AMZN), Google parent Alphabet (GOOGL), Exxon Mobil (XOM), Caterpillar (CAT), Chevron (CVX), Raytheon Technologies (RTX) and General Dynamics (GD) among the hundreds of companies reporting this coming week.
But with market conditions deteriorating, the flood of earnings gives investors yet another reason to stay on the sidelines. But keep a close eye on big earnings, such as Apple, Exxon and General Dynamics, and the market reaction to those reports.
The video embedded in this article reviews the market action in detail, while also analyzing AAPL stock, Exxon and General Dynamics.
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Dow Jones Futures Today
Dow Jones futures fell 0.75% vs. fair value. S&P 500 futures lost 0.85% and Nasdaq 100 futures sank 0.9%.
A small number of Covid cases in Beijing is raising concerns of a lockdown in China’s capital. Meanwhile, Shanghai remains locked down for a fourth week, though Tesla and other factories have resumed limited production.
The Shanghai composite plunged 5.1% on Monday.
China’s yuan continues to tumble vs. the U.S. dollar, hitting a one-year low. The dollar has rallied significantly vs. the euro and other major currencies in recent months.
However, the People’s Bank of China cut foreign exchange reserve requirements by a full percentage point. That news, which broke around 7:20 a.m. ET. pared Dow futures’ losses slightly.
Crude oil prices fell 5% to $97 a barrel. China’s ongoing lockdowns are raising concerns about demand. Copper futures also fell solidly.
The 10-year Treasury yield retreated 9 basis points to 2.82%.
Remember that overnight action in Dow futures and elsewhere doesn’t necessarily translate into actual trading in the next regular stock market session.
Twitter-Elon Musk Takeover Close
Twitter seems poised to accept a takeover bid from Tesla CEO Musk, perhaps as soon as today, according to multiple reports Monday. It appears Twitter’s board will accept Musk’s current offer of $43 billion, or $54.20 a share.
On Friday, Musk announced Friday that he had lined up financing for a Twitter bid, including some of his TSLA stock holdings. The two sides met Sunday.
TWTR stock popped 5% early Monday, above 51, adding to gains on report that a deal is close.
Twitter stock rose 8.5% last week to 48.93. It’s up 24.5% since before April 4, when Musk belatedly disclosed a 9.1% TWTR stake. Meanwhile, Snap (SNAP) is down 20% and Facebook stock 18% over that span, even with a small Musk-Twitter bump on April 4. That suggests TWTR stock could plunge below pre-Musk levels if there’s no deal.
Twitter and Facebook report earnings this week, following worse-than-expected Snap results last week.
As for Tesla stock, it rose just over 2% to 1,005.05 last week, but that’s after spiking to 1,092.22 intraday Thursday following blowout earnings. TSLA stock fell 3% Monday morning, with a Musk-Twitter deal appearing to weigh on the EV giant.
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Stock Market Action
The stock market tried to rally but then sold off hard, plunging to finish at weekly lows. But the sharp weekly losses mask the size of the sell-off from Thursday’s intraday highs.
The Dow Jones Industrial Average fell 1.75% in last week’s stock market trading. The S&P 500 index slumped 2.7%. The Nasdaq composite tumbled 3.8%. The small-cap Russell 2000 gave up 3.1%.
The 10-year Treasury yield rose 8 basis points to 2.91%. A 50-basis point Fed rate hike at the early May meeting is a virtual lock, along with the start of balance sheet cuts. Now markets have largely priced in a 75-basis point hike at the June meeting.
U.S. crude oil futures fell 4.1% to $102.71 a barrel last week.
Among the best ETFs, the Innovator IBD 50 ETF (FFTY) plunged 6.3% last week, while the Innovator IBD Breakout Opportunities ETF (BOUT) retreated just over 4%. The iShares Expanded Tech-Software Sector ETF (IGV) skidded 5.5%. The VanEck Vectors Semiconductor ETF (SMH) lost 1.5% after giving up solid gains midweek.
SPDR S&P Metals & Mining ETF (XME) dived 11.3% last week. The Global X U.S. Infrastructure Development ETF (PAVE) retreated 1.9%. U.S. Global Jets ETF (JETS) popped 2.7%. SPDR S&P Homebuilders ETF (XHB) dipped 0.2%. The Energy Select SPDR ETF (XLE) fell 4.5%, with Exxon stock and Chevron the top two holdings. The Financial Select SPDR ETF (XLF) lost nearly 2%. The Health Care Select Sector SPDR Fund (XLV) gave up 3.5%.
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Apple earnings for the fiscal second quarter are due Thursday night. Analysts expect a 2% EPS gain to $1.43 with revenue up modestly vs. a year earlier. The iPhone giant will likely highlight production woes for Q2 and for the current Q3. Analysts also are forecasting a dividend hike and AAPL stock buyback for the cash-flush tech titan.
After flashing some buy signals in late March during an 11-session win streak, Apple stock has fallen back for four straight weeks to below its 50-day line. It was down 2.1% to 161.79 last week, and shares are moving back toward their 200-day moving average. Technically, Apple stock still has a handle buy point of 179.71, just above the March 30 high.
The relative strength line for AAPL stock isn’t far from record highs. That’s more of a sign of S&P 500 weakness than Apple strength. Still, if Apple earnings are solid and the market does improve, AAPL stock could be among the leaders.
Exxon earnings are due Friday, along with fellow oil major Chevron stock.
After a strong run-up, XOM stock is working on a shallow cup base, finding support along the 21-day moving average. Exxon stock fell 3.1% to 85.13 last week, providing a bit of a shakeout after some wedging action in prior weeks.
That’s not far from a 91.60 buy point on a daily chart, according to MarketSmith analysis. On a weekly chart, XOM stock has a handle with an 89.90 entry. But either way, investors likely should avoid making new buys until after earnings are announced.
Fellow oil major Chevron also reports Friday. CVX stock has shown similar chart action in recent weeks and months.
General Dynamics Stock
General Dynamics earnings are due Wednesday. In this past week, General Dynamics stock fell 2% to 238.79, dipping below its 21-day moving average. On a weekly chart, GD stock is finding support just above its 10-week line.
The defense giant has a flat base with a 255.09 buy point. On a weekly chart, General Dynamics stock has a four-weeks-tight, just missing a fifth “tight” week. Investors could use 249.79, just above Wednesday’s high, as an early entry.
RTX stock, Northrop Grumman (NOC), and L3Harris Technologies (LHX) also have earnings this coming week with the stocks in flat bases near their 10-week lines. Lockheed Martin (LMT), which already reported this past week, shows similar chart action.
Stock Market Analysis
The stock market suffered significant weekly losses yet again, as Treasury yields continue to move sharply higher. This past week, the major indexes came up to or above key levels, but then fell sharply, closing at weekly lows. The Nasdaq and then the S&P 500 broke below the prior week’s lows.
The Nasdaq is one bad day from undercutting its March lows. The S&P 500 and Russell 2000 are not far from their worst levels of 2022.
Google and Nvidia (NVDA) have already undercut their March lows. ARKK and ARKG are just above levels.
Leading stocks also sent negative signals.
Mining stocks sold off hard, as several warned of weaker production updates and rising costs. Alcoa (AA), BHP (BHP), Rio Tinto (RIO), Vale (VALE), Freeport McMoRan (FCX) and Newmont Mining (NEM) all tumbled below their 50-day moving averages.
Fortinet (FTNT) and Expedia (EXPE), two stocks in relative pockets of market strength, suffered vicious negative reversals. Speaking of Expedia, hotels also fell back despite more bullish news from airlines.
Hospitals had been shaping up, but HCA Healthcare (HCA) crashed Friday, dragging down the group on its profit warning. HCA, along with cautious guidance from Intuitive Surgical (ISRG), hit several medical products makers as well.
Drugmakers and biotechs suffered some notable losses this past week. Some still have decent charts, but Eli Lilly (LLY) has slumped for nine straight sessions to undercut buy points. Lilly earnings are due this coming week.
Yet, steel stocks still look OK, though they skidded Friday.
Many energy stocks are still looking good, but even they lost ground. Meanwhile, coal, uranium and solar stocks plunged late last week below recent entries.
Defense contractors such as General Dynamics and Raytheon are holding up in bases. REITs and insurers are relatively safe. But pockets of strength are shrinking — and increasingly about relative strength vs. actual gains — while the broader market sells off hard.
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What To Do Now
The stock market has gone from bad to worse. Even areas of strength are starting to suffer and subject to sudden, violent sell-offs.
There is no real reason to have anything more than minimal exposure in the current market, with the possible exception of long-term big winners. Being entirely in cash makes a lot of sense.
Market conditions will improve, eventually, but they could get a lot worse before that happens. There’s no guarantee that former leaders, or your current holdings, will lead the next advance.
Right now investors should focus on preserving their financial and mental capital. You don’t want to be fighting a negative market trend and then be too exhausted and gun-shy to take advantage of the next sustained uptrend.
Do not get sucked into a strong market open, or even solid session or two. Big gains in bad markets should be viewed with suspicion.
Continue to work on your watchlists. Focus on relative strength, even if the stocks aren’t necessarily in position.
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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