Dow Jones Futures: Cisco, Nvidia Move On Earnings; Key Recession Signal Intensifies

Dow Jones futures rose overnight, along with S&P 500 futures and Nasdaq futures, targeting Nvidia and Cisco earnings.




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The stock market rally retreated amid weakness Batas (TGT) earnings and holiday guidance, as well Micron Technology (MU) cutting plans to make memory chips. The bond market is flashing more recession risks with the 10-year Treasury yield continuing to collapse while short-end rates are high.

EV giant Tesla ( TSLA ) retreated, showing the weakest recent performance among megacap stocks.

Revenues

Nvidia (NVDA), lithium giant Sociedad Quimica y Minera de Chile (SQM) and Cisco Systems (CSCO) headlined Wednesday night’s earnings.

NVDA stock edged up in overnight trading, following mixed earnings and guidance.

CSCO stock rose 4% in late action as Cisco topped its fiscal Q1 outlook and revenue guidance. Cisco stock fell 1.1% on Wednesday, trading between its 50-day and 200-day lines. IBD Stock Leaderboard Arista Networks (ANET) rose slightly on Cisco’s earnings.

SQM earnings are still due tonight. SQM stock fell 2.6% on Wednesday, falling more than 10% this week amid lithium price concerns. Chile’s lithium-and-fertilizer giant is at the base of the cup with a 115.82 buy point. It can be worked on a handle.

China’s e-commerce giant Alibaba (BABA) and US department store chains said Macy (M) and said Kohl (KSS) is early Thursday. BABA stock fell modestly Wednesday, but after rising 11% on Tuesday. Macy’s and KSS stock fell Wednesday on Target’s holiday warning.

Dow Jones Futures Today

Dow Jones futures rose a fraction compared to fair value. S&P 500 futures are higher. Nasdaq 100 futures gained 0.1%. CSCO stock is a component of the Dow Jones, S&P 500 and Nasdaq, but Nvidia is more heavily weighted in the S&P 500 and Nasdaq.

The 10-year Treasury yield advanced 3 basis points to 3.72%.

Crude oil futures fell 1%.

Republicans have taken back control of the House, according to several media outlets. But it will be a slim majority, much smaller than expected before Election Day.

Remember that overnight action in the Dow futures and elsewhere does not necessarily translate into actual trading in the next regular stock market session.


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Stock Market Rally

The stock market’s rally faded on Thursday, with small caps and tech leading the decline.

The Dow Jones Industrial Average was down 0.1% in stock market trading on Wednesday. The S&P 500 index yielded 0.8%. The Nasdaq composite was down 1.5%. The small-cap Russell 2000 retreated 1.8%.

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US crude oil prices fell 1.5% to $85.59 per barrel. Natural gas futures rose 2.8%.

Treasury Yield Curve Flashes Recession Risk

The 10-year Treasury yield fell 11 basis points to 3.69%, the lowest since early October and down from 4.15% just a week ago. The benchmark Treasury yield is now below the current fed funds rate range of 3.75%-4%, with the Fed expected to raise rates by 50 basis points to 4.25%-4.5% next. that month.

The two-year Treasury yield, which is more closely tied to Fed policy, was flat at 4.36%, while the three-month rate was at 4.23%. The rising yield curve inversion between three-month and 10-year Treasuries was the highest since a brief period in late 2019. That points to increased risks of recession, or at best neglected economic growth in 2023.

Fed chief Jerome Powell and some of his colleagues have signaled that a recession may be necessary to control inflation, although some policymakers see a decent chance of a soft landing.

The persistently inverted yield curve comes amid strong labor markets and a strong retail sales report for October.

ETFs

Among the best ETFs, the Innovator IBD 50 ETF (FFTY) fell 1.7%, while the Innovator IBD Breakout Opportunities ETF (BOUT) lost just 1%. The iShares Expanded Tech-Software Sector ETF (IGV) lost 2.1%, with many cloud software names having a poor session. The VanEck Vectors Semiconductor ETF (SMH) fell 3.6%, along with Nvidia stock and Micron major components.

The SPDR S&P Metals & Mining ETF (XME) fell slightly more than 2% and the Global X US Infrastructure Development ETF (PAVE) fell 0.5%. The US Global Jets ETF (JETS) yielded 2.4%. The SPDR S&P Homebuilders ETF (XHB) retreated 1.4%. The Energy Select SPDR ETF (XLE) was down 2% and the Financial Select SPDR ETF (XLF) was down 0.5%. The Health Care Select Sector SPDR Fund (XLV) ended just below break-even.

Reflecting the more speculative stocks in the story, the ARK Innovation ETF (ARKK) fell 5.15% and the ARK Genomics ETF (ARKG) 3.7%. Tesla stock remains a major holding in Ark Invest’s ETFs.


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Nvidia Revenues

Nvidia’s earnings didn’t look good in Q3, but revenue falls aren’t too scary. Data-center chip demand remains strong. Gaming revenue has dropped, but not as badly as feared. The chip giant is guiding slightly lower Q4 sales.

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Nvidia stock rose 2% in active overnight trade. Shares fell 4.5% to 159.10 on Wednesday. But NVDA stock has rallied since hitting a bear-market low of 108.13 on Oct. 13, on hopes that the business will improve along the way. The chip giant moved above its 50-day line but below its 200-day.

Nvidia stock has no apparent buy point. Ideally, shares will rally above the 200-day line and form a new base.

Tesla Stock

Tesla stock fell 3.9% on Wednesday to 186.92. While above a two-year low of 177.12 set on November 9, TSLA stock is hitting resistance at the 10-day moving average. The EV giant has not closed above its 21-day line since Sept.

Some megacaps have struggled, however Apple (AAPL), Microsoft (MSFT) and Google parents Alphabet (GOOGL) above their 50-day moving average, while Facebook-parent Meta Platform (META) above its 21-day line.

Meanwhile, other EV stocks look as bad or worse than Tesla. Also CEO Elon Musk’s Twitter reign could weigh on TSLA stock in a number of ways.

Musk testified Wednesday in a court case that 2018 Tesla stock options are worth about $50 billion of his fortune. He explained that he will not remain the head of Twitter permanently.


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Market Rally Analysis

The stock market rally could be due for a pause or a pullback, and that’s what happened on Wednesday.

The Dow Jones remained comfortably above the 200-day line, which stopped below the August short-term high. The S&P 500 looks normal, with a slight decline, not far from the 200-day line.

The Nasdaq is still clearly above the 50-day line but back below the October short-term high. The Russell 2000 fell below the 200-day line and dropped to an intraday low on Monday.

Meanwhile, many stocks that had flashed buy signals in the past few sessions bounced back on Wednesday. Growth plays broadly weakened as defensive names rebounded and defensive stocks continued to grow, even as several retailers fell on Target’s profit loss.

If the market rallies in the near future, Wednesday’s action will soon be forgotten. But if the Nasdaq breaks its 50-day low and the top stocks come under more pressure, that will be worrisome.

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While markets are focused, rightly, on Fed policy, there are other concerns. However, the cumulative effect of the Fed’s rate hikes this year has hurt the economy. And the effect will continue many months after the rate hike ends.

An inverted yield curve indicates an increased risk of recession.

Even today, the combination of high inflation and weakening demand is taking a significant toll. The target income shows that, although the opposite Walmart (WMT) has strong results and guidance. Inflation may be slowly fading in the coming year, but that doesn’t mean the outlook for corporate earnings and share prices is bright.


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What To Do Now

Wednesday’s action offers one reason why investors should be cautious about rapidly increasing exposure. Buying a bunch of new positions in one day can backfire if the market pulls back, as it did on Wednesday. It is better to add exposure gradually, when the market rallies and your positions improve.

The stock market rally is still in good shape, but prone to big swings, sector rotations and earnings surprises. It is not yet clear which stocks and sectors will lead. So don’t concentrate on a particular sector or theme.

But you’ll want to regularly update your watchlists, casting a wide net.

Early entries are still important. Traditional buy points, especially when detected above the 50-day line, don’t work very well.

Investors may still want to take a partial profit if they get a quick profit on a stock. That will give you the confidence to hold the remaining stake for a longer period and protect your portfolio is the stocks round-trip.

Read the Big Picture every day to stay in tune with 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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