Dow Jones futures were little changed Monday morning, along with S&P 500 futures and Nasdaq futures. President Joe Biden and House Speaker Kevin McCarthy will meet today for face-to-face debt-ceiling talks. China sanctions vs. Micron Technology (MU) weighed on chip stocks.
Nvidia earnings loom large this week.
The stock market rally strengthened last week on debt-ceiling deal optimism and easing bank fears, with gains led by AI-infused tech leaders such as Nvidia (NVDA), Advanced Micro Devices (AMD), ServiceNow (NOW), Google parent Alphabet (GOOGL), Snowflake (SNOW) and Palantir Technologies (PLTR).
The Nasdaq composite and S&P 500 hit 2023 highs, with the Nasdaq 100 setting its best levels in more than a year. For much of the week, the White House and congressional leaders appeared to be moving toward a debt-ceiling deal while concerns about regional banks waned.
On Friday, GOP negotiators suspended debt-ceiling talks, saying President Biden’s White House was being unreasonable. At around the same time, a report came out stating that Treasury Secretary Janet Yellen told bank execs that more bank mergers may be needed. That hit regional bank stocks Friday, though they rose strongly for the week.
The major indexes took the debt-ceiling setback and Yellen’s comments in stride Friday. That’s in part because around the same time Fed chief Jerome Powell signaled he favors a rate pause next month.
The stock market rally remains somewhat split, with narrow leadership. Still, investors can be adding exposure carefully, though not a lot of stocks are offering buying opportunities at the moment.
Debt Ceiling Talks
Investors have remained confident in a debt-limit deal, but doubts may be growing.
President Biden had a phone call with Speaker McCarthy Sunday morning as he flew back from the Group of Seven meeting in Japan. McCarthy said it was a “productive” call, but “there’s no agreement. We’re still apart.”
White House and House GOP negotiators met Sunday. Biden and McCarthy will meet Monday.
Earlier Sunday, President Biden said that he’s “looking at the 14th Amendment” to declare debt limits invalid, saying “I think we have the authority.” That’s much further than the president has gone before. But he worries that the U.S. could default amid court challenges to that untested legal option. “The question is could it be done and invoked in time.”
The U.S. is likely to hit the debt ceiling in early June.
Micron, Meta Face Overseas Sanction
China warned key Chinese information infrastructure operators against buying Micron Technology (MU) chips, saying it found “relatively serious” cybersecurity risks. Beijing is targeting the U.S. memory-chip maker as it begins to retaliate vs. U.S. chip export bans to China.
MU stock fell solidly in premarket trade. A number of other chip stocks, including Nvidia and AMD, declined slightly.
The European Union on Monday fined Meta Platforms (META) a record $1.3 billion for sending user information to the U.S.. META stock fell slightly.
Dow Jones Futures Today
Dow Jones futures rose a fraction vs. fair value. S&P 500 futures edged lower and Nasdaq 100 futures fell 0.1%.
The 10-year Treasury yield declined 3 basis points to 3.66%.
Nvidia earnings Wednesday night will be a big deal. NVDA stock is everything that’s going right with the market rally. It’s the leading megacap and AI stock in a market rally dominated by megacaps and AI plays. Nvidia shares leapt 10% last week and it’s significantly extended.
Nvidia stock pausing or pulling back modestly over several weeks would be healthy. But if Nvidia earnings or guidance disappoint, NVDA could be punished severely. That also could have repercussions for rival AMD as well as Google and a slew of “AI” plays that have been driving the market higher.
ServiceNow stock took off last week amid AI-related alliances with Nvidia and Microsoft (MSFT). SNOW stock gained on a report that it could buy an AI search firm. PLTR stock, long an AI play, vaulted 23% for the week after the prior week’s 28% spike on earnings. Google stock has leapt 14% so far in May.
Other Key Earnings
SNOW stock is in a 10-month consolidation. ELF stock is consolidating at its 21-day line after a huge run. PANW stock is trying to hold its 50-day line within a new, volatile flat base. DECK stock had been a big winner but tumbled this past week below its 50-day line as On Holding (ONON) and Foot Locker (FL) dived on their results.
Stock Market Rally
The stock market rally advanced last week, with a big gap between leaders and laggards.
The Dow Jones Industrial Average climbed 0.4% in last week’s stock market trading. The S&P 500 index advanced 1.65%. The Nasdaq composite jumped 3%. The small-cap Russell 2000 bounced 1.9%.
The 10-year Treasury yield leapt 23 basis points to 3.69%, hitting a two-month high.
The odds of a Fed rate hike next month briefly topped 40% during the week amid strong economic data and some hawkish comments from Fed officials. But with Powell saying “we can afford to look at the data,” the chance slipped back to about 20% on Friday.
U.S. crude oil futures climbed 2.2% to $71.55 a barrel for the week.
Among growth ETFs, the iShares Expanded Tech-Software Sector ETF (IGV) surged 5.25% last week. NOW stock is a big IGV component. The VanEck Vectors Semiconductor ETF (SMH) soared 8.5%. Nvidia stock is a major SMH holding, along with AMD stock. Reflecting more-speculative story stocks, ARK Innovation ETF (ARKK) rose 2.7% last week and ARK Genomics ETF (ARKG) gained 3%. Tesla stock is the No. 1 holding across Ark Invest ETFs. Cathie Wood’s Ark also owns some PLTR stock.
SPDR S&P Metals & Mining ETF (XME) slipped 0.5%, its fifth straight weekly loss. U.S. Global Jets ETF (JETS) ascended 4.1%. SPDR S&P Homebuilders ETF (XHB) stepped up 1.2%. The Energy Select SPDR ETF (XLE) gained 1.4%. The Health Care Select Sector SPDR Fund (XLV) slipped 0.7%.
Tesla Stock A Buy?
Tesla stock rallied 7.2% last week to 180.14, rebounding from near the 21-day line and retaking the 50-day line for the first time since early April.
Investors responded well to Tuesday’s Tesla shareholder day. CEO Elon Musk reiterated that the Cybertruck will begin deliveries this year, while again hinting at a next-generation vehicle. Musk also said Tesla will “try” some advertising. Like any savvy CEO in 2023, he made sure to mention “AI” several times.
Meanwhile, Tesla quietly offered some new inventory discounts on U.S. Model 3 vehicles, following recent discounts on Model 3 and Y vehicles in Europe. Inventory discounts don’t get the headlines that official price cuts do, but they hit profit margins all the same. The balance between production, deliveries and prices is the key Tesla story in 2023.
Investors could view Friday’s move above the 50-day moving average as an early entry for Tesla stock. But it would be extremely aggressive. Tesla still faces the 200-day line, which is coming down toward 200. Just above that is a 207.89 buy point, just above the March 31 high. That’s either from a seven-week consolidation or a three-month double-bottom buy point.
Market Rally Analysis
The stock market rally showed strength last week, but the advance remains narrow. The Nasdaq boomed, hitting a 2023 high, with the S&P 500 also doing so late in the week.
The Russell 2000, buoyed by bank stocks, also had a solid week, but is well off 2023 highs. The Dow Jones eked out a small weekly gain after undercutting its 50-day line on Tuesday.
The tech rally has expanded from megacap stocks such as Google and Nvidia to big-cap chip and software names such as AMD, ServiceNow and AI plays such as Palantir. But most are extended now.
The Nasdaq 100 hit a 52-week high, up 3.5% for the week. The First Trust Nasdaq 100 Equal Weighted Index ETF (QQEW), which had been struggling, popped 2.45%. It’s close to 2023 highs.
But overall breadth remains lackluster. The Invesco S&P 500 Equal Weight ETF (RSP) climbed nearly 1%, but slipped back below its 200-day line on Friday. RSP isn’t much closer to its 2023 highs than its October bear market lows.
Losers led advancers on Friday after modestly positive breadth on Thursday. But new highs outpaced losers for a second straight session.
Beyond chips, software and megacap stocks, homebuilders, building materials, medical products and biopharma names are acting well. So are travel plays and some payment stocks.
Shoe-related stocks were heels this past week due to ONON and Foot Locker. Deckers Outdoor, as well as Dick’s Sporting Goods (DKS), will try to put their best foot forward.
Debt-ceiling talks, banking concerns and recession risks remain big issues for the market rally. While Wall Street and political analysts still see a debt-limit deal as highly likely, various headlines could swing markets up and down over the next several days.
What To Do Now
The stock market rally is trending higher, but leadership is narrow and market breadth suspect. Many of the leading stocks are extended.
Investors who took advantage of techs clearing buy signals in the past week or so generally have been rewarded, some hugely. But overall exposure should remain modest. Consider taking partial profits on big winners. Definitely have a game plan in place.
A healthy number of stocks are setting up from a variety of sectors, and could get going if the market rally broadens out. So you’ll want to be ready.
Read The Big Picture every day to stay in sync with the market direction and leading stocks and sectors.
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