Dow Jones futures fell solidly Monday morning, along with S&P 500 futures and Nasdaq futures, heading into a massive week of earnings from Apple to Tesla as well as a key Federal Reserve meeting.
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The stock market correction took a firm hold last week, with the major indexes suffering sharp losses and breaking several key support levels. Even sectors of strength, notably financials, came under heavy pressure. So far bulls have made only momentary charges, with investors quick to sell rebounds instead of buying the dip. It’s a time to be heavily defensive.
Tesla stock and Dow Jones giants Apple (AAPL), Microsoft (MSFT) and Caterpillar (CAT) are on tap this week, along with dozens of other quality companies. But the main event will likely be the Federal Reserve meeting on Jan. 25-26.
The Fed meeting announcement Wednesday afternoon and Fed chief Jerome Powell’s news conference could set the tone for the stock market and Treasury yields for weeks to come. The Fed is expected to continue its accelerated bond taper, staying on track to end asset purchases by mid-March.
But the real issue is what happens next. Fed chief Powell will likely offer commentary on the timing and pace of interest rate hikes and balance sheet reductions. Talk of reducing the balance sheet, and at a fast clip, has been a big reason why the 10-year Treasury yield has spiked and the stock market has entered a correction.
Tesla (TSLA) and Microsoft stock are on IBD Leaderboard. MSFT stock is on the IBD Long-Term Leaders list. Tesla stock is on the IBD 50 list.
The video embedded in this article discusses the market correction in depth, while also analyzing Apple stock, UnitedHealth (UNH) and J.B. Hunt Transportation Services (JBHT).
Dow Jones Futures Today
Dow Jones futures fell 0.3% vs. fair value. S&P 500 futures sank 0.7% and Nasdaq 100 futures lost 1.2%. All were solidly higher Sunday night and are still in flux. Apple stock and Tesla were drags on futures.
The 10-year Treasury yield fell 1 basis point to 1.74% after rising slightly Sunday night. Short-term Treasury yields rose, meaning the yield cure continues to flatten.
U.S. crude oil futures edged lower after backing off multiyear highs late last week. Fears of a Russian invasion into more of Ukraine loom large for energy markets and markets generally.
Bitcoin continued to sell off along with other cryptocurrencies over the weekend, trading below $34,000 after breaking under $40,000 on Friday. It peaked at $68,990.90 in early November.
Remember that overnight action in Dow futures and elsewhere doesn’t necessarily translate into actual trading in the next regular stock market session. That’s been in true in the past several sessions, when Dow Jones futures have pointed to sold opens, only for the major indexes to close sharply lower.
Join IBD experts as they analyze actionable stocks in the stock market rally on IBD Live
Coronavirus News
Coronavirus cases worldwide reached 352.5 million. Covid-19 deaths topped 5.61 million.
Coronavirus cases in the U.S. have hit 71.92 million, with deaths above 889,000.
Coronavirus cases in the U.S. are falling, albeit from extremely high levels. New York and other states hit early by the omicron Covid variant are leading the decline. Deaths have picked up in the past few weeks, but not nearly as much as new cases.
Stock Market Correction
The market correction took hold last week and didn’t let go, with the major indexes falling every day of the holiday-shortened week.
The Dow Jones Industrial Average tumbled 4.6% in last week’s stock market trading. The S&P 500 index skidded 5.7%, its worst loss since the coronavirus crash in March 2020. The Nasdaq composite plunged 7.6%. The small-cap Russell 2000 dived 8%.
The 10-year Treasury yield spiked to a two-year high of 1.87% intraday Wednesday, but closed the week down slightly at 1.75%.
Crude oil futures rose 2.2% to $85.14 a barrel, despite pulling back slightly late in the week from their highest levels since 2014.
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ETFs
Among the best ETFs, the Innovator IBD 50 ETF (FFTY) plummeted 11.4% last week, while the Innovator IBD Breakout Opportunities ETF (BOUT) tumbled 8.6%. The iShares Expanded Tech-Software Sector ETF (IGV) retreated 5.2%, with MSFT stock a major component. The VanEck Vectors Semiconductor ETF (SMH) dived 11.5%, as the formerly resilient chip sector broke hard.
SPDR S&P Metals & Mining ETF (XME) tumbled 10% last week. The Global X U.S. Infrastructure Development ETF (PAVE) slumped 6.4%. U.S. Global Jets ETF (JETS) descended 6.2%. SPDR S&P Homebuilders ETF (XHB) stepped down 7.7%. The Energy Select SPDR ETF (XLE) lost 3.2%, even amid rising energy prices. The Financial Select SPDR ETF (XLF) retreated 6.5%. The Health Care Select Sector SPDR Fund (XLV) fell 3.45%
Reflecting more-speculative story stocks, ARK Innovation ETF (ARKK) slumped 10.9% last week and ARK Genomics ETF (ARKG) 9.7%. Tesla stock remains the No. 1 holding across ARK Invest’s ETFs.
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Microsoft Stock
Microsoft earnings are due Tuesday night, providing insight to other software makers and cloud-computing giants. Microsoft stock had looked strong at the end of 2021, but has slumped in the new year. Shares fell 4.6% to 296.03 last week, and are closing in on their 200-day line. A strong rebound from the 200-day could offer a buying opportunity for MSFT stock as a Long-Term Leader.
For a traditional position trade, investors should wait until Microsoft regains the 50-day line at least, which likely wouldn’t happen without the broader market staging a real rebound. The official buy point is 349.77 from a flat base, according to MarketSmith analysis.
The relative strength line for Microsoft stock has fallen over the past two months, but hasn’t plunged. The RS line, the blue line in the charts provided, actually ticked up last week. That’s a reflection of just how badly the S&P 500 performed last week.
Tesla Stock
Tesla earnings are due Wednesday night. The EV giant should report strong earnings growth amid booming vehicle deliveries and strong pricing power. Investors may be more interested in 2022 guidance, including an overall delivery target and when the Berlin and Austin plants will finally open. They’ll also want to learn when future vehicles may arrive. Cybertruck production reportedly has been pushed to 2023, but Tesla hasn’t confirmed that. Any tangible guidance on 4680 battery cells would be greatly appreciated as well.
Tesla stock dived 10.1% to 943.90 last week. Shares are losing sight of a now-sliding 50-day line and are back below the key 1,000 level. TSLA stock is still trading within a somewhat-loose double-bottom base, but is in the lower half to be sure. The buy point is just above 1,200.
The RS line for Tesla stock has been trending lower in a choppy fashion over the past two weeks. On the plus side, TSLA stock has held up much better than most growth stocks, especially those with triple-digit price-earnings ratios.
Apple Stock
Apple stock fell 6.2% last week, tumbling through its 50-day and 10-week moving averages, a solid sell signal. But the RS line for AAPL stock barely dipped.
Apple earnings are due Thursday night. Year-earlier comparisons are getting much tougher for the iPhone giant. Guidance will be key. A positive reaction to Apple earnings would not only lift AAPL stock, but likely a slew of chipmakers and other companies in the iPhone ecosystem.
Caterpillar Stock
Caterpillar earnings close out a busy week on Friday.
CAT stock fell 6.5% to 214.09 last week, testing its 200-day line once again. But that follows four straight weekly gains, the last two on strong volume. Caterpillar stock has now formed a handle on its consolidation going back to early June. The CAT stock buy point is now 230.43.
The RS line for Caterpillar stock is well off highs, but has moved solidly higher so far in 2022.
Stock Market Analysis
It’s a stock market correction, make no mistake. The major indexes closed at or near session lows throughout the week, with the Nasdaq composite and Russell 2000 down more than 1% each day.
The Nasdaq has fallen below its 200-day line for the first time since April 2020. The composite didn’t stop there, undercutting October lows to its lowest levels since June. The Russell 2000 is at a 52-week low. The Dow Jones sank through its 50-day and 200-day lines last week.
The S&P 500 index, which led the market rally in 2021, broke below its 200-day line Friday.
The advance-decline line, lagging for months, has plunged in the past few weeks.
Growth stocks continue to lead the sell-off, but financials were hard hit last week as bond yields pared back and earnings reports were weak at best. Metals and mining stocks, which looked so strong a week ago, plunged this past week, though a few names still look OK. Energy stocks gave up some ground.
A market bounce wouldn’t be a surprise early next week, as bulls try to make a stand near the S&P 500’s 200-day. The CBOE Volatility Index, commonly known as the VIX, has run up in the past few days, finally getting close to at least its early December peaks. When the so-called market fear gauge reaches extreme levels, it can signal a short-term bottom is near.
The market tried to rebound several times this past week, but the bounces only lasted a few minutes or hours.
At some point stocks will have a positive session, but that won’t mean the market has bottomed. Wait to see if the stock market rally attempt stages a follow-through day to confirm the new uptrend.
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What To Do Now
Earnings season typically is a nail-baiting time, as investors have to decide whether or not to hold positions into quarterly results. But now, most investors should be largely in cash except for core holdings of longtime winners.
Investors should be looking for stocks that are holding up relatively well in the market correction. Don’t be too much on whether the stocks are in proper bases or setting up near buy points. When a market rally attempt is a couple days in, you can start to focus more on stocks setting up buying opportunities ahead of a follow-through day. Right now, you’re looking for raw talent.
Right now, Apple stock is giving up ground but still holding up reasonably well. It could look a lot better or worse after earnings. UnitedHealth, J.B. Hunt and Travelers (TRV) have already reported earnings, removing a key uncertainty, but that doesn’t mean they’ll continue to hold up.
Read The Big Picture every day to stay in sync with the market direction and leading stocks and sectors.
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