Dow Jones Futures Drop: Nasdaq Jumps As Nvidia, Chip, AI Soar, But Market Breadth Is Terrible

Dow Jones futures fell slightly overnight, along with S&P 500 futures and Nasdaq futures. Key inflation data is due on Friday morning.

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The stock market rally had a wildly different Thursday. Nasdaq and especially Nasdaq 100 surged when Nvidia (NVDA) skyrocketed thanks to high earnings and superior guidance. That also sent Advanced micro-devices (AMD), Taiwan Semiconductor (TSM) And Network Arista (NET) also spiked, with solid gains for ASML (ASML), Microsoft (MSFT), parent company of Google Alphabet (GOOGLE) and other AI or chip plays.

But outside of a limited number of big winners, markets show bleak or weak action amid ongoing debt ceiling talks, concerns about Fed rate hikes, etc. Declineers easily beat the winners while the Dow Jones fell below its 200-day line.

ASML and the chip-gear giants Application materials (amateurs) And KLA Corporation (KLAC) move back on buy points on Thursday, together with the chip design software maker Span Design System (College of Arts). Shares of ANET and mobile (MBLY) flashing items soon.

But investors should be cautious with new purchases amid market fragmentation and hyper-concentrated market leadership.

Dow Jones Futures Today

Dow Jones futures are down 0.1% from fair value. S&P 500 futures lost 0.2% and Nasdaq 100 futures fell 0.2%.

Remember that action overnight in future index and other places that don’t necessarily translate into actual transactions the next time stock market meeting.

Talk about debt ceiling

Debt ceiling talks continued throughout Thursday. President Joe Biden said the talks had “worked”. A key Republican official said the difference was narrowing. But there is still no agreement to raise the debt limit. The US could default on its debt as early as June if there is no deal by then.

On Thursday, Moody’s said the United States must make Treasury interest payments by mid-June to avoid losing its AAA credit rating. Fitch Ratings late Wednesday placed the US AAA rating in negative due to increased default risk.

income

Meanwhile, Wholesale Costco (VALUE), Great beauty (ULTA), working day (DAY), Outdoor wood floors (FLOOR) And magic technology (MRVL) and post-closing headline earnings.

Costco earnings are below fiscal Q3 viewing. COST stock was little changed in extended trading after closing modestly below all of its moving averages.

Ulta’s earnings are just above Q1 views while sales just slipped. ULTA stock plunged in overnight action, signaling a drop below the 200-day moving average after sliding off a record high on May 1.

Workday tops Q1 earnings views and consistent guidance on Q2 subscriber revenue. WDAY stock remained soaring in late trading, signaling a move above multiple buy points. Shares rose 0.1% to 196.41 on Thursday. The software giant is working on 206.78 cup base buy point, with 199.17 being the early entry from the prototype handle.

Decker earnings top the view, but DECK stock plummeted overnight. Shoe maker Ugg and running shoes Hoka fell below its 50-day moving average holding (ON) And footboard (FL) income.

Great earnings and sales slightly ahead in terms of Q1 views. The chipmaker is also oriented higher, predicting AI revenue will double in the second half of the fiscal year. MRVL stock skyrocketed overnight. Shares rose 7.6% on Wednesday to 49.47. It is on top of the 49.58 cup bottom, but Marvell stock has extended from its 50-day and 200-day lines.

Nvidia and ASML stocks are on the move IBD Rankings. Microsoft, KLA and CDNS stocks are Long-term leadership of IBD. WDAY and ASML stocks are on IBD 50. ASML, Workday, Microsoft, Cadence Design and AMAT shares are being offered for sale IBD Large Hat 20.

The debt ceiling is just the beginning. These drags can derail the economy.

PCE . inflation data

The Commerce Department will release the personal consumption expenditures price index, the Fed’s preferred measure of inflation, at 8:30 a.m. ET Friday.

Economists expect the PCE price index to rise 0.3% in April. That would lift the 12-month PCE inflation rate to 4.3%. Core PCE, which excludes food and energy, is also said to have increased by 0.3%, leaving the core PCE inflation rate unchanged at 4.6%.

Fed Director Jerome Powell has signaled that he is paying more attention to core PCE services, excluding housing. So look to read this supercore service inflation.

The odds of the Fed raising rates at its June 13-14 policy meeting is now at 49%, a sharp increase over the past few days. That number climbed to 73% at the Fed’s late-July meeting.

PCE inflation data is part of Commerce’s income and expenditure reports. Economists found both income and spending rose 0.4% in April.

Join IBD experts as they analyze stocks that could act in the stock market rally on IBD Live

Stock market recovers

The stock market rally shows very mixed action, with Nasdaq leading the way thanks to a number of large-cap technology companies.

The Dow Jones Industrial Average fell 0.1% on Thursday stock market trading. The S&P 500 index rose 0.9 percent. The Nasdaq composite rose 1.7%. The Russell 2000 small-cap index fell 0.8%.

Nvidia shares jumped 24%. AMD shares rose 11% and Taiwan Semi rose 12%. ANET stock rose nearly 11%. ASML, KLA and AMAT shares rose 6%-7%. Microsoft shares rose nearly 4% to a 52-week high, while Google gained 2.1%. With the exception of Arista and KLAC stocks, these stocks all have market capitalizations of at least $100 billion. Nvidia hit nearly $1 trillion, with GOOGL stock above $1.5 trillion and Microsoft topping $2 trillion.

US crude oil prices fell 3.4% to $71.83 per barrel. Copper prices rose 0.8 percent, but from a near seven-month low.

The yield on the 10-year Treasury note rose 10 basis points to 3.81%.

The US dollar continues to rise, reaching a 2023 high set in early March.

ETFs

Among the growth ETFs, the iShares Expanded Tech-Software Sector ETF (IGV) 2.5%, reaching a 10-month high. MSFT stock is a large stock that IGV is holding. VanEck Vectors Semiconductor ETF (SMH) spiked 8.6% to a 52-week high. Shares NVDA, Taiwan Semiconductor, AMD ASML, Applied Materials and KLA Corp. are all notable components of SMH. CDNS stock is included in the IGV and SMH ETFs.

Reflecting more speculative stocks, the ARK Innovation ETF (ARKK) fell 2.7% and the ARK Genomics ETF (ARKG) 2.5%.

SPDR S&P Metals & Mining ETF (XME) decreased by 0.8%. US Global Jets ETF (jet plane) increased by 1.2%. SPDR S&P Homebuilders ETF (XHB) increased by 0.3%. Energy Select SPDR ETF (XLE) decreased by 1.8% and the Healthcare Sector SPDR Fund (XLV) gave up 1%.

Financial Options SPDR ETF (XLF) closes just below breakeven. SPDR S&P Regional Bank ETF (KRE) retreat 0.8%

The five best Chinese stocks to watch right now

Analysis of market recovery

The stock market rally showed extreme divergence on Thursday. The Nasdaq 100 soared more than 2% while losers outperformed gainers by a two-to-one ratio.

Nasdaq composite has recovered almost all of its losses from the previous two days. The S&P 500 has regained its 21-day line with solid gains. But those reflect the huge profits of Nvidia, AMD, Microsoft, Google, etc.

Meanwhile, concerns about the default debt ceiling, coupled with rising Treasury and dollar yields, weaker foreign economies and the growing likelihood of a Fed rate hike, weighed on to the broader market.

The Dow Jones, even MSFT stock as a component, just fell below its 200-day line, even though it closed low. Russell 2000 dropped below its 50-day line.

First Trust Nasdaq 100 Equal Weighted Index ETF (QQEW) rose only 0.5%, bouncing up from the 21-day level.

Invesco S&P 500 Equal Weight ETF (RSP) fell below 0.1%, but remained at session lows. RSP is down 2.1% for the week, below all of its moving averages.

New lows easily beat new highs.

However, apart from AI and chip play, not many stocks are flashing buy signals ELF beauty (ELF) is an exception.

Some names suggest certain action, but many stocks in or near buy zones have dropped significantly. That’s a worrying trend this week.

Market Timing with IBD’s ETF Market Strategy

What to do now

The bifurcated market rally continues to show unusual action. Some stocks have won big, but overall the market has been quite lackluster.

Investors may have modest exposure. How much depends a lot on whether you are in the winning stocks or not.

If you’re not among the great winners of 2023 and are struggling to make progress, don’t beat yourself up. It is difficult to navigate a narrow market rally, with various industry rotations. A lot of stocks look promising, only to have quick breakouts or entries fail, or solid profits quickly turn around.

What you don’t want to do is chase expansion stocks. Nvidia stock is 90% above its 200-day moving average. A significant pullback and perhaps a new base in the next few weeks should come as no surprise. That may provide new entries in the future, but for now NVDA is out of reach.

Don’t be too focused. Among the many problems with a divided market rally and narrow leadership is that traders are most likely exposed to a particular stock, group, or topic. Obviously, anyone heavily invested in Nvidia and related games is a big winner on Thursday, but the risk of a falling portfolio is high. Investors may have bought ANET, ASML, KLA, or some other stock on Thursday, but probably wouldn’t want to buy some of them.

The time to invest heavily is when there is a clear, broad market uptrend, with a large number of stocks from a variety of sectors emitting buy signals and continuing to move higher. At various points, the market rally has produced such a transformation, only to turn around.

But you want to be ready for action. So keep working on the watch list.

Read Big picture every day to stay in sync with market trends and top stocks and sectors.

Please follow Ed Carson on Twitter at @IBD_ECarson for stock market updates and more.

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