Dow Jones futures remained stable in after-hours trading, while S&P 500 futures and Nasdaq futures experienced a slight decline. The stock market rally, which has been facing increasing pressure, saw additional losses on Thursday. The 10-year Treasury yield rose to 4.996%, just below 5%. One positive sign is the increase in market fear gauges, which could potentially lead to a stock market recovery.
Tesla (TSLA) experienced a significant decline in trading volume due to weak earnings and warnings from Elon Musk, indicating that the long-term growth of the stock is lacking. This is a time to search for stocks that are setting up, but it’s important to exercise caution when increasing exposure. Stocks to keep an eye on include Adobe (ADBE), Arista Networks (ANET), Microsoft (MSFT), Palantir Technologies (PLTR), and Meta Platforms (META). Some of these stocks are listed on the IBD Leaderboard, IBD 50, and IBD Long-Term Leaders list.
Oil services company SLB will be reporting earnings on Friday, which will provide insight into the energy sector and demand for services, drilling, and machinery. Intuitive Surgical (ISRG) slightly surpassed earnings expectations but missed on revenue. The medical device/products sector has experienced a decline recently due to concerns about weight loss drugs. Rail giant CSX missed earnings expectations, causing a modest decline in share price.
In after-hours trading, Dow Jones futures were even vs. fair value, while S&P 500 futures declined 0.1% and Nasdaq 100 futures fell 0.2%. It’s important to note that overnight trading does not necessarily indicate how the regular stock market session will unfold.
The stock market rally has been retreating due to surging Treasury yields, with the Dow Jones Industrial Average falling 0.75% in Thursday’s trading. The S&P 500 and Nasdaq composite also experienced losses. The Russell 2000 hit a six-month low and a 52-week closing low. Since the Nasdaq peaked on July 19, the market has been in a downtrend. The Nasdaq needs to break above the 50-day line to reverse this trend.
The 10-year Treasury yield reached 4.996%, while the two-year Treasury yield sank to 5.17%. Fed chief Jerome Powell stated that further tightening may be needed if economic data remains strong, but noted that “financial conditions have tightened significantly” due to rising long-term bond yields. This has reinforced expectations of no rate hikes from the Fed in the near future.
U.S. crude oil prices rose to $89.37 a barrel. If long-term Treasury yields continue to rise above 5%, it could lead to a further decline in the stock market. The CBOE Volatility Index (VIX), often referred to as the market’s fear gauge, spiked to its highest level since late March, indicating a potential stock market bounce in the near term.
In terms of ETFs, growth ETFs such as the Innovator IBD 50 ETF (FFTY) and iShares Expanded Tech-Software Sector ETF (IGV) experienced declines. Among Chinese stocks, Tesla stock (TSLA) recorded a significant decline due to weaker-than-expected earnings.
Adobe stock (ADBE) is slightly below a buy point, while Meta stock is just below a buy point. Microsoft stock (MSFT) is working on a consolidation buy point and an early entry, with an improving relative strength line. Palantir stock (PLTR) is working on a buy point from a cup-with-handle base, while Arista Networks stock (ANET) is just below a buy point. Earnings for Adobe, Microsoft, Meta, and Palantir are expected soon.
With the stock market rally under pressure and surging Treasury yields, it is important to exercise patience and caution. Investors should have modest exposure and pay close attention to the market for clear signals of renewed strength. Stay up to date with market direction and leading stocks and sectors by reading The Big Picture every day.
