Dow Jones futures, S&P 500 futures, and Nasdaq futures all dropped this morning as Treasury yields briefly exceeded 5%. Chevron (CVX) made a significant oil takeover announcement. This week, notable earnings reports from Microsoft, Meta Platforms, and Google parent Alphabet (GOOGL) are expected. The stock market experienced heavy losses last week due to rising Treasury yields and underwhelming earnings reactions. While the Nasdaq narrowly avoided reaching its September 27 low, small caps hit a 52-week low. Several leading stocks showed weakness with more stocks faltering on Friday. It is advised that investors remain largely in cash but stay engaged in the market.
Next week, a wave of earnings reports is anticipated, with Microsoft (MSFT), Google, Amazon.com (AMZN), and Meta Platforms headlining. Other notable reports include ServiceNow (NOW), Vertiv (VRT), Cadence Design Systems (CDNS), CME Group (CME), and Weatherford (WFRD). Microsoft, Meta Platforms, ServiceNow, Vertiv, and Cadence Design Systems are nearing buy points. Google is also approaching various entry points. Though Amazon is lagging, a strong earnings reaction could present a buying opportunity. Meta Platforms is on the IBD Leaderboard and NOW stock is on the Leaderboard watchlist. Meta stock and Cadence Design are on the IBD 50, while Google stock and ServiceNow are on the IBD BigCap 20. Microsoft and CDNS stock are on the IBD Long-Term Leaders list. The accompanying video in this article provides analysis on Microsoft, Meta, and Google stock while discussing the weekly stock market action.
The 10-year Treasury yield recently surpassed 5% for the first time since 2007, reaching a high of 5.02% before settling at 4.99%. Last week, the 10-year Treasury bond yield surged nearly 30 basis points to 4.93%. On Thursday, it briefly hit 4.996%, the highest level since 2007.
Dow Jones Futures Today
Today, Dow Jones futures fell 0.6% compared to fair value, with CVX stock being a slight drag. S&P 500 futures and Nasdaq 100 futures both dropped 0.5%. These futures suggest that the S&P 500 and Nasdaq composite will open below recent lows, although they have slightly rebounded as the 10-year Treasury yield eased. It is important to note that overnight activity in Dow futures and other markets may not necessarily translate into actual trading during regular stock market sessions.
Chevron’s Acquisition of Hess
Chevron, a Dow Jones giant, has announced its plan to acquire Hess (HES) in an all-stock deal worth $53 billion, equivalent to $171 per share. Under the terms of the deal, Hess shareholders will receive 1.0250 shares of Chevron for each Hess share. While CVX stock experienced a slight decline, HES stock also dropped slightly. Earlier this month, Exxon Mobil (XOM) agreed to purchase Permian Shale giant Pioneer Natural Resources (PXD) for $59.5 billion.
Stock Market Overview
Last week, the stock market attempted to rally at the beginning of the week but faced resistance and recorded significant losses over the last three sessions. Some of Friday’s market activity likely reflected investor caution due to ongoing Israel-Hamas fighting. The Dow Jones Industrial Average experienced a 1.6% decline, while the S&P 500 index and the Nasdaq composite plummeted 2.4% and 3.2% respectively. The Nasdaq came close to undercutting its September 27 low on Monday, reaching a four-month closing low on Friday and closing below its October 6 follow-through day, indicating a highly bearish market. The S&P 500 fell just below its 200-day line and approached recent lows, while the Dow Jones dropped below its 200-day line. Market breadth remains weak as losers outweigh winners and new lows outnumber new highs. The small-cap Russell 2000 hit a 52-week low with a 2.3% decline. The Invesco S&P 500 Equal Weight ETF (RSP) hit a seven-month low, falling 2.3%, while the First Trust Nasdaq 100 Equal Weighted Index ETF (QQEW) dropped 3%, undercutting the 200-day line. Leading stocks experienced significant pressure, with some previously resilient stocks showing signs of weakness on Friday. It is unlikely that the market will have a sustained rally as long as the 10-year Treasury yield continues to rise. Despite Friday’s retreat, there is no indication that the 10-year bond yield is ready to level off or significantly pull back. Crude oil futures rose 1.2% to $88.75 per barrel last week due to supply concerns caused by ongoing Middle East tensions. Copper prices sank 1.1% to the lowest close in almost a year.
Strategies for a Rising Interest Rate Environment
Last week, several ETFs experienced declines. These include the Innovator IBD 50 ETF (FFTY), which dropped 4%, the iShares Expanded Tech-Software Sector ETF (IGV), which fell 3%, and The VanEck Vectors Semiconductor ETF (SMH), which sold off 4.2%. The SPDR S&P Metals & Mining ETF (XME) fell 3.1%, while the SPDR S&P Homebuilders ETF (XHB) plunged 4.5%. The Energy Select SPDR ETF (XLE) had a slight increase of 0.75%, while the Health Care Select Sector SPDR Fund (XLV) declined by 1.6%. The Industrial Select Sector SPDR Fund (XLI) skidded 3%, and the Financial Select SPDR ETF (XLF) sank 3%. Reflecting more speculative story stocks, the ARK Innovation ETF (ARKK) plunged 4.6%, while the ARK Genomics ETF (ARKG) dived 5.45%.
Megacap Stocks to Watch
Earnings reports from Microsoft, Google, Meta Platforms, and Amazon.com are highly anticipated. Microsoft is expected to release its earnings on Tuesday night, with analysts forecasting a 13% increase in earnings per share and a 9% rise in revenue. Investors will be paying attention to Azure cloud-computing growth and any indications of a revenue boost from artificial intelligence (AI). Similarly, Google’s earnings report is scheduled for Tuesday, with earnings rebounding due to easier comparisons. AI will also be a focal point. While Google stock performed well last week, reaching $135.60, it currently has a three-week pattern and potential 50-day/10-week support level, making it a risky investment in a weak market. Meta’s earnings report will be released on Wednesday after the market closes. Cost cuts and revived advertising efforts have contributed to the company’s performance. META stock slightly dropped to $308.65, moving towards the 50-day line after falling from a $362.20 buy point. Amazon’s earnings report is expected on Thursday night, with a predicted surge in earnings as the company recovers from a challenging previous year. While AMZN stock retreated to $125.17 last week, it remains above the 50-day line. Amazon has a $145.86 buy point, but a decisive move above the 50-day line may provide an early entry point. These earnings reports will significantly impact the artificial intelligence, cloud-computing, software, and e-commerce sectors, as well as the overall market. Microsoft, Google, Meta, and Amazon are leaders in cloud computing, and all four companies heavily invest in artificial intelligence. ServiceNow also emphasizes its AI efforts, while Vertiv is an AI-related player. Microsoft and ServiceNow will provide insights into the business software industry.
Other Key Earnings to Watch
Several other companies will report earnings this week, including Cadence Design Systems (CDNS) on Monday night, ServiceNow (NOW) on Tuesday night, Vertiv (VRT) early Wednesday, CME Group (CME) on Wednesday morning, and Weatherford (WFRD) on Wednesday morning. CDNS stock fell 4.6% to $238.64 last week, dropping below a $247.50 buy point. NOW stock fell 1.3% to $542.51, briefly crossing above the 50-day line before sliding 3.1% on Friday. NOW stock has a $607.90 buy point from a double-bottom base, with an early entry at $574.25. VRT stock tumbled 6% to $36.74 last week, significantly below a $40.41 flat-base buy point and undercutting the 50-day line. CME stock fell 3% to $212.81 but remains within the buy zone from a flat base. WFRD stock dropped 2.7% to $92.97,
