Dow Jones futures rose Sunday night, along with S&P 500 futures and Nasdaq futures. The stock market retreated sharply again last week, even with a furious final-hour rebound to erase Friday’s losses.
The major indexes all confirmed a new market rally on Tuesday. But that rally immediately ran into trouble with a big sell-off Wednesday. The Dow Jones undercut its May 12 lows on Thursday, with the S&P 500 and Nasdaq doing so on Friday, ending the rally after just a few days. A final-hour rebound erased Friday’s losses, but the major indexes were still down sharply for the week once again.
Retailers such as Target (TGT) and Walmart (WMT) helped trigger the broad, wide sell-off. But megacaps Apple (AAPL), Google parent Alphabet (GOOGL) and especially Tesla (TSLA) were major losers as well.
Tesla stock was hit especially hard, while emerging top rival BYD (BYDDF) had a solid week. BYD launched preorders for its Seal EV, a new Tesla Model 3 rival, on Friday. China EV startup Xpeng (XPEV) reports early Monday.
With inflation squeezing consumers and businesses and the Fed rapidly raising rates as a result — along with global supply-chain woes — the economic outlook looks difficult at best. Right now, the stock market is still adjusting to that new reality where a “hard landing” is a significant or even likely possibility.
Individual investors need to adjust to that hard reality as well.
Dow Jones giant Chevron (CVX), Eli Lilly (LLY), World Wrestling Entertainment (WWE) and ZIM Integrated Shipping (ZIM) are all worth watching. LLY stock and these other names are near buy points with their relative strength lines at or near highs.
ZIM stock is on the IBD 50. CVX stock is on the IBD Big Cap 20. WWE stock is the focus of this week’s New America feature. The video embedded in this article discusses the weekly action in detail, while also analyzing LLY stock, ZIM and Tesla.
Dow Jones Futures Today
Dow Jones futures rose 0.5% vs. fair value. S&P 500 futures popped 0.75% and Nasdaq 100 futures jumped 1%.
The 10-year Treasury yield rose 2 basis points to 2.8%.
Broadcom (AVGO) reportedly is in talks to buy virtualization software maker VMware (VMW). While Broadcom is a chipmaker, it’s made some big software acquisitions in the past few years. VMW stock closed Friday near a two-year low with a $40 billion market cap. AVGO stock, which flashed an early entry Tuesday but ended up tumbling 7.7% last week, has a $220 billion valuation.
Apple has told some suppliers that it wants to boost iPhone production outside China, the Wall Street Journal reported, citing sources. Beijing’s “zero-Covid” policies is among the reasons. Apple is mulling ramping production in India and Vietnam.
Remember that overnight action in Dow futures and elsewhere doesn’t necessarily translate into actual trading in the next regular stock market session.
Stock Market Last Week
The stock market showed some promise on Tuesday, but ended up racking up another week of hefty losses.
The Dow Jones Industrial Average fell 2.9% in last week’s stock market trading. The S&P 500 index slumped 3%. The Nasdaq composite tumbled 3.8%. The small-cap Russell 2000 retreated 1.9%.
Target stock plunged 19.3% and Walmart stock 19.3%, both to the lowest point since 2020, on weak earnings and guidance. Ross Stores (ROST) crashed 21.9% on weak results and guidance. Dollar Tree (DLTR) and Costco Wholesale (COST), which report this coming week, plunged 19.8% and 16.3%, respectively.
But the theme of rising costs and weaker demand spread beyond retail to trucking firms and even food producers, traditionally a defensive safe haven.
Apple stock slumped 6.5%, its eighth straight weekly loss. Google stock sank 6.15% on advertising concerns. Tesla stock crashed nearly 14%, with several specific factors weighing on the EV giant.
The 10-year Treasury yield skidded 15 basis points to 2.78%, after tumbling 19 basis points in the prior week. The retreat in Treasury yields reflects concerns about economic growth.
U.S. crude oil futures rose 2.5% to $110.28 a barrel last week.
Among the best ETFs, the Innovator IBD 50 ETF (FFTY) gave up 1.6% last week, while the Innovator IBD Breakout Opportunities ETF (BOUT) plunged 5%. The iShares Expanded Tech-Software Sector ETF (IGV) and VanEck Vectors Semiconductor ETF (SMH) both fell 1.8%.
SPDR S&P Metals & Mining ETF (XME) edged up 0.6% last week. The Global X U.S. Infrastructure Development ETF (PAVE) retreated 2.4%. U.S. Global Jets ETF (JETS) rose 0.6%. SPDR S&P Homebuilders ETF (XHB) slumped 3.6%. The Energy Select SPDR ETF (XLE) gained 1.3%, with Chevron stock a major component. The Financial Select SPDR ETF (XLF) lost 1.8%. The Health Care Select Sector SPDR Fund (XLV) advanced 0.9%, with LLY stock a notable holding. The SPDR S&P Retail ETF (XRT) crashed 9.45%, with WMT stock and TGT stock major holdings.
Reflecting more-speculative story stocks, ARK Innovation ETF (ARKK) retreated 2.7% last week while the ARK Genomics ETF (ARKG) edged up 0.6%. Tesla stock remains the No. 1 holding across Ark Invest’s ETFs, though it is no longer the No. 1 position in ARKK. Ark Invest also owns some Xpeng and BYD stock.
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Stocks To Watch
Chevron stock briefly topped a 174.86 flat-base buy point on Monday, but pulled back before ending the week off 5 cents to 167.88. CVX stock is holding support around its 21-day and 50-day lines.
LLY stock popped Monday, rebounding from around the 50-day line for an early entry in a flat base after the FDA OK’d a “novel” diabetes drug that also could be an obesity treatment. Shares fell back below their 50-day line on Thursday but bounced back on Friday. Eli Lilly stock climbed 2.5% to 298.85 for the week. A few major drugmakers like LLY stock, which offer defensive growth, have held up well amid the bear market.
ZIM stock was up and down for the week, finishing with a 1.65% gain to 64.70. Shares appear to be working on a handle in a cup base, but that needs another day. Container-based shipper ZIM Integrated reported EPS surged 190% as revenue more than doubled, both beating. ZIM also announced a $2.85 per-share dividend.
WWE stock rose 4.6% to 60.91 last week, moving above its 50-day line after finding support just above the 200-day line in the prior week. Shares are working on a flat base with 63.81 buy point, according to MarketSmith analysis. WWE stock closed right on a trendline, just above the 50-day line, offering an early entry.
Tesla stock plunged 13.7% last week to 663.90, hitting the lowest since late July. Friday’s 6.4% loss provided a decisive break below the Feb. 24 and May 12 levels. Unlike in those cases, TSLA stock did not rebound powerfully from intraday lows.
Volume was very high on Friday, with heavy selling days prominent in the past four weeks.
In addition to the broad market sell-off, Tesla faces a number of headwinds likely affecting TSLA stock.
Tesla Shanghai is still working on one shift vs. the usual three, as Covid restrictions continue to weigh on production since late March. The Chinese government said Saturday that the factory has produced 26,000 vehicles since a total shutdown ended a month ago. With Tesla Shanghai producing 10,757 vehicles in April, according to China Passenger Car Association data, that means it’s made just over 15,000 in May so far. Shanghai is capable of making 2,600 vehicles a day under normal conditions.
That comes as China EV and battery giant BYD (BYDDF), little affected by Covid lockdowns, passes Tesla in vehicle sales. On Friday, BYD began pre-orders for the Seal sedan, a Model 3 rival with longer range, faster acceleration but $10,000 cheaper. BYD stock jumped 10% to 33.33 last week, reclaiming its 200-day moving average.
A New York Times documentary aired Friday night, “Elon Musk’s Crash Couse,” highlighting issues with Tesla Autopilot and Full Self-Driving and Musk’s unfilled promises. That comes as the NHTSA investigates yet another Tesla fatal crash, part of a major probe into Autopilot-related accidents.
Musk’s Twitter (TWTR) saga also is a negative, as investors fear further TSLA stock sales and an ongoing distraction. Finally, Musk is denying sexual misconduct claims regarding a Business Insider report of alleged 2018 settlement with a SpaceX employee.
But, as with the general market, what matters for investors is how the stock reacts. Right now, Tesla stock is in a major sell-off. Anyone who bought Tesla in the past year should be long gone. Longer-term investors have to decide how long to hold big winners, and when to take whole or partial profits. There’s no easy answer on that.
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The best that can be said about the recent rally is that it failed so quickly and decisively. So it offered less temptation than the bear market rally in late March.
On Tuesday, the major indexes all staged follow-through days, confirming the new stock market rally. There were plenty of reasons to be skeptical and few stocks to buy, so why not demand a “better” FTD? IBD founder Bill O’Neil wanted to make sure he and other investors didn’t miss new rallies, even if that meant FTDs that ultimately didn’t work.
Still, Wednesday’s stunning sell-off was a major expectation breaker. Rallies fail 90% of the time when the major indexes close below the low of their follow-through days, and they all knifed well below that level on Wednesday. The official end of the uptrend was almost a formality.
Weekly charts show an unrelenting sell-off since early April.
On Friday, the S&P 500 was down more than 20% from its Jan. 4 peak for most of the session until a final hour rally off the lows.
The Dow Jones and S&P 500 eked out fractional gains on Friday, so that technically marks day one of a new market rally attempt. The Nasdaq closed in the upper half of its daily range, so that qualifies as a “pink rally” day. In theory, the major indexes could stage FTDs later next week, assuming they don’t undercut Friday’s lows.
The market environment is extremely tough, with the Federal Reserve not worried about protecting the Dow Jones this time. Inflation is smothering consumers and businesses alike, with growth and hiring already likely starting to slow as a result. The Fed is rapidly raising rates to cool inflation, also contributing to the slowdown. Bringing down inflation while avoiding a recession would be extremely difficult. Powell and his colleagues may feel a modest economic slump is unavoidable — perhaps even necessary — to reduce demand sufficiently to bring inflation under control.
Throw in supply-chain chaos from China’s lockdowns and the Russia-Ukraine war, and there are few economic scenarios that look attractive in the coming months.
At some point, the stock market will price in the negative news and look ahead to a brighter future. But it is not today.
When It’s Time To Sell Your Favorite Stock
What To Do Now
This isn’t a time to be brave or clever. It’s a time to be smart and manage risk.
If you have some energy stocks with decent gains, you can choose to keep a minimal exposure. But even here you might want to take partial or full profits. Investors also have decisions to make about big long-term winners, such as Apple or Tesla stock.
But otherwise, investors should be on the sidelines. It’s possible that ZIM, Eli Lilly, Chevron or WWE stock will trigger buy signals in the near future, but any purchases would be extremely risky, while the upside could be limited.
Right now, it’s better to wait for a better market to develop. And that is far more than a strong open — or close — or even a big day or two.
Even when there’s another confirmed rally, add exposure slowly and be quick to exit.
Study past bear markets and corrections, including those from the late 1960s to early 1980s, when inflation was a major threat.
And keep working on watchlists. If you haven’t updated them this past week, get ready to do some major overhauls. Many stocks with strong RS lines have broken down. But look for the new relative winners out there.
Read The Big Picture every day to stay in sync with the market direction and leading stocks and sectors.
Please follow Ed Carson on Twitter at @IBD_ECarson for stock market updates and more.
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