by Dow Jones futures open Sunday night, along with S&P 500 futures and Nasdaq futures. Tesla earnings will be in the news next week.
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The stock market rally had a powerful week, with the S&P 500 and Nasdaq composite hitting new 52-week highs. Many stocks offered buying opportunities.
But investors may need to be cautious in the very near term. The Nasdaq has extended somewhat, raising the risks of a pullback. Many stocks that gave buy signals late in the week fell back on Friday, while the Nasdaq moved slightly lower. Meanwhile, many other leading stocks have also extended.
Finally, earnings season is a wild card for individual stocks and the broader market.
Rebalancing Nasdaq 100
The Nasdaq is expected to specify how a special rebalancing of the Nasdaq 100 will adjust the weights of its 100 components. The details were expected Friday evening, but have not yet arrived.
The beautiful seven of Microsoft (MSFT), Apple (AAPL), Nvidia (NVDA), Tesla (TSLA), Google parent Alphabet (GOOGL), Meta platforms (META) and Amazon.nl (AMZN) will see their outsized dominance diminish in the special reshuffle that takes effect ahead of the July 24 opening.
But that upcoming realignment, first announced on July 7, didn’t stop megacaps from having a big week, especially Meta stocks, Nvidia and Google.
On Friday night, a federal appeals court rejected a bid by the FTC to prevent Microsoft from completing its acquisition Activision Blizzard (ATVI). Nasdaq has already said so Trade desk (TTD) will replace ATVI stock in the Nasdaq 100 ahead of Monday’s open.
Meanwhile, Tesla’s second-quarter earnings are expected Wednesday night, following strong preliminary results from the Chinese EV giant BYD (BYDDF).
Nvidia stock and Tesla are on Leaderboard. Microsoft stock is on the IBD Long-Term Leaders list. TSLA stock is listed on the IBD Big Cap 20.
The video embedded in the article discussed this week’s strong market action and analyzed Nvidia’s rival Advanced micro devices (AMD), Rambus (RMBS) and Eli Lilly (L.L.Y.).
Dow Jones Futures Today
Dow Jones futures open at 6 p.m. ET on Sunday, along with S&P 500 futures and Nasdaq 100 futures.
Remember that overnight action in Dow futures and elsewhere does not necessarily translate into actual trading in the next regular trading session.
Join IBD experts as they analyze actionable stocks in the stock market rally on IBD Live
Stock market rally
The stock market rally had a great week as tame inflation reports allayed fears of Fed rate hikes and Treasury bond yields and the dollar collapsed.
The Dow Jones Industrial Average rose 2.3% in stock market trading last week to reach a 2023 high and just below its highest level in 52 weeks. The S&P 500 index soared 2.4% and the Nasdaq index jumped 3.3%, both setting new 52-week highs. It was the Nasdaq’s best weekly gain since late March.
The small-cap Russell 2000 rose 3.7%.
The Invesco S&P 500 Equal Weight ETF (RSP) climbed 2.4%, in line with the S&P 500.
The First Trust Nasdaq 100 Equal Weighted Index ETF (QQEW) raced 3.9% higher, slightly better than the Nasdaq 100’s 3.5% gain.
The small-cap Russell and equal-weight indices point to the major improvement in market breadth. While the losers easily beat the winners on Friday, the lines of the forward decline have risen significantly in recent weeks as new highs have reached new lows.
Leaders had a great week, with software and chip stocks prominent among new buying opportunities.
However, the Nasdaq is 7.4% above its 50-day line, while the Nasdaq 100 is 8% above that key level. That increases the risk of another market downturn. The Nasdaq could expand even more, but that would greatly increase the likelihood of a pullback from the market, with a higher likelihood of it widening.
Friday’s pullback from the highs could reflect the market’s need for a break. Many leading stocks erased gains or fell lower, but weekly charts generally look good.
The 10-year Treasury yield fell 23 basis points to 3.82%, despite Friday’s increase of 6 basis points.
U.S. crude oil futures rose 2.1% to $75.42 a barrel last week, but fell 1.9% on Friday.
Copper futures rose 4.1% this week.
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ETFs
Among growth ETFs, the Innovator IBD 50 ETF (FFTY) rose 3.4% last week. The iShares Expanded Tech-Software Sector ETF (IGV) was up 5.6%, with MSFT stocks a huge component. The VanEck Vectors Semiconductor ETF (SMH) rose 5.3%. Nvidia stock is the largest holding company in SMH.
Reflecting more speculative stocks, ARK Innovation ETF (ARKK) rose 11.1% last week and ARK Genomics ETF (ARKG) rose 9.4%. Tesla stock is the No. 1 position in Ark Invest’s ETFs. Cathie Wood’s Ark also owns some shares of Nvidia and BYD.
SPDR S&P Metals & Mining ETF (XME) rose 2% last week. The Global X US Infrastructure Development ETF (PAVE) gained 2.6%. US Global Jets ETF (JETS) returned lower for a 1.4% decline. SPDR S&P Homebuilders ETF (XHB) soared 7.1%. The Energy Select SPDR ETF (XLE) was up 0.8% and the Health Care Select Sector SPDR Fund (XLV) was up 2.1%. The Industrial Select Sector SPDR Fund (XLI) gained 2.3%.
The Financial Select SPDR ETF (XLF) was up 2% and the SPDR S&P Regional Banking ETF (KRE) was up 4%. The bank ETFs cut weekly gains Friday after a number of major financial institutions reported.
Five best Chinese stocks to watch right now
Tesla earnings
Analysts expect Tesla’s earnings to show a modest increase from a year earlier. In the second quarter of 2022, the Shanghai plant was shut down for several weeks due to Covid, while the Berlin and Austin plants were slowly ramping up. Earnings per share could be about the same as the 85 cents in the first quarter.
Tesla already reported second-quarter deliveries of 466,140 EVs, easily outpacing attendance thanks to ongoing price cuts and incentives. Gross margins for the second quarter will be key after the decline in the first quarter and past quarters.
In addition to Tesla’s earnings numbers, investors will want updates on the Cybertruck, which is expected to begin first production this summer, as well as the forthcoming updated Model 3.
Investors will also be looking for news of a future plant in Mexico that will make Tesla’s next-generation model.
Investors are optimistic about Tesla’s earnings. Tesla shares rose 2.5% last week to 281.38 and hit a new 2023 high on Friday. TSLA stock is up 128% in 2023. The shares are working for a buy point of 313.80 after a deep consolidation going back to the end of September.
Meanwhile, Tesla arch-rival BYD reported preliminary first-half results, suggesting second-quarter earnings could nearly triple. BYD shares rose 3.7% last week to 34.53, recovering from the 21-day, 10-week lines and offering another entry.
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What to do now
Traders should have been adding exposure over the past week and investing significantly at this point.
Despite all the good news and positive long-term trends, now is not a good time to make new purchases. The market is also expanding again. A modest pullback may not mean much for companies with a decent buffer, but it can quickly swamp newer purchases.
Friday’s market action, with major indices brushing off modest morning gains, pushed a number of stocks below recent entries. Many of these names are still looking good on the weekly charts.
Practically speaking, many stocks are now being expanded from outlets such as Nvidia.
Also keep in mind that earnings season is gaining momentum, with the potential for large swings up and down for individual stocks and sectors, as well as the broader market.
But investors should keep their watchlists up to date. This will help you recognize quality lineups so you’re ready to strike when submissions come along.
Analyze your portfolio. Which holdings could you take profits in and which ones would you like to try to add a few more shares?
Read The Big Picture every day to stay in sync with market direction and leading stocks and sectors.
Follow Ed Carson on Twitter at @IBD_ECarson for stock market updates and more.
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