Dow Jones futures rose modestly Tuesday night while S&P 500 futures and Nasdaq futures climbed solidly. Salesforce and Zscaler headlined after-hours earnings with several Tesla EV rivals on tap Wednesday.
The stock market rally retreated Tuesday as Fed chief Jerome Powell said he’s open to a faster bond taper at the December Fed meeting. Earlier, Moderna (MRNA) said existing vaccines may be significantly less effective vs. the omicron Covid variant.
Zscaler stock popped in extended trade, while Ambarella soared. NTAP stock and Global Foundries stock edged higher. CRM stock skidded in late trade.
Early Wednesday, China EV startups Xpeng (XPEV), Li Auto (LI) and Nio (NIO) will likely release November deliveries, with expectations for solid gains as chip shortages start to ease for the industry. China EV giant BYD Co. (BYDDF) should follow in a few days, with Tesla (TSLA) China sales and exports likely due in a week or two.
Fed Chief Powell
Powell, speaking before a Senate panel on Tuesday morning, said policymakers will likely discuss scaling back asset purchases even faster to combat inflation at the Dec. 14-15 meeting.
“The economy is very strong and inflationary pressures are higher, and it is therefore appropriate in my view to consider wrapping up the taper of our asset purchases … perhaps a few months sooner,” Powell said. “I expect that we will discuss that at our upcoming meeting.”
The Fed chief also said it may be time to “retire” describing inflation as “transitory,” as the central bank now sees price pressures as staying elevated for a much longer time.
Powell acknowledged that the omicron Covid variant hasn’t been factored in, but said it creates increased “uncertainty” for inflation. He may just be preserving flexibility. If the omicron variant is seen as no big deal by the mid-December Fed meeting, policymakers may want to go ahead with a faster bond taper.
Dow Jones Futures Today
Dow Jones futures were 0.5% above fair value, with CRM stock weighing on blue-chip futures. S&P 500 futures rose 0.7%. Nasdaq 100 futures climbed 1%.
The Caixin China manufacturing index fell 0.7 point in November to 49.9. Economists expected an unchanged 50.6. Readings below 50 signal contraction.
Moderna CEO Questions Vaccine Efficacy Vs. Omicron
Moderna CEO Stephane Bancel told the Financial Times that the omicron variant will have a “material drop” in coronavirus vaccine effectiveness, due to the high number of its mutations. That largely reiterated comments by Moderna’s chief medical officer over the weekend. Pfizer and BioNTech (BTNX), which make the other mRNA-based Covid vaccine, have taken a more positive view, stressing that vaccines will likely provide strong protection vs. serious illness.
The vaccine makers may start to have an idea of how effective their treatments are as soon as the end of next week, while health officials try to get a better idea of the omicron variant’s infectiousness and severity.
Both Moderna and Pfizer/BioNTech are working on possible tweaks to their vaccines.
Moderna stock fell 4.4% on Tuesday, while BNTX stock gave up 3%. Pfizer rose 2.5%. MRNA stock, Pfizer and BioNTech have soared since Thanksgiving.
Coronavirus cases worldwide reached 263.01 million. Covid-19 deaths topped 5.23 million.
Coronavirus cases in the U.S. have hit 49.42 million, with deaths above 802,000.
Stock Market Rally
The stock market rally opened lower on the Moderna vaccine comments, but briefly turned mixed until the Fed chief weighed in.
The Dow Jones Industrial Average retreated 1.85% in Tuesday’s stock market trading. The S&P 500 index sank 1.9%. The Nasdaq composite gave up 1.55%. The small-cap Russell 2000 skidded 2%
U.S. crude oil prices fell 5.4% to $66.18 a barrel, easily wiping out Monday’s modest rebound from Friday’s 13% dive. Natural gas prices continued to tumble. The 10-year Treasury yield gave up 9 basis points to 1.44%, with Powell’s comments not having much lasting effect. But the two-year yield, more closely tied to Fed policy, rose 5 basis points to 0.56%.
Apple stock rose 3.2% to 165.30, a new closing high and just below last week’s intraday peak, providing some support to the Dow Jones, S&P 500 and Nasdaq. AAPL stock had paused for a few days around the top of a buy zone. Apple iPhone sales are booming in China, according to Counterpoint Research, which said the iPhone took the No. 1 sales spot there for the first time since the end of 2015.
Among the best ETFs, the Innovator IBD 50 ETF (FFTY) sank 2.3%, while the Innovator IBD Breakout Opportunities ETF (BOUT) gave up 2.5%. The iShares Expanded Tech-Software Sector ETF (IGV) fell 2.7%. The VanEck Vectors Semiconductor ETF (SMH) lost 2.1%.
SPDR S&P Metals & Mining ETF (XME) retreated 3.3% and Global X U.S. Infrastructure Development ETF (PAVE) faltered 3.2%. U.S. Global Jets ETF (JETS) slid 1.3%. SPDR S&P Homebuilders ETF (XHB) declined 2.5%. The Energy Select SPDR ETF (XLE) slid 2.3% and the Financial Select SPDR ETF (XLF) 2.4%.
Zscaler earnings beat views. ZS stock rose 5% in overnight trade. Zscaler stock fell 2.5% on Tuesday to 346.97, greatly extended from any buy point.
Salesforce earnings topped consensus but the software giant guided low. Salesforce also named Bret Taylor co-CEO, joining Marc Benioff. CRM stock slumped 6% in extended action. Salesforce stock gave up 4% to 284.96 on Tuesday, back below its 50-day line.
NetApp earnings modestly beat. NTAP stock rose 2% overnight. NetApp stock slid 2.9% to 88.88 on Tuesday. The data storage giant is working on a 94.79 flat-base buy point, according to MarketSmith analysis.
Ambarella earnings exceeded forecasts. AMBA stock surged 14% in extended trade. Shares dipped 1.3% to 179.52 on Tuesday. Ambarella stock arguably could offer an aggressive entry, rebounding from its 50-day line and breaking a short trend line. AMBA is threatening to hit a record high.
Global Foundries earnings surprised in the chip foundry’s first post-IPO quarterly report, while sales were in line. GFS stock edged higher in up-and-down overnight trade. Shares fell 1.8% on Tuesday to 69.24. Global Foundries stock is extended from a short IPO base cleared recently.
China EV Sales
Nio, Xpeng and Li Auto are likely to report November deliveries on Wednesday. All three China EV startups have struggled with chip woes and other supply chain issues in 2021, but there are signs those issues may be starting to ease.
Nio expects to deliver 23,500-25,500 EVs in the fourth quarter, little changed vs. Q3. But that includes October deliveries of just 3,667 amid production line shutdowns to prepare for new models.
Xpeng sees Q4 deliveries of 34,500-36,500, well above Q3’s 25,666. Xpeng delivered 10,138 EVs in October, up 233% vs. a year earlier.
Li Auto said in Monday’s Q3 earnings report that it expects Q4 deliveries of 30,000-32,000, up from 25,116 in Q3. Li Auto delivered 7,649 Li One hybrid SUVs in October.
Nio stock gave up 3.3% to 39.13 on Tuesday. Once again, Nio hit resistance at its 200-day line.
Xpeng stock jumped 7.1% to 55 on Tuesday. XPEV stock is now extended from the 48.08 buy point or a 50.50 alternate entry.
Li Auto stock climbed 2.8% to 35.44 on Tuesday. Shares closed above a 34.93 buy point after popping 6.4% on Monday following Li Auto earnings.
BYD stock rose 1.15% to 39.55 on Tuesday. Shares have a 41.34 three-weeks-tight entry as the China EV giant trades around record highs, which it has done since late October. BYD will likely report November sales later this week or by early next week. In October, BYD’s EV sales hit 41,232. Including hybrids, BYD’s new energy vehicles surged to 81,040, increasing by roughly 10,000 for a fifth straight month.
Tesla China sales, released as part of industry data, will likely follow in a week or two. Tesla exported the bulk of its Shanghai plant production in the first two months of the quarter, largely to Europe, limiting local sales. On Tuesday, Tesla stock edged up 0.7% to 1,144.76. TSLA stock could be developing a new base, finding support at its 21-day line.
Market Rally Analysis
The stock market rally came under renewed selling Tuesday on the Moderna vaccine and Powell comments. Some promising moves at the open quickly reversed lower.
The Nasdaq briefly undercut Friday’s lows. While Apple stock continued to shine, other megacap techs such as Microsoft (MSFT), Google parent Alphabet (GOOGL) and Nvidia (NVDA) are starting to come off highs, while Amazon.com (AMZN) and Meta Platforms (FB) are slumping.
The S&P 500 undercut Friday’s lows and moved toward the 50-day line. The Dow Jones, which knifed below its 50-day line on Friday, retreated to just above its 200-day. The small-cap Russell 2000, which was trying to stay near its 200-day, fell solidly again as it works on its fourth weekly decline.
Losers continued to trounce winners, with new lows easily outstripping new highs.
Investors are still trying to assess the omicron variant’s market impact. But so little is known about the new Covid variant.
Don’t forget that the market rally has been showing some strain for several weeks. The advance/decline lines deteriorated in early November even as the Nasdaq kept hitting new highs thanks to Apple, Tesla stock and other megacaps. Then highflying software stocks dived early last week, leading a growth sell-off. Plus, Covid cases were already rising, especially in Europe, with Austria in a lockdown.
So the stock market rally wasn’t in great shape before the omicron Covid variant news. If omicron turns out to be no big deal, oil prices and the 10-year Treasury yield would likely rebound, while Covid plays such as Moderna would likely back off. But it wouldn’t mean that the market rally’s troubles are necessarily over.
Aside from Apple, chip stocks are holding up the best. A number of EV plays, including Tesla but also Li Auto, BYD, XPEV stock and more, are also doing relatively well. But are these pockets of resilience poised to power ahead or will they simply be the last to fall?
What To Do Now
With the stock market rally facing growing strain, investors should probably avoid new buys for now. The market conditions are not favorable in the very near term. The risk of market-shaking headlines — such as Powell’s faster taper comment — are very high, at least until there’s greater understanding of the omicron variant, and what that might mean for the economy.
Investors should consider taking further profits in winners, especially if they’re slashing gains, while being quick to cut losses. Taking a more-defensive approach, simply cutting back exposure on principle — and for principal — also is a sound strategy.
Could the market rally rebound on Wednesday or soon after? Sure, but investors won’t know if that’s something meaningful or just a one-day (or intraday) bounce. If stocks do have a meaningful run over a few weeks, you’ll have time to take advantage again.
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