Dow Jones Futures: Market Rally Damaged, What To Do Now; Tesla Investor Day Looms

Dow Jones futures will open Sunday evening, along with S&P 500 futures and Nasdaq futures. Berkshire Hathaway reported Q4 earnings Saturday morning while Elon Musk’s “Master Plan 3” at the upcoming Tesla Investor Day will be in focus.

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The stock market rally suffered significant losses this past week, with the major indexes breaking and testing key support as Treasury yields soared, capped by Friday’s hot PCE inflation report. The uptrend is under increasing pressure. The major indexes and leading stocks could still find their footing, but investors should take a more defensive approach.

Berkshire Earnings

Warren Buffett’s Berkshire Hathaway (BRKB) reported operating earnings fell 8% vs. year earlier to $6.7 billion. That reflected weaker profits at Berkshire’s railroad business and the falling U.S. dollar, which increased its foreign-currency debt. Excluding currency impacts, operating profit climbed 13%.

Operating profit per share fell 7% to about $4,585 per class A share, Barron’s estimated. That’s below the FactSet consensus estimate of $5,305 a share.

Net income tumbled 53% to $18.1 billion in Q4, reflecting lower investment gains.

Berkshire Hathaway was a net seller of equities in Q4. But the company bought back $2.855 billion worth of Berkshire stock, up from roughly $1 billion in Q4 but down from $6.9 billion a year earlier.

Berkshire’s cash hoard swelled to $128.651 billion from almost $109 billion in Q3.

Warren Buffett, in his annual shareholder letter, said Berkshire Hathaway will keep holding a “boatload” of cash and Treasury bills. But he also decried critics of stock buybacks as “an economic illiterate or a silver-tongued demagogue.”

BRKB stock fell 1.4% to 304.02 last week. That’s not too far from a 321.42 buy point from a flat base within a large consolidation. Berkshire stock rose slightly Friday after touching a 2023 low, but is below its 50-day line.

China EV Sales, Earnings

Before Monday’s market open, China EV maker Li Auto (LI) will report fourth-quarter results. On Wednesday morning, Nio (Nio) will release Q4 financials, with Nio, Li Auto and XPeng (XPEV) also reporting February deliveries. China EV and battery giant BYD (BYDDF) should release February sales by Friday.

Tuesday’s weekly China EV registration figures will give a strong indication of BYD, Li Auto, Nio and Xpeng sales for the month, as well as Tesla deliveries.

China EV stocks are slumping again after a strong January.

BYD stock and Li Auto have slashed 2023 gains while Nio and XPEV stock are now down for the year.

Tesla Vs. BYD: EV Giants Vie For Crown, But Which Is The Better Buy?

Tesla Investor Day

But the big event will be Tesla Investor Day on Wednesday, March 1. The company hasn’t revealed a specific time, but Musk likes to hold events well into the evening. Tesla (TSLA) has said it’ll offer details on a next-generation EV platform for a lower-cost model. But when will that go into production? The EV giant also may finally confirm plans for a long-awaited Model 3 refresh, providing details on the “Highland” upgrade.

Tesla likely will reveal HW4.0, the latest hardware for driver assistance, including better chips, more cameras and the return of radar. Elon Musk said that all Tesla EVs were “hardware ready” for full self-driving as of 2016.

The EV giant is sure to discuss its own battery production efforts, including a big Nevada plant expansion to make 4680 cells.

Battery storage expansion plans and “capital allocations” also are key topics.

Elon Musk also may release his third “Master Plan,” even with a few big items left on his second vision statement from 2016. Musk has been hinting at Master Plan 3 for almost a year.

Meanwhile, Tesla price cuts in early January gave an initial burst of orders worldwide. But aside from the Model Y in the U.S., Tesla demand appears to be waning again and inventories growing.

China is especially difficult because many EV makers have slashed prices following Tesla, with BYD cutting prices on a number of models in late February. Meanwhile, a slew of new or refreshed models are due in the next few months, including from Nio, Li Auto, XPeng and especially BYD.

Tesla stock snapped a six-week winning streak, slumping 5.5% to 196.88. But shares are pausing just above the 21-day line and slightly below the sliding 200-day moving average. A decisive move above recent highs would also push Tesla stock above its 200-day line. That would offer a possible entry, but it would be aggressive, especially in the current market. Tesla Investor Day could be a big catalyst up or down, but which direction?

The video embedded in this article discussed the weekly market action and analyzed Tesla, Wingstop (WING) and MELI stock.

MercadoLibre (MELI) was Friday’s IBD Stock Of The Day, flashing a buy signal on strong earnings. MELI stock also is on the IBD 50.

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 doesn’t necessarily translate into actual trading in the next regular stock market 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 rough week, with the major indexes looking increasingly damaged.

The Dow Jones Industrial Average fell 3% in last week’s stock market trading, its fourth straight weekly loss. The S&P 500 index sank 2.7%. The Nasdaq composite skidded 3.3%. The small-cap Russell 2000 slumped 2.9%.

The 10-year Treasury yield rose 12 basis points to 3.95%, hitting the highest levels since Nov. 10. That’s up 62 basis points from the intraday low of 3.33% on Feb. 2, when the current stock market rally peaked.

The U.S. dollar advanced for a fifth straight week.

U.S. crude oil futures dipped 0.3% to $76.32 a barrel last week. Copper prices skidded 3.9%, closing Friday at the lowest level since Jan. 6.

ETFs

Among growth ETFs, the Innovator IBD 50 ETF (FFTY) fell 1.6% last week. The iShares Expanded Tech-Software Sector ETF (IGV) slumped 2.2%. The VanEck Vectors Semiconductor ETF (SMH) retreated 1.9%, with Nvidia (NVDA) providing direct and indirect support.

SPDR S&P Metals & Mining ETF (XME) slumped 4.25% last week. The Global X U.S. Infrastructure Development ETF (PAVE) shed 2.3%. U.S. Global Jets ETF (JETS) descended 2.8%. SPDR S&P Homebuilders ETF (XHB) stepped down 3.2%. The Energy Select SPDR ETF (XLE) edged up 0.2% and the Financial Select SPDR ETF (XLF) gave up 2%, with BRKB stock the top holding in XLF. The Health Care Select Sector SPDR Fund (XLV) slumped 2.6%, the biggest loss yet in a nine-week losing streak.

Reflecting more-speculative story stocks, ARK Innovation ETF (ARKK) tumbled 8.2% last week and ARK Genomics ETF (ARKG) skidded 8.4%. Tesla stock is a major holding across Ark Invest’s ETFs.

Cathie Wood’s Ark Invest also owns a small stake in BYD. Berkshire still has a big position in the China EV giant, but has slashed its longtime BYD stake by over 40% since last August.

Five Best Chinese Stocks To Watch Now

Market Rally Analysis

The stock market pullback no longer looks like just a normal pause in an ongoing stock market rally. On Tuesday, the S&P 500, Nasdaq composite and Russell 2000 tumbled below their 21-day moving averages, while the Dow Jones undercut its 50-day line. That pushed the stock market rally into an uptrend under pressure.

After two days of modest market moves, Friday’s hot inflation reading slammed the major indexes again. The S&P 500 closed below its 50-day moving average and is testing its 200-day line. The Nasdaq finished just below its 200-day line, with its 50-day line not far away. The Dow Jones fell to its worst levels of 2023. The Russell 2000 is still above its 50-day, but also is coming down, testing its 10-week line.

All these indexes are below their late 2022 highs once again.

Leading stocks, which had bent over the prior two weeks as the market rally pulled back modestly, started to show significant deterioration.

Just a few weeks ago, inflation looked to be coming down while the economy remained relatively healthy. Markets were betting a quarter-point rate hike in March would end the Fed’s tightening cycle. Now, January inflation reports, including December revisions, point to inflation remaining too hot, even picking up. Investors expect at least three more quarter-point rate hikes, with a growing chance of more or faster tightening.

That Fed rate hike outlook could change, though it will be a couple of weeks before the February jobs report with the next round of inflation readings further out. Stocks also may ultimately price in the revised macroeconomic and Fed policy forecasts. But as long as yields and the dollar are rising rapidly, it’s hard to see the stocks holding up, let alone making headway.

The market rally isn’t finished, but needs to show some strength. The S&P 500 regaining its 50-day line and the Nasdaq reclaiming its 200-day would be a minimum first step, with the 21-day lines another key level. It wouldn’t take much to push the “uptrend under pressure” to “market in correction.” Either way, it may take some time for many leading stocks to set up again, whether that’s a few days away or several weeks.

Yes, some stocks gapped up on earnings last week, notably Nvidia. But a number of those gap-ups quickly faded. WING stock spiked nearly 17% soon after Wednesday’s open, but slashed intraday gains and actually fell slightly for the week.

Housing-related stocks continue to hold up well, including builders, some retailers and materials firms. Heavy construction and various machinery names also are doing well.

But there’s still an array of stocks from a variety of sectors that would look a lot more promising with a few good days.

Time The Market With IBD’s ETF Market Strategy

What To Do Now

January’s strong stock market rally is in the past. Investors have to adjust to the current reality. Right now, the major indexes and leading stocks are trending lower.

It’s time to take an increasingly defensive posture, cutting overall exposure significantly by trimming winners and cutting losers. At least in the short run, investors should largely avoid taking new positions. Don’t get too excited by stocks making a big move on earnings or other news. In a weak market, one-day gains often don’t hold.

If the market rally regains momentum, an array of stocks will offer buying opportunities with higher odds of success. So keep your watchlists up to date. Relative strength is key, so follow these strong performers even if they don’t have a clear buy point right now.

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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