Dow Jones futures rose slightly late Monday, along with S&P 500 futures and Nasdaq futures. The stock market rally suffered heavy losses amid soaring coronavirus cases and a big tech warning. The major indexes broke key support, at least intraday, and leading stocks suffered significant chart damage but rallied somewhat into the news on stimulus deal news.
The major indexes started Monday with modest losses and initially improved, but soon reversed sharply lower. The Dow Jones, S&P 500 index and Nasdaq all fell through their 50-day moving averages, though the latter closed slightly above that key level due to stimulus-deal buzz.
German software maker SAP (SAP) plunged 23% on its big warning, which hit several other software makers as well. But growth names were broadly lower as spiking coronavirus cases finally took center stage on Wall Street, with Microsoft (MSFT), Facebook (FB) and Google stock all down about 3%.
Key Earnings Late Monday
Twilio earnings topped views, but the communications software maker guided to a wider Q4 loss. Twilio stock, which closed just out of buy range, fell 1.5% overnight. Online education player Chegg beat views and guided up for Q4 and 2021. Chegg stock fell 5% in extended trade after momentarily topping a buy point Monday morning.
NXP Semiconductors reported a smaller-than-expected Q3 loss and topped on revenue after giving strong preliminary revenue figures earlier this month. The automotive and wireless-chip maker also guided higher for Q4 revenue. NXP stock rose 3% in extended trade after pulling back Monday; it’s still in range from a flat-base buy point.
Dexcom reported stronger-than-expected revenue but said Chief Commercial Officer Rick Doubleday, who oversaw sales, marketing and customer service, will retire at the end of the year. Dexcom stock tumbled 6% overnight after recently regaining its 50-day line. The maker of diabetes products will release its full earnings report late Tuesday as scheduled.
Microsoft, AMD Earnings Kick Off Tech Giants
After Monday’s sell-off, it’s even more important that leading stocks and especially tech giants deliver strong results. Microsoft and AMD stock are on tap late Tuesday, with Apple (AAPL), Amazon.com, Facebook, Google parent Alphabet (GOOGL) and many more slated for Thursday night.
When Apple (AAPL), Microsoft, Amazon and Google stock (all with more than $1 trillion market caps) move, they can move markets. Facebook stock isn’t far off at $787 billion. AMD has “only” a $96 billion market cap, but its results also likely influence data-center peers Nvidia (NVDA), Monolithic Power (MPWR) and Inphi (IPHI), with the latter two also reporting this week. Apple earnings and guidance could influence iPhone chipmakers, while Microsoft may provide a shot in the arm — or the gut — for software makers after the SAP (SAP) meltdown.
Stimulus-deal buzz helped buoy stocks late in the session. House Speaker Nancy Pelosi and Treasury Secretary Steven Mnuchin stimulus-deal talks continued Monday. Pelosi said the only real issue left is an agreement on testing and tracing language, but that’s been the main sticking point on a stimulus deal for quite some time.
The odds of a pre-election stimulus deal seem next to nil at this point. The Senate is due to leave town for the final week of election campaigning, with the House already out. Then again, with Election Day so close, a post-election coronavirus aid package may not be so negative.
Once the election is out of the way, a Pelosi-Mnuchin stimulus deal could come relatively soon. However, Senate Republicans are reluctant to support such a hefty price tag.
Dow Jones Futures Today
Dow Jones futures rose 0.2% vs. fair value. S&P 500 futures climbed 0.1% and Nasdaq 100 futures advanced a fraction. Remember that overnight action in Dow futures and elsewhere doesn’t necessarily translate into actual trading in the next regular stock market session.
Coronavirus cases worldwide reached 43.77 million. Covid-19 deaths topped 1.16 million.
Coronavirus cases in the U.S. have hit 8.96 million, with deaths above 231,000.
Dow Jones giant Pfizer (PFE) and Novavax (NVAX), which have both started late-stage coronavirus vaccine trials, report earnings early Tuesday. Pfizer and partner BioNTech (BNTX) could provide initial data on their Covid-19 vaccine candidate any day, with a possible FDA approval request by late November.
Stock Market Rally Monday
U.S. Stock Market Today Overview
Last Update: 4:14 PM ET 10/26/2020
The stock market rally suffered serious losses, though the major indexes closed off their worst levels, especially the Nasdaq.
The Dow Jones Industrial Average tumbled 2.3% in Monday’s stock market trading. The S&P 500 index fell 1.9%. The Nasdaq composite retreated 1.6%. While the Nasdaq closed above its 50-day line, the Nasdaq 100 did not.
Surging coronavirus cases in the U.S. and Europe understandably took a toll on airlines, hotels and “real economy” stocks broadly. But the SAP warning also showed that software and other tech names also could come under pressure from the resurgent coronavirus pandemic.
Microsoft fell 2.8%, knifing through its 50-day line. Facebook sank 2.7% and Google lost 3% but are still somewhat above their 50-day lines.
Apple stock managed to close up 1 cent, Amazon up 0.1% and AMD 0.3%, though only the latter managed to close back above its 50-day. While all three stocks have handles, Apple’s and AMD’s are flawed because their midpoints are below the midpoints of their bases.
Among the best ETFs, the Innovator IBD 50 ETF (FFTY) sank 2.2%. The iShares Expanded Tech-Software Sector ETF (IGV) lost 2.5%, with Microsoft stock a major holding. The VanEck Vectors Semiconductor ETF (SMH) pulled back 2.1%, even with AMD stock providing a fractional boost.
Stock Market Rally Analysis
Monday’s sell-off came after the major indexes and many top stocks had already pulled back to many support levels. There wasn’t much room left before the stock market rally would start to show serious weakness.
The heavy losses also put in context how modest Friday’s 0.4% Nasdaq bounce was.
The Dow Jones, S&P 500 index and Nasdaq composite all broke below their 21-day exponential moving averages and straight through their 50-day lines. All the major indexes have fallen back below their September highs, which had served as short-term highs. The Dow Jones fell under the low of its Sept. 30 follow-through day, a negative sign.
Could the stock market rally rebound over the next few days or weeks? Absolutely. Perhaps Monday’s sell-off will mark the end of a shakeout, though that case could have been made several times in the past two weeks.
Earnings reports, coronavirus vaccine news and election results all could buoy the major indexes and leading stocks. But those hypothetical tailwinds could end up being headwinds. Or a mix of major positive and negative crosswinds roil the markets and your psyche.
One or two strong market days would be a relief, but would not necessarily signal a bright green light to ramp up exposure. But one or two bad days would make the major indexes look bad, with more failed breakouts or broken charts.
What To Do Now
In this environment, investors should be cautious. Your exposure likely will be coming down as you take profits on round-tripping holdings or cut losses. Meanwhile, there are few good options for starting new positions right now. But keep updating your watchlists. If the market rally revs higher, many leading stocks will quickly offer buy points.
But as the past two weeks have shown, when the stock market rally pulls back, it’s hard to make money.
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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