Markets

Dow Jones Futures Fall: Microsoft Erases Gains on Weak Guidance; Tesla Earnings On Tap

Dow Jones futures fell after hours, along with S&P 500 futures and Nasdaq futures, which Microsoft (MSFT) guidance overruled better than feared earnings. ASML (ASML), Boeing (B.A) and Tesla (TSLA) is in print on Wednesday.




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The stock market rally traded in a relatively tight range on Tuesday after big gains in the previous two sessions. The major indexes closed mixed. Nasdaq retreated as the Justice Department filed another antitrust suit against Google’s parent Alphabet (GOOGLE).

Microsoft’s earnings fell earlier than views on strong growth in cloud computing. But the software giant gave weak guidance. MSFT stock surged early, turned lower.

Intuitive surgical (ISRG) and Texas Instruments (TXN) also reported. ISRG earnings missed with in-line revenue. Texas Instruments beat a bit, but steered lower. ISRG shares fell, while TXN shares edged lower.

Early Wednesday, chip equipment giant ASML will report along with other semiconductor equipment manufacturers Lamb Research (LRCX), Teradyne (TER) and Wolfspeed (WOLF) due after completion.

Boeing and Freeport-McMoRan (FCX) also reports early on Wednesday.

Tesla wants to generate revenue Wednesday evening. Tesla’s earnings will be important, but investors will likely focus on 2023 guidance, especially after big price cuts worldwide to start the year. These price cuts have increased Tesla’s demand – at the expense of margins – but will the boost last?

After the closing, Tesla said it will spend $3.6 billion on or around its original “Gigafactory” outside Reno, Nevada. It will be used for a Tesla Semi line and for mass production of 4680 battery cells.

Tesla shares fell 2% overnight. Shares rose 0.1% Tuesday to 143.89, nearing the 50-day line. TSLA stock is up nearly 17% so far in 2023.

Dow Jones Futures Today

Dow Jones futures fell 0.25% relative to fair value. S&P 500 futures fell 0.5 percent. Nasdaq 100 futures fell 0.8%, reversing modest early gains. MSFT stock is a Dow Jones, S&P 500 and Nasdaq component.

The 10-year government rate fell 2 basis points to 3.45 per cent.

Remember the action overnight Dow futures and elsewhere does not necessarily translate into actual trading in the next regular stock market session.


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Stock market rally

After an NYSE glitch disrupted about 100 tickers at the open, the stock market rally traded modestly lower in the morning before gradually improving to mixed.

The Dow Jones Industrial Average rose 0.3% on Tuesday stock exchange trading. The S&P 500 index fell 0.1 percent. The Nasdaq composite fell 0.3 per cent. The small-cap Russell 2000 gave up 0.25 per cent.

U.S. crude oil prices fell 1.8% to $80.13 a barrel. barrel. Natural gas fell 5.5% after rising more than 6% on Monday.

The 10-year Treasury yield fell basis points to 3.47% amid mixed to weak manufacturing data.


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DOJ sues Google again

The DOJ sued Google for its dominance of online ads, which seeks to force the company to divest certain assets. In October 2020, the Department of Justice filed an antitrust lawsuit over alleged abuse of online search power. Groups of states have three antitrust lawsuits against Google, including one involving advertising.

Google shares fell 2.1% to 97.70 on Tuesday, though that’s after running 10% higher on heavy volume in the previous three sessions.

Google reports Q4 earnings on February 2.

ETFs

Among growth ETFs is the Innovator IBD 50 ETF (FFTY) and Innovator IBD Breakout Opportunities ETF (BOUT) angular higher. iShares Expanded Tech-Software Sector ETF (IGV) fell 0.6 per cent. Microsoft stock is an important IGV component.

VanEck Vectors Semiconductor ETF (SMH) down 0.7%, ASML stock is a big holding, with TXN, LRCX and TER also in SMH.

Reflecting stocks with more speculative stories, the ARK Innovation ETF (SHEET) fell 1.6% and ARK Genomics (ARKG) lost 1.4 per cent. Tesla stock is a large holding across Ark Invest’s ETFs. Cathie Wood’s Ark has bolstered its TSLA position in recent weeks, adding that shares as recently as Monday.

SPDR S&P Metals & Mining ETF (XME) rose 0.2% and the Global X US Infrastructure Development ETF (POPE) rose 0.4%. US Global Jets (JETS) blip lower. SPDR S&P Homebuilders ETF (XHB) increased by 0.4 per cent. Energy Select SPDR ETF (XLE) yielded 0.4% and the Financial Select SPDR ETF (45) rose 0.1 per cent. Health Care Select Sector SPDR Fund (XLV) fell 0.7 per cent.


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Microsoft earnings

Microsoft’s earnings fell 6% from a year earlier, excluding various items, just beating Q2 views. Revenue rose 1.9%, the smallest increase in more than six years and missing forecasts. Revenue from Azure and other cloud-computing services rose 31% – 38% excluding currency fluctuations – slightly above consensus views. Analysts had been concerned about Azure’s growth.

Investors were relieved by the Dow Jones tech titan’s decent performance. But Microsoft gave weak guidance and warned of slowing activity.

MSFT shares fell 1% after initially jumping 5% or more after hours.

Last week, Microsoft announced plans to cut 10,000 jobs, about 4.5% of its workforce.

Shares fell 0.2% to 242.04 on Tuesday, holding the 50-day line after retracing that key level on Monday. Microsoft stock probably has a bottom base with a 264.02 buy points. It formed below the 200-day mark, but a breakout would involve clearing this level and breaking a long downtrend.

Microsoft’s earnings and guidance are important to other software makers, PC-related stocks and cloud computing plays such as Google and Amazon.com (AMZN). Microsoft’s latest major stake and alliance with ChatGPT creator OpenAI could be another threat to Google and Amazon.

Amazon and several cloud software companies fell overnight after initially rising on Microsoft’s earnings.

Analysis of market rally

The stock market rally stopped on Tuesday, with the major indexes ending mixed. But that was normal action after big gains on Friday and Monday, especially heading into a huge stream of earnings.

The S&P 500, which cleared last week’s highs and the 4,000 level on Monday, held those key levels.

The Nasdaq Composite dipped and remains modestly below the 200-day line and December highs.

The Dow Jones extended its rise from the 50-day line after retracing that key level on Monday

The small-cap Russell 200 edged lower but is near its late 2022 highs.

The market rally looks strong, but the major indexes are all meeting resistance levels. Tech has led the market in 2023, but now we’re getting a flurry of tech earnings. Even if the macroeconomic picture stabilizes and Fed rate hikes slow, companies could cut guidance in the next few weeks.

Microsoft could have just started.

In addition to Tesla, ASML and Boeing on Wednesday, Apple (AAPL), Facebook parent Meta platforms (META), Amazon, AMD (AMD), Google and many more are due to report next week

If the market rally has cleared the late 2022 highs by the end of next week, it would be a strong signal that a sustained uptrend is on the way.


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What should I do now

The stock market rise has shown more strength and offers a number of buying opportunities.

Investors should gradually add exposure and not become too concentrated in a specific stock or sector. Earnings season can shake the market, but especially individual stocks. One option for investors is to buy market or sector ETFs alongside individual names.

Definitely focus on building your watchlists. Pay attention to key earnings for the market and your holdings, including competitors, customers and suppliers of the companies you hold positions in.

Read The big picture every day to stay in sync with 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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