Dow Jones futures fell slightly overnight, along with S&P 500 futures and Nasdaq futures. Micron earnings were after the close while several EV startups and auto giants report sales Friday morning.
The stock market rally, already under pressure, lost further ground in a volatile Thursday session. The S&P 500 capped the worst first half of a year in more than 50 years while the Nasdaq had its worst start ever.
Micron Technology (MU) reported earnings late Thursday, providing an early look at semiconductor trends. The memory chip giant had mixed results and terrible guidance. MU stock fell slightly in active trading, but that could be seen as relatively positive for Micron and the market.
China EV startups Nio (NIO), Xpeng (XPEV) and Li Auto (LI) will report June sales early Friday morning. China EV and battery giant BYD (BYDDF) should follow suit over the weekend, with Tesla (TSLA) likely reporting on Saturday.
Li Auto is on the IBD 50.
Meanwhile, General Motors (GM) will report second-quarter U.S. sales on Friday. Toyota Motor (TM), Honda Motor (HMC), Stellantis (STLA) and possibly Ford Motor (F) will disclose U.S. sales as well.
The Institute for Supply Management’s U.S. manufacturing index is due at 10 a.m. ET Friday. Regional factory reports showed big slowdowns in growth, with several signaling declining activity.
On Thursday, economic data pointed to slightly cooling inflation, jobless claims trending higher and consumer spending coming in weaker than expected. Last Monday, the Atlanta Fed cut its second-quarter GDP estimate to -1% vs. its earlier outlook for 0.3% growth.
Dow Jones Futures Today
Dow Jones futures fell 0.3% vs. fair value, swinging between slim gains and losses. S&P 500 futures dipped 0.3% and Nasdaq 100 futures declined 0.3%.
The 10-year Treasury rebounded back to 3%, rising 3 basis points.
Crude oil prices rose slightly.
Bitcoin bounced back above $20,000 after briefly undercutting $19,000.
Remember that overnight action in Dow futures and elsewhere doesn’t necessarily translate into actual trading in the next regular stock market session.
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Stock Market Rally
The stock market rally tumbled to start Thursday’s trading before rebounding almost back to break-even before fading again for solid losses.
The Dow Jones Industrial Average fell 0.8% in Thursday’s stock market trading. The S&P 500 index lost 0.9%. The Nasdaq composite gave up 1.3%. The small-cap Russell 2000 slipped 0.7%.
That capped the S&P 500’s worst first half of the year since 1970, slumping 20.6%. The Dow Jones, down 15.3%, had its worst first six months since 1962. For the Nasdaq and Russell 2000, down 29.5% and 23.9%, respectively, it was the worst first half ever.
U.S. crude oil prices fell 3.7% to $105.76 a barrel. Near-month oil futures sank 4% in June but soared 46% so far this year.
Gasoline futures dived 6.7% on Thursday, continuing a noticeable retreat. That should mean more relief at the pump, after retail prices peaked at $5.01 a gallon in mid-June.
Natural gas futures plunged 16.5%, their biggest one-day drop in 19 years, on rising natgas inventories and a delayed restart for the fire-damaged Freeport LNG terminal.
The 10-year Treasury yield tumbled 12 basis points to 2.97%, back below the key 3% level. It’s the first close below the 50-day line since early March. The 10-year yield sank 11 basis points on Wednesday.
Among the best ETFs, the Innovator IBD 50 ETF (FFTY) and the Innovator IBD Breakout Opportunities ETF (BOUT) dipped 0.2%. The iShares Expanded Tech-Software Sector ETF (IGV) retreated 1.65%. The VanEck Vectors Semiconductor ETF (SMH) lost 1.25%. MU stock is an SMH holding.
SPDR S&P Metals & Mining ETF (XME) skidded 3% and the Global X U.S. Infrastructure Development ETF (PAVE) edged up 0.1%. U.S. Global Jets ETF (JETS) descended 1.1%. SPDR S&P Homebuilders ETF (XHB) edged down 0.4%. The Energy Select SPDR ETF (XLE) fell 2.1% and the Financial Select SPDR ETF (XLF) dropped 0.9%. The Health Care Select Sector SPDR Fund (XLV) gave up just 0.2%.
Reflecting more-speculative story stocks, ARK Innovation ETF (ARKK) slumped 3.9% and ARK Genomics ETF (ARKG) 2.1%. TSLA stock remains a top holding across Ark Invest’s ETFs. Cathie Wood’s Ark funds also own some BYD, Xpeng and Nio stock.
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Micron Earnings Mixed, ‘Good’ Guidance
Micron earnings topped fiscal Q3 views while sales just missed.
The memory chip giant issued fiscal Q4 targets far below consensus.
But MU stock was volatile overnight, recently trading down more than 1%, near a recent 19-month low. But that’s a relatively muted reaction, suggesting that investors had already braced for grim guidance. That could be a good sign for the market.
Micron stock fell 1% on Thursday to 55.28. MU stock closed 44% off its January peak.
China EV Sales
Li Auto, Xpeng and Nio deliveries on Friday should show a further recovery from China’s Covid restrictions, with the Shanghai lockdown ending on June 1. The EV startups could show June production and sales approached pre-lockdown levels. With all three kicking off deliveries of new models later this year, the chip crisis waning, and local governments boosting EV subsidies, sales should keep ramping up in the second half of 2022.
LI stock edged up 0.6% to 38.31 on Thursday. Shares are holding in range of a 37.55 buy point, but are 44% above its 50-day line. A new, shallow base on top of the deep consolidation could offer a safer entry for Li Auto stock.
Nio stock dipped 0.6% to 21.72 on Thursday. It’s trading between its 200-day and 50-day lines.
XPEV stock fell 1.1% to 31.74. Shares have pulled back for a few days after running up to the 200-day line.
Tesla Vs. BYD: EV Giant Breaks Out, Seizes Tesla’s Crown
BYD And Tesla
Meanwhile, China EV and battery giant BYD will likely follow on Saturday or Sunday. Its EV and plug-in sales have topped 100,000 vehicle for three straight months. BYD’s in-house chip and battery production shields it from shortages and lockdowns. Some data suggest BYD will report fresh record sales in June. New factories, models and markets should fuel continued booming growth for BYD through the rest of the year.
BYD stock edged down 0.6% to 40.28. It’s holding above a 39.81 cup-with-handle buy point, according to MarketSmith analysis. While not as extended from the 50-day line as Li Auto, it’s still 19% above that key level.
BYD’s EV and PHEV sales for the second quarter are a lock to top Tesla’s all-electric sales for the first time in years.
Tesla will probably report second-quarter deliveries on Saturday morning. Deliveries likely fell to roughly 260,000 due to the Shanghai plant being shut down for much of April, with full production not returning until early June. The Shanghai plant may again be shut down in much of July, perhaps in stages, to upgrade equipment to significantly expand capacity.
Tesla fell 1.8% to 673.42 on Thursday. TSLA stock avoided undercutting its May low of 620.57, but isn’t far from that level and is stuck below a falling 50-day line.
U.S. Auto Sales
While the chip crisis may start to ease later this year, ongoing shortages likely took a serious toll on U.S. auto sales in June and the second quarter. GM, Chrysler parent Stellantis, Toyota and especially Honda should report sharp declines vs. a year earlier. Ford is expected to report a slight gain, though its results may not come Friday.
GM stock, Ford and the other traditional automakers are all trading at or near 52-week lows.
Market Rally Analysis
The major indexes rebounded from steep morning losses but still closed solidly lower.
The Dow Jones closed below the low of its June 24 follow-through day on Thursday, two days after the Nasdaq and S&P 500 did so. This is a highly bearish signal, with a 90% chance that the market rally will ultimately fail, undercutting recent lows.
Yes, it was good to see the major indexes bounce back from morning lows. But if the major indexes sell off in the next few days, no one will remember the two-hour intraday bull run.
In the next few weeks, expect a slew of companies warning or missing on earnings or guiding low. At some point, markets will price in the negative economic and corporate news, but that could be a long process.
Medical stocks remain the leading sector, with drug, health insurer and product makers such as Centene (CNC), AstraZeneca (AZN) and Shockwave Medical (SWAV) among those showing bullish action.
Some China EV makers such as Li Auto and BYD stock, defense plays like Northrop Grumman (NOC) and solar stocks such as Enphase Energy (ENPH) are doing relatively well.
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What To Do Now
This is not a good time be long in the stock market. You could choose to hold, say, a medical stock that’s working, but be ready to take partial profits quickly and pull the trigger if conditions deteriorate.
It’s also not a great time to be short, either. Shorting is always tricky, given the risk of sudden, fierce rallies, Thursday’s rebound off lows was just a mild version of that. Stocks and the major indexes have already retreated significantly this week, not to mention the sharp losses in 2022.
This is a good time to study past bear markets, revisit investing books and prepare for the next sustained uptrend. Stay engaged and build up your watchlists.
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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