Dow Jones futures rise modestly Sunday night, along with S&P 500 futures and Nasdaq futures, as a key Fed meeting looms this week. A market rally attempt is underway, led by Apple stock and Microsoft, with strong gains for the major indexes and the S&P 500 hitting a record close.
But market breadth remains a concern. And the market rally is set to stage a follow-through day to confirm the new uptrend. Until then, investors should be cautious about making new buys.
Apple (AAPL), Microsoft (MSFT), Advanced Micro Devices (AMD), NXP Semiconductors (NXPI), Adobe (ADBE), Tesla (TSLA) and Rivian stock are in focus this week, with implications for important sectors and the broader market. Adobe stock and Rivian Automotive (RIVN) have earnings this coming week.
The video embedded in this article reviewed the week’s market action and analyzed Microsoft, Adobe and NXP stock.
Federal Reserve Meeting
The final Fed meeting of the year is on Dec. 14-15. After finally agreeing to begin scaling back asset purchases at the November Fed meeting, policymakers have signaled they could speed up the bond taper this week. That would set the stage for Fed rate hikes before mid-2022.
The omicron Covid variant was a potential wild card at the start of the month, but there’s a growing consensus that it’s not a game changer. With inflation at a 39-year high of 6.8% and initial jobless claims at the lowest since 1969, Fed chief Jerome Powell and several of his colleagues are taking a more-hawkish tone.
Will the Fed go ahead with a faster taper, or merely signal that one could come in early 2022? And how will financial markets react?
Dow Jones Futures Today
Dow Jones futures rose 0.4% vs. fair value. S&P 500 futures climbed 0.4% and Nasdaq 100 futures advanced 0.4%.
The 10-year Treasury yield rose 1 basis point to 1.5%. Crude oil prices rose 1%.
Coronavirus cases worldwide reached 270.42 million. Covid-19 deaths topped 5.32 million.
Coronavirus cases in the U.S. have hit 50.80 million, with deaths above 817,000.
Stock Market Rally Attempt
A new stock market rally began on Monday, Dec. 5, with the major indexes rebounding from recent lows and closing near weekly highs.
The Dow Jones Industrial Average ran up 4% in last week’s stock market trading. The S&P 500 index popped 3.8%. The Nasdaq composite gained 3.6%. Apple stock and Microsoft are Dow Jones, S&P 500 and Nasdaq components.
The small-cap Russell 2000 advanced 2.4%.
The 10-year Treasury yield rose 15 basis points to 1.49%.
Among the best ETFs, the Innovator IBD 50 ETF (FFTY) climbed 1.9%, while the Innovator IBD Breakout Opportunities ETF (BOUT) gained 3.5%. The iShares Expanded Tech-Software Sector ETF (IGV) rallied 4%, with Microsoft and Adobe stock major holdings. The VanEck Vectors Semiconductor ETF (SMH) added 2.5%. AMD stock and NXP Semi are SMH components.
SPDR S&P Metals & Mining ETF (XME) rose 3.7% and Global X U.S. Infrastructure Development ETF (PAVE) 3.5%. U.S. Global Jets ETF (JETS) jumped 5%, but with some big swings along the way. SPDR S&P Homebuilders ETF (XHB) advanced 4.5% to new highs. The Energy Select SPDR ETF (XLE) climbed 3.7% and the Financial Select SPDR ETF (XLF) 2.7%
Reflecting more-speculative story stocks, ARK Innovation ETF (ARKK) gained 2.8% for the week and ARK Genomics ETF (ARKG) 4%, rebounding from 52-week lows. But both gave up much of their weekly gains on Thursday and Friday. Tesla stock remains the top holding of ARK Invest’s ETFs.
Apple stock surged 10.9% last week to 179.45, and 19.6% over the last four weeks. At $2.94 trillion, AAPL stock is on the cusp of a $3 trillion market cap. But shares are well extended from a buy point. At some point, AAPL stock will take an extended rest. That could offer a new chance to buy or add shares. But can the market rally without Apple stock leading?
MSFT stock hasn’t risen as fast as Apple. But unlike its fellow Dow Jones titan, Microsoft stock has been a market leader for most of 2021 — and has stronger growth prospects. Microsoft stock jumped just over 6% last week to 342.54, including Friday’s 2.8% pop. Breaking short-term trend lines and still close to its 10-week line, MSFT stock is flashing buy signals. But market conditions raise concerns.
AMD stock did rebound Tuesday, but otherwise had a difficult week, retreating 3.8% to 138.55. Shares are moving back toward their 10-week line. That could provide a buying opportunity, assuming AMD stock bounces. If AMD stock struggles at that level, it would be a bad sign for rival Nvidia (NVDA), which has held up better in recent weeks, and chip stocks overall.
NXP Semiconductor stock whipsawed last week, breaking out powerfully on Tuesday but pulling back below the 227.60 cup-with-handle buy point on a Wednesday sell rating. Since then NXP stock has been trading just above the 21-day line and below the buy point. Shares dipped 0.3% to 226.46 for the week. If there’s a confirmed market rally, there’s a good chance the auto- and wireless-chip maker will clear the buy point decisively. But if the market reverses, NXP very likely will fall back.
Adobe stock rebounded 6.15% last week to 654.45, trading just above its 50-day line and below an old 659.29 buy point that’s no longer valid. Investors could buy this Long-Term Leader off the 50-day line, but probably should wait until earnings on Thursday. It’ll be an important report for business software makers generally, which are trying to rebound after big sell-offs.
Tesla stock edged up 0.2% to 1,017.03 last week, but it was another wild ride. Shares tumbled below their 50-day line and recent lows on Monday but closed above that key level. A midweek rebound hit resistance at the 21-day line. Then, like a lot of growth stocks, TSLA stock sold off Thursday, before a slight bounce on Friday.
The EV giant is working on a new base, though that needs another week to form, with a likely 1,202.05 buy point. Drawing a trend line from the record high could offer an early entry around 1,150.
If Tesla can rebound decisively, that would likely reflect on, and spur gains among, other EV plays as well as highly valued growth stocks generally. That’s key, given how narrow the market leadership has been.
But a sharp sell-off, including a clear close below recent lows, would be a negative sign for TSLA stock and the market. It would put the 900.50 buy point from the long cup consolidation at risk.
Rivian stock came out like a lion, racing from a $75 IPO price on Nov. 9 to a 179.47 intraday peak in just five sessions. But since then the EV startup has tumbled back, starting to consolidate, generally between 100-120. Shares rallied 9.5% to 114.66 last week.
Rivian reports earnings on Thursday for the first time since its IPO. With only minimal deliveries of its R1T EV pickup, Rivian revenue will remain low with hefty losses. So investors will be looking for guidance on a production ramp for the R1T and when the R1S SUV will debut as well as mass production of delivery vans for Amazon.com (AMZN), a key Rivian investor.
Rivian will announce a new vehicle-assembly and battery plant in Georgia, Bloomberg News reported Friday evening, citing sources. That followed local reports along those lines. The announcement will likely come Thursday, the same day as earnings.
Rivian already has a factory in Normal, Illinois.
But there is no question that RIVN stock is highly speculative. If Rivian stock rebounds, especially after earnings, it will soon have a deep IPO base with a 179.57 buy point. Investors may want to look for earlier entries, perhaps in the 120-125 area.
Even with its big retreat, Rivian stock has a market cap of $102 billion, higher than General Motors (GM) ($91.8 billion) and Ford Motor (F) ($86 billion). Ford owns a hefty stake of Rivian as well, and surged to a long-term high on Friday.
The Rivian valuation is positive for Tesla stock. If Rivian stock can have a valuation north of $100 billion with just a handful of deliveries, that certainly justifies Tesla’s $1 trillion valuation as the company has topped a 1 million delivery run rate.
Market Rally Analysis
A new stock market rally attempt got underway this past week with strong gains, but then paused late in the week. That’s not that unusual. In early October, the major indexes rebounded for three days, then pulled back slightly over the next three sessions before beginning its decisive move higher.
The market performed fairly well on Friday given the hot inflation data and the prospect of a faster Fed taper. And for the week, all the major indexes had strong gains, regaining their 50-day lines and closing in the upper third of their ranges. The S&P 500 index moved to an all-time closing high on Friday.
However, much of the market rally’s strength has been in Apple, Microsoft and Google, the three most valuable stocks.
The Russell 2000 had a solid percentage gain for the week, though it fell back below its 200-day line on Thursday and edged lower on Friday as the big-cap indexes powered higher. The small-cap index closed just below the midpoint of its weekly range.
The action of growth stocks was mixed, with the FFTY ETF also unable to hold its 200-day line.
Losers outpaced winners once again on Friday, continuing a weekslong trend with only a few exceptions. New lows outnumbered new highs, especially on the Nasdaq.
Ultimately, the stock market rally attempt still needs a follow-through day. Until there is a confirmed uptrend — or the major indexes undercut recent lows — the market direction is in flux.
It’s possible that the Fed meeting announcement could be a catalyst for a confirmed market rally or a renewed sell-off. But a decisive move may come before the Fed meeting, or not at all.
Keep in mind that confirmed market rallies don’t always work. If market breadth remains narrow, making gains could be difficult even as the major indexes advance.
What To Do Now
Early last week, aggressive traders might have nibbled on a few stocks. The market was moving higher, with at least a short-term bounce likely. But the market has now had its bounce.
At this point, investors should likely hold off on new buys until there is a confirmed market rally.
But it’s a crucial time for being prepared. Run your screens and work on your watchlists, identifying key potential buys if market conditions are ripe.
Then stay engaged. Be ready to act if there is a confirmed market rally — or if the major indexes and leading stocks deteriorate.
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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