Dow Jones futures and S&P 500 futures fell slightly early Thursday, while Nasdaq futures rose, with Tesla earnings in focus. The stock market rally added momentum on Wednesday, led by technology and small-cap companies.
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But while the indexes show strength, bottom fishing continues to lead the broad-based advance. For now, there remains a relative lack of buying opportunities.
Tesla ( TSLA ) led key overnight gains, with earnings per share the highest but margins narrowing. Tesla shares rose modestly in active overnight trading.
Steel Dynamics ( STLD ) and Alcoa ( AA ) opened metals and mining earnings, with steelmaker Nucor ( NUE ) and copper giant Freeport-McMoRan ( FCX ) due to report early Thursday. United Airlines ( UAL ) hit results after the close with American Airlines ( AAL ) , which was due before Thursday’s open. CSX ( CSX ) led railroad gains, with Union Pacific ( UNP ) emerging early Thursday.
Alcoa’s earnings and revenue beat views as the aluminum giant announced a $500 million buyback. AA shares were solidly higher before the open.
Steel Dynamics’ profit and sales beat, while Nucor’s revenue beat. Shares of STLD and Nucor rose modestly.
Freeport-McMoRan missed profit and sales. FCX shares fell slightly on Thursday’s results and weaker copper prices.
United Airlines’ earnings were well below views, although revenue was in line. UAL shares fell sharply in extended action. American Airlines’ earnings and revenue were in line. AAL shares fell modestly.
Shares of CSX rallied solidly, signaling a move above the bearish 50-day line, based on strong second-quarter results. Union Pacific shares fell modestly despite solid earnings.
From CSX stock to Tesla stock, none of these stocks are near buy points. But they give some indication of the strength of the sector in a difficult economic environment.
Meanwhile, health insurers struggled Wednesday after Elevance Health ( ELV ), formerly Anthem, warned of high medical costs. UnitedHealth ( UNH ), another of these health insurers, is on the IBD Leaderboard and the IBD 50.
Dow Jones futures today
Dow Jones futures were down 0.2% at fair value. S&P 500 futures lost 0.1%. Nasdaq 100 futures rose 0.2%. Tesla stock is a major component of the Nasdaq, while UAL stock is also in the Nasdaq 100.
The 10-year Treasury yield rose 1 basis point to 3.05%.
September crude oil futures fell more than 4% to near $95 a barrel. Gasoline futures fell 6%.
U.S. natural gas prices fell 3%. Russia has resumed natural gas flows through the Nord Stream 1 pipeline, but only at 40% capacity. Still, natural gas prices in Europe fell solidly.
Copper futures sank more than 1%.
The European Central Bank is expected to raise interest rates at 8:15 a.m. ET, with a move of half a point likely.
Remember that overnight action in Dow futures and elsewhere does not necessarily translate into actual trading in the next regular stock market session.
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Stock market rallies
The stock market rally extended gains, although they were heavily weighted toward technology and small caps.
The Dow Jones Industrial Average was up 0.15% in trading on Wednesday. The S&P 500 rose 0.6%. The small-cap Nasdaq composite and Russell 2000 jumped 1.6%.
August US crude oil prices fell 1.9% to $102.26 a barrel. September crude, now the new contract for the previous month, sank 0.9% to $99.88 a barrel.
U.S. natural gas prices jumped 10.2 percent on renewed concerns that Russian gas supplies will not return to normal, spurring stronger U.S. LNG demand. Cheniere Energy (LNG) and Flex LNG (FLNG) made upward moves.
The 10-year Treasury yield rose 2 basis points to 3.04%.
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ETFs
Among the top ETFs, the Innovator IBD 50 ETF (FFTY) rose 0.2%, with a number of medical stocks weighing on FFTY. Innovator IBD Breakout Opportunities ETF ( BOUT ) was down 0.3%. The iShares Expanded Tech-Software Sector ETF ( IGV ) jumped 3.35%. VanEck Vectors Semiconductor ETF ( SMH ) jumped 2.35%.
Reflecting more speculative stocks, the ARK Innovation ETF ( ARKK ) jumped 5.1% and the ARK Genomics ETF ( ARKG ) jumped 3.1%. TSLA stock is a major holding in the Ark Invest ETF.
The SPDR S&P Metals & Mining ETF ( XME ) rose 0.25%, with shares of NUE, Steel Dynamics, Alcoa and Freeport-McMoRan all notable components. The Global X US Infrastructure Development ETF ( PAVE ) rose 1%. The US Global Jets ETF ( JETS ) rose 0.5%, with shares of UAL and large holdings in American Airlines. The SPDR S&P Homebuilders ETF ( XHB ) advanced 0.55%. The Energy Select SPDR ETF (XLE) rose 1% and the Financial Select SPDR ETF (XLF) rose 0.4%. The Healthcare SPDR Fund ( XLV ) sank 1%.
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Tesla earnings
Tesla’s earnings beat revised views in the second quarter, marred by a prolonged shutdown at the Shanghai plant and sluggish growth due to the Covid lockdown. Earnings rose 57% from a year earlier to $2.27 per share. Revenue rose 42% to $16.93 billion.
Both were significantly below Q1 levels. However, analysts were expecting Tesla earnings per share of $1.81 on sales of $16.539 billion.
The auto sector’s gross margin fell to 27.9% from 32.9% in Q1 and 28.4% a year earlier.
Regulatory credits, which are essentially net earnings, fell to $344 million from $679 million in Q1 and $354 million in Q2 2021.
Tesla’s research and development expenses fell to $667 million from $865 million in the first quarter, but up from $576 million a year earlier. As a share of revenue, R&D continued to decline to just 3.9% in Q2.
Tesla sold 75% of its bitcoins, a move that allowed the electric car maker to be cash-flow positive during the quarter. CEO Elon Musk, during the earnings call, said that Tesla still owns some Dogecoin. Musk has long touted his own Dogecoin holdings, but has never said that Tesla owns any of the cryptocurrency.
Tesla’s production should pick up from a sequential decline in Q2, especially when pauses to improve production in Shanghai and Berlin end. Auto and EV production across the industry should also pick up as chip shortages and other supply chain issues ease.
Tesla said it still expects 50% annual vehicle growth over a multi-year period, but the earnings call did not make clear what 2022 deliveries might be.
Musk has said the Cybertruck will come out in mid-2023, but deadlines for that vehicle and several others have slipped several times.
The 4680 battery, which is still in pilot production, does not seem likely to be in mass production this year. Musk noted the ongoing technical challenges, including the dry cathode issue.
Tesla stock
Shares of Tesla rose nearly 3% on Thursday morning, signaling a move to the highest level since early June.
Shares of TSLA rose 0.8% to 742.50 in the regular session on Wednesday, slightly above its 50-day and 21-day moving averages. Shares are hitting higher lows since late May. But Tesla shares are off the November high of 1,243.49.
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Elegance does not elevate health insurers
Health insurers are struggling. Elevance Health beat views in the second quarter, but warned that medical costs will remain high in the second half of 2022, especially for commercial customers. Shares of ELV, which lagged some of its peers, tumbled 7.6%, diving below its 50-day line and closing just above the 200-day.
UNH shares fell 2.6%, but closed just above the buy point cleared last Friday by UnitedHealth’s earnings. Cigna ( CI ) sank 2.9%, undercutting its entry, although it rebounded from near its 50-day line.
Centene (CNC) and Humana (HUM) fell modestly but are comfortably in buy range.
Medical stocks generally struggled on Wednesday.
Market Rally Analysis
The stock market rally continued to gain momentum. After retracing their 50-day moving averages on Tuesday, the Nasdaq, Russell 2000 and S&P 500 decisively moved above their late-June highs on Wednesday morning, while the Dow Jones also topped its June highs.
But indexes retreated from session highs, whether on European concerns, other news or no news. The Nasdaq and small caps held back much of their significant morning moves. The S&P 500 pared modest gains around its June highs. The Dow Jones retreated but still held above its 50-day line.
Meanwhile, the market’s rally faces several other obstacles, with the Nasdaq not far from its early June peak.
The big names have been leading the way in recent days, so there aren’t many great setups and stocks flashing buy signals in the past few days. Wednesday’s retreat in medical stocks didn’t help.
Market ETFs or sector ETFs, such as software and biotech, often look better than individual names. They also offer ways to gain access to hard-hit growth names without making a specific bet.
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What should we do now
The stock market rally clearly shows strength. Investors should look to benefit from increased exposure.
One concern is that the market is heading right into a wave of earnings and next week’s Federal Reserve meeting. Investors must choose between increasing exposure now before big market news, or letting buying opportunities pass.
The lack of buying opportunities right now, perhaps a blessing in disguise, is another reason to increase exposure carefully.
Be prepared to cut aggressively if the market turns down again.
Keep working on the watchlists. Focus on active plays or setting up shares near buy points.
Read The Big Picture daily to stay in tune with market direction and leading stocks and sectors.
Please follow Ed Carson on Twitter at @IBD_ECarson for stock market updates and much more.
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