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


Dow Jones futures fell after hours, along with S&P 500 futures and Nasdaq futures, as Microsoft (MSFT) guidance exceeded better-than-feared earnings. ASML (ASML), Boeing (BA) and Tesla (TSLA) is on tap on Wednesday.




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

Microsoft’s earnings rose beyond views on strong growth in cloud computing. But the software giant gave poor guidance. MSFT stock, which initially rose strongly, reversed lower.

Intuitive Surgical (ISRG) and Texas Instruments (TXN) also reported. ISRG earnings missed with inline income. Texas Instruments beat slightly, but led lower. ISRG stock tumbled while TXN stock fell slightly.

Early Wednesday, chip equipment giant ASML reported, along with fellow semiconductor equipment makers Lamb Research (LRCX), Teradyne (TOV) and Wolf speed (WOLF) due after the closing.

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

Tesla will deliver earnings Wednesday evening. Tesla earnings will be important, but investors will likely focus on 2023 guidance, especially after big price cuts worldwide to start the year. Those price cuts boosted Tesla demand — at the expense of margins — but will the boost last?

After the closing, Tesla said it would spend $3.6 billion at its facilities outside Reno, Nevada, for a Tesla Semi factory and for mass production of 4680 battery cells. This confirmed earlier reports.

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

Dow Jones Futures Today

Dow Jones futures fell 0.2% versus fair value. S&P 500 futures fell 0.35%. Nasdaq 100 futures fell 0.6%, reversing modest gains initially. MSFT stock is a Dow Jones, S&P 500 and Nasdaq constituent.

Remember that overnight action Dow futures contracts 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 error 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 market trading. The S&P 500 index fell 0.1%. The Nasdaq composite fell 0.3%. The small-cap Russell 2000 gave up 0.25%.

US crude oil prices fell 1.8% to $80.13 a 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 over its online advertising dominance, with the aim of forcing the company to sell certain assets. In October 2020, the Department of Justice filed an antitrust lawsuit alleging abuse of online search power. Groups of states have three antitrust cases against Google, including one involving advertising.

Google shares fell 2.1% to 97.70 on Tuesday, although they were up 10% on heavy volume after the previous three sessions.

Google reports Q4 earnings on February 2nd.

ETFs

Among growth ETFs, the Innovator IBD 50 ETF (FFTY) and Innovator IBD Breakout Opportunities ETF (BOLT) cut higher. The iShares Expanded Tech-Software Sector ETF (IGV) fell 0.6%. Microsoft stock is a key IGV component.

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

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

The SPDR S&P Metals & Mining ETF (XME) rose 0.2%, and the Global X US Infrastructure Development ETF (PAF) climbed 0.4%. US Global Jets (JETS) blinked lower. SPDR S&P Homebuilders ETF (XHB) advanced 0.4%. The Energy Select SPDR ETF (XLE) yielded 0.4% and the Financial Select SPDR ETF (45) rose by 0.1%. The Health Care Select Sector SPDR Fund (XLV) fell by 0.7%.


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Microsoft Earnings

Microsoft’s earnings fell 6% from a year earlier, excluding various items, just beating fiscal 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 more than consensus views. Analysts were concerned about Azure growth.

Investors were relieved by the Dow Jones tech titan’s decent results. But Microsoft gave poor guidance and warned of slowed activity.

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

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

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

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

Amazon and several cloud software firms fell overnight after initially beating Microsoft earnings.

Market Timing Analysis

The stock market rally paused on Tuesday, with major indexes ending mixed. But that was normal behavior after big gains on Friday and Monday, especially on the way to a big flood 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 fell and is still modestly below the 200-day line and December highs.

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

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

The market rally looks strong, but the major indices all have resistance levels. Technology led the market in 2023, but now we’re going to get a deluge of tech earnings. Even if the macroeconomic picture stabilizes and Fed rate hikes taper off, companies may cut guidance in the next few weeks.

Microsoft may just be getting started.

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

If the market rally clears late-2022 highs by the end of next week, it will be a strong sign that a sustained uptrend is underway.


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What to do now

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

Investors should add exposure gradually and not become too concentrated in a particular stock or sector. Earnings season can take a toll on the market, but especially on individual stocks. One option for investors is to buy market or sector ETFs, along with individual names.

Definitely focus on building your watch lists. Be aware of key earnings for the market and your holdings, including competitors, customers and suppliers to those companies in which you have positions.

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 @IBD_ECarson for stock market updates and more.

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