Dow Jones futures were little changed Sunday night, along with S&P 500 futures and Nasdaq futures, with Nvidia (NVDA) earnings and a big speech from Fed chief Jerome Powell ahead.
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Palo Alto Networks (PANW) reported Friday night.
The stock market fell into a correction last week, as the key indexes tumbled below their 50-day lines and leading stocks broke hard with Treasury yields surging to 15-year highs. The indexes did bounce off lows Friday as the 10-year yield fell back, but the picture hasn’t fundamentally changed.
Friday could just be a short-term bounce. Investors should wait for sustained strength. Nvidia’s earnings and Fed chief Powell’s Jackson Hole speech could be market catalysts, but which way?
Investors should be defensive during the market correction, but looking for stocks that are holding up relatively well. Arista Networks (ANET), Diamond Offshore (DO), Commercial Metals (CMC), Visa (V), Boeing (BA) and Google-parent Alphabet (GOOGL) are six stocks to watch, along with Nvidia.
Nvidia stock is on IBD Leaderboard. ANET stock is on the IBD 50. Google stock is on the IBD Big Cap 20. Diamond Offshore was Friday’s IBD Stock Of The Day.
The video embedded in the article discussed a big market week and analyzed Google, Boeing and DO stock.
Dow Jones Futures Today
Dow Jones futures edged lower with fair value. S&P 500 futures lost a fraction and Nasdaq 100 futures rose 0.1%.
Financial regulators met with state-owned banks, once again telling lenders to boost loans along with various housing-related measures, according to a People’s Bank of China statement released Sunday. Beijing has pledged support frequently for a faltering economy but has relied on rate cuts and regulatory tweaks or prodding vs. fiscal stimulus.
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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Palo Alto Earnings
Palo Alto earnings beat views late Friday, while revenue just missed. The cybersecurity giant guided up on earnings but down slightly for revenue.
Friday night earnings reports are rare, so the timing had raised investor concerns.
PANW stock jumped 11% in after-hours trading Friday. Shares rose 1% to 209.69 in Friday’s session after falling to 201.07 intraday, testing a prior buy point around 203. But Palo Alto stock has dived 16.1% in August through Friday’s close.
Stock Market Correction
A stock market correction took hold last week, with big losses for the major indexes and leading stocks. Rising Treasury yields and mounting China economic concerns were big headwinds.
The Dow Jones Industrial Average fell 2.2% in last week’s stock market trading. The S&P 500 index sank 2.1%. The Nasdaq composite slumped 2.6%. The small-cap Russell 2000 skidded 3.4%.
The 10-year Treasury yield rose more than 8 basis points this week to 4.25%, even with Friday’s retreat of nearly six basis points. During the week, the 10-year yield came within a fraction of the 15-year high of 4.331% set in October 2022. It did set its highest close since late 2007.
U.S. crude oil futures fell 2.3% to $81.25 a barrel last week.
ETFs
Among growth ETFs, the Innovator IBD 50 ETF (FFTY) tumbled 3.7% last week. The iShares Expanded Tech-Software Sector ETF (IGV) retreated 1.5%. PANW stock is in IGV. The VanEck Vectors Semiconductor ETF (SMH) lost a fraction. Nvidia stock is the No. 1 SMH holding.
SPDR S&P Metals & Mining ETF (XME) rose 0.5% last week, with CMC stock a significant holding. The Global X U.S. Infrastructure Development ETF (PAVE) sank 2.6%. U.S. Global Jets ETF (JETS) descended 4.7%. SPDR S&P Homebuilders ETF (XHB) plunged 4.4%. The Energy Select SPDR ETF (XLE) fell 1.2%, snapping a five-week win streak. The Health Care Select Sector SPDR Fund (XLV) retreated 1.6%. The Industrial Select Sector SPDR Fund (XLI) declined 2.4%, with BA stock a major holding.
The Financial Select SPDR ETF (XLF) retreated 2.8%, with Visa stock a top-10 member. And the SPDR S&P Regional Banking ETF (KRE) tumbled 6.4%.
Reflecting more-speculative story stocks, ARK Innovation ETF (ARKK) slumped 5.5% last week and ARK Genomics ETF (ARKG) 4.9%.
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Nvidia Earnings
It’s fair to say that expectations are high heading into Nvidia earnings on Wednesday night. Q1 results were stellar while the Q2 guidance was spectacular. Meanwhile, at least five Wall Street analysts pounded the table for Nvidia last week, upgrading the chip giant or raising NVDA stock price targets.
So strong results and guidance could fail to lift Nvidia stock.
Nvidia stock actually popped 6% in the past week to 432.99, fueled by Monday’s 7.6% surge. Shares flirted with an aggressive entry, but then faded to end the week just below the 50-day line. Investors could use Tuesday’s high of 452.68 as an early entry. Nvidia stock is on track to have a new base at the end of the coming week.
Nvidia earnings will likely have a big impact on the broader market, especially chip and AI plays.
Fed Chief Powell’s Jackson Hole Speech
Fed chief Jerome Powell will give a policy speech on Friday, Aug. 25, at the annual Jackson Hole symposium.
Fed chief Powell is likely to signal patience about further rate hikes, while still leaving the door open, and pushing back on the prospects for rate cuts. With inflation still too high but coming down, policymakers see less urgency to act. A big jump in Treasury yields means that market rates have tightened considerably in the past few weeks, further reducing the need for official Fed rate hikes.
Another reason to wait and see? While U.S. economic growth is solid, Europe and China are showing weakness and could be a drag on U.S. inflation and growth ahead.
Of course, a hawkish Powell speech could upend rate-hike expectations. Investors see scant chance of a Fed rate hike in late September, with modest odds of a hike by the Nov. 1 meeting.
Stocks Near Buy Zones
ANET stock rose 3.25% to 180.62 last week, regaining a 178.36 buy point. Strong Cisco (CSCO) earnings and orders buoyed peer rival Arista Networks. Shares have been trading relatively tight following an earnings gap-up, with the relative strength line continuing to climb.
DO stock jumped 5% on Friday to 15.96, rebounding from the 21-day and 50-day lines and breaking a trendline in an emerging consolidation. Diamond Offshore is among many oil drillers, machinery and services firms showing strength.
Google stock fell 1.9% on Friday to 127.46, closing above the 127.10 cup-with-handle buy point after briefly undercutting that. Investors could buy the internet giant here, but getting above the 132 area would clear the bulk of a shelf.
Visa stock found support at the 50-day line on Friday, also holding a 235.57 buy point from a flat base. The Dow Jones payments giant has been trading tightly in the buy zone for some weeks, and now has a new flat base, or base-on-base pattern, with a 245.37 buy point. A move above the Aug. 10 high of 243.95 could be a good place to enter.
CMC stock rose 1.7% to 55.99 last week, working on a 56.49 buy point from a cup-with-handle base, according to MarketSmith analysis. Commercial Metals flirted with breaking the handle’s downtrend a few times. The specialty steel play is trading around the 21-day line while the 10-week has nearly caught up,
BA stock fell 3.8% to 226.76 last week, getting as low as 221.68 on Friday morning, round-tripping an 8.6% advance from a 223.91 flat-base buy point. But Boeing stock found support at the 50-day/10-week line and closed in buy range. A move above the 21-day line, especially if it coincided with a reviving market, might offer a place to buy shares.
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Market Analysis
The stock market is in a correction. The key indexes have all fallen below their 50-day lines, especially the Nasdaq.
While Arista Networks, Boeing, Visa, Diamond Offshore and Google stock are in buy areas, most leading stocks have suffered significant damage that could take several days, weeks or months to repair.
Winners outpaced losers on Friday, but market breadth has been terrible, especially on the Nasdaq.
Friday’s rebound from intraday lows was nice to see, but the market was “due” for a bounce. But we don’t know if that will last more than a day or two. The 50-day line would be key resistance for the Nasdaq and many stocks.
Friday marks day one of a stock market rally attempt. While the Nasdaq and S&P 500 edged lower Friday, they closed in the upper half of their range, so that qualifies as a “pink” rally day for those indexes. The Dow Jones finished slightly higher.
The market rally attempt continues until the indexes undercut Friday’s lows.
A follow-through day could come as soon as Wednesday, though it could be weeks away. As a practical matter, a FSD seems unlikely before Nvidia earnings Wednesday night. Powell’s Jackson Hole speech Friday also could be the trigger for a new confirmed market rally.
But these events also could spur much-bigger losses for the now-shallow correction.
The 10-year Treasury yield is a major stock market driver right now. Despite Friday’s sharp decline the 10-year yield has risen for five straight weeks, up 43 basis points.
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What To Do Now
Investors shouldn’t get excited over Friday’s bounce. One day doesn’t make a trend. Investors should have pared exposure significantly over the past couple of weeks. If you still feel too exposed, you could use market bounces as a chance to sell further.
For those so inclined, a brief market bounce could create shorting opportunities.
The market could have a short correction, with Nvidia and Fed chief Powell reviving bullish sentiment. Or the selling could intensify.
Don’t try to guess what the market will do. Pay attention to what the market is doing, and be prepared. Keep updating your watchlists, focusing on stocks showing relative strength. Those names could change significantly during the correction.
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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