Dow Jones futures rose modestly Thursday morning, along with S&P 500 futures and Nasdaq futures. Nvidia (NVDA) headlined key earnings overnight, while Twitter (TWTR) popped as Elon Musk beefed-up financing for the takeover deal.
Broadcom Buying VMware
Broadcom (AVGO) agreed to buy virtualization software maker VMware (VMW) for $61 billion in cash and stock, or $142.50 a share, following several days of buzz. IT’s the third big software takeover for chipmaker Broadcom in recent years. Broadcom also reported better–than-expected fiscal Q2 earnings and announced a $10 billion buyback. VMware missed views. AVGO stock edged lower. VMW rose slightlyafter surging 26% so far this week.
Market Rallies, But No Confirmed Uptrend
The stock market rally attempt had solid gains Wednesday after Fed minutes from the early May meeting showed most policymakers favored aggressive tightening now, leaving the option of shifting gears later this year.
However, while the Nasdaq delivered a strong price gain, Nasdaq volume fell slightly. So there’s still no confirmed uptrend.
Energy stocks fared well, with several flashing buy signals. But many of Wednesday’s big gainers were beaten-down growth and retail names. Tesla (TSLA) rose 4.9%, ServiceNow (NOW) 7.8% and Target (TGT) 4.3%. Dick’s Sporting Goods (DKS) reversed higher despite slashing guidance. Meme stocks GameStop (GME) and AMC Entertainment (AMC) leapt 29% and 14%, respectively.
Dow Jones Futures Today
Dow Jones futures rose 0.5% vs. fair value. S&P 500 futures climbed 0.5%. Nasdaq 100 futures advanced 0.2%, even with Nvidia stock a negative.
Crude oil futures rose less than 1%.
The 10-year Treasury yield climbed 1 basis point to 2.75%.
Elon Musk Ups Twitter Deal Financing
Tesla CEO Elon Musk increased his financing commitment to the Twitter takeover deal to $33.5 billion and is in talks for other funding. He’s going to put up more equity, and drops a margin loan.
Musk agreed to buy the social network for $44 billion, or $54.20 a share, a price that looks high given the market sell-off and in peers such as Snap (SNAP). Musk had recently said the TWTR deal was “on hold,” while Twitter’s board begged to differ.
Twitter stock had tumbled in recent weeks on concerns Musk would drop the deal or try to renegotiate the price substantially lower. Musk’s move raises the odds that a deal will go forward.
Shares popped 6% in extended trading on the Musk financing news, but still far below the takeover price. TWTR stock had climbed 3.9% to 37.16 in Wednesday’s regular session.
TSLA stock, after rebounding Wednesday, rose nearly 2% early Thursday.
Nvidia earnings and sales topped forecasts, but the chip giant guided low for Q2, blaming Russia’s Ukraine invasion and China’s Covid lockdowns.
Nvidia stock sank 4% in premarket trading. Shares rose 5.1% to 169.75 on Wednesday. But NVDA stock is still near a 52-week low set earlier this month. Nvidia rival Advanced Micro Devices (AMD) fell slightly in extended trade. AMD stock closed up 1.6% after setting a 10-month low recently.
Snowflake (SNOW) provided a check into the health of highly valued business software firms. Snowflake reported a wider-than-expected loss while revenue slightly beat. The data analytics firm sees slowing growth in Q2 and even more for the full year. SNOW stock plunged 11% in overnight action, signaling a fresh record low. Shares climbed 2.4% in Wednesday’s session to 132.77. On Tuesday, SNOW stock hit a record low intraday.
Early Thursday, LNG transporter Golar LNG (GLNG) reports earnings with shares near a buy point. GLNG stock rose 4.1% to 24.75, rebounding from its 50-day line. Golar is in a short consolidation that is on track to be a proper base after this week with 26.70 buy point. But investors could use a downward-sloping trendline or 25.10 — just above short-term highs — as early entries.
Energy Stocks Flash Buy Signals
Oil and gas plays Schlumberger (SLB), Equinor (EQNR), recent IPO Excelerate Energy (EE) and Chevron (CVX) flashed buy signals on Wednesday. All have relative strength lines at or near highs. SLB stock, Equinor and Excelerate Energy triggered early entries. CVX stock tiptoed back above an official buy point. Excelerate Energy reported earnings early Wednesday, with revenue up 259%.
Meanwhile, Dollar Tree (DLTR), Dollar General (DG), Burlington Stores (BURL) and Macy’s (M) headline retail earnings before Thursday’s open. Dollar Tree, Dollar General and Macy’s soared on strong results, while Burlington missed and guided lower.
The stocks have been looking terrible but they offer fresh insight into retail and the economy as the sector faces rising costs and shifting consumers.
Meanwhile, Alibaba (BABA) topped quarterly views for the Chinese e-commerce giant as Covid lockdowns slash demand and production. BABA stock rose before the open.
Chevron stock is on the IBD BigCap 20 list. Equinor was Wednesday’s IBD Stock Of The Day. The video embedded in this article discussed Wednesday’s solid market action and analyzed Schlumberger, Excelerate Energy and EQNR stock.
Federal Reserve officials at the May 3-4 policy meeting unanimously approved a 50-basis-point hike. “Most” agreed that half-point rate hikes would likely be appropriate at the next couple of meetings, matching what Fed chief Jerome Powell has said. The Fed participants agreed to move “expeditiously” toward neutral, and said rates may have to be even higher than that to rein in inflation. But they also noted that moving swiftly in the short term would provide more flexibility to change course later this year.
Markets see half-point rate hikes as overwhelmingly likely at the June and July policy meetings. But the odds of a 50-point move at the September meeting have fallen considerably.
Also, investors before the Fed minutes were betting that the rate-hike cycle would peak around 2.9%, well below where it was a few days ago.
Stock Market Rally
The stock market rally gained steam after digesting the Fed minutes release, though the major indexes pared gains somewhat.
The Dow Jones Industrial Average rose 0.6% in Wednesday’s stock market trading. The S&P 500 index climbed 0.95%. The Nasdaq composite closed up 1.5%. The small-cap Russell 2000 advanced 1.8%.
U.S. crude oil prices rose 0.5% to $110.33 a barrel.
The 10-year Treasury yield dipped 1 basis point to 2.75%.
Among the best ETFs, the Innovator IBD 50 ETF (FFTY) rallied 2.6%, while the Innovator IBD Breakout Opportunities ETF (BOUT) advanced 0.6%. The iShares Expanded Tech-Software Sector ETF (IGV) popped 3%. The VanEck Vectors Semiconductor ETF (SMH) gained 2.1%, with Nvidia stock and AMD key holdings.
SPDR S&P Metals & Mining ETF (XME) rose 1.5% and the Global X U.S. Infrastructure Development ETF (PAVE) climbed 1.2%. U.S. Global Jets ETF (JETS) ascended 2.25%. SPDR S&P Homebuilders ETF (XHB) popped 3.5%. The Energy Select SPDR ETF (XLE) was up 2.1% to another record high. Chevron is a huge holding with SLB stock also a notable component. The Financial Select SPDR ETF (XLF) advanced 0.8%. The Health Care Select Sector SPDR Fund (XLV) closed fractionally lower.
Market Rally Analysis
The market rally attempt made some headway Wednesday, with techs rebounding after selling off Tuesday. The major indexes did pare intraday gains somewhat in the final 45 minutes of trading.
The Nasdaq price gain was strong enough for a follow-through day to confirm the new uptrend. But Nasdaq volume was slightly below Tuesday’s trading. The Dow Jones and S&P 500 lacked the price gains for a FTD, though NYSE volume appeared to edge higher vs. Tuesday.
Perhaps it’s just as well. The Nasdaq remains below the 10-day moving average, making any FTD even more dubious. The overnight sell-off in Nvidia stock and Snowflake doesn’t bode well for techs on Thursday. A big sell-off right after a FTD is a bad sign, as the May 18 tumble showed.
What To Do Now
If the stock market rally has a follow-through day in the next few sessions, you can consider taking on limited exposure, either via individual names or a broad market ETF.
One reason to be skeptical of rallies right now is the limited number of stocks to buy, at least outside the oil and gas space. That’s not surprising given the length and depth of the market correction. So don’t rush into a confirmed uptrend, and be ready to bounce back out.
But you don’t want to ignore follow-through days either.
For now, keep working on watchlists. It’ll be energy-heavy, so do your research on various choices. Don’t neglect stocks setting up in other sectors as well.
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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