Dow Jones futures were little changed overnight, along with S&P 500 futures and Nasdaq futures. Tesla stock fell, as the EV giant headlined key after-hours earnings. CEO Elon Musk is on the Tesla earnings call.
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The stock market rally attempt lost ground Wednesday, as the 10-year Treasury yield jumped to a fresh 14-year high.
Netflix (NFLX) led generally strong earnings results, providing some support for stocks, but there were some big losers too.
Tesla (TSLA) slightly topped earnings views but fell short on revenue. TSLA stock declined modestly overnight
Lam Research (LRCX), Alcoa (AA), IBM (IBM) and Las Vegas Sands (LVS) also reported late Wednesday, with Steel Dynamics (STLD) on tap.
Lam Research earnings and revenue topped fiscal Q1 views. LRCX stock edged higher in overnight trade after climbing 2.5% Wednesday, boosted by strong ASML (ASML) earnings and guidance before Wednesday’s open.
Alcoa reported a surprise loss while sales came in short. AA stock plunged in extended action. Shares already fell 5.3% on Wednesday.
IBM earnings and revenue both topped. IBM stock rose solidly overnight after dipping 0.35% on Wednesday.
Las Vegas Sands reported a quarterly loss and revenue that were slightly weaker than expected. LVS stock fell slightly in extended trade after slipping 0.7% on Wednesday. Sands stock briefly broke out from a bottoming base in early October, but the market sell-off and rising Covid cases in China sent shares plunging.
Steel Dynamics earnings missed slightly while revenue topped. STLD stock edged up in overnight action. Shares fell 1.3% to 80.68 on Wednesday, but held above its 50-day line. Steel Dynamics stock has an 88.72 consolidation buy point, according to MarketSmith. But it’s close to a trendline early entry.
Nucor (NUE) and American Airlines (AAL) are due Thursday morning. NUE stock tilted higher late on STLD earnings, after hitting resistance at the 50-day and 200-day lines in Wednesday’s session. AAL stock ascended 2.1% Wednesday, extending a win streak to seven sessions after strong guidance from United Airlines (UAL) late Tuesday and Delta Air Lines (DAL) last week.
Dow Jones Futures Today
Dow Jones futures rose 0.3% vs. fair value, with IBM stock helping. S&P 500 futures were flat. Nasdaq 100 futures dipped 0.1%. Tesla stock is a big S&P 500 and Nasdaq component.
Dow futures are becoming more volatile overnight, much like trading during the regular session.
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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Stock Market Rally
The stock market rally attempt briefly added to recent gains, but then reversed lower amid soaring Treasury yields. The major indexes pared losses somewhat by the close. A tepid beige book report, offering some Fed-positive signals on labor markets and inflation, may have helped.
The Dow Jones Industrial Average dipped 0.3% in Wednesday’s stock market trading. The S&P 500 index gave up 0.7%. The Nasdaq composite retreated 0.85%. The small-cap Russell 2000 fell 1.7%.
The 10-year Treasury yield surged 13 basis points to 4.13%, a fresh 14-year high. U.K. inflation moving back to a 40-year high helped push yields higher. The 10-year yield is on track for a 12th straight weekly gain.
U.S. crude oil prices rose 3.3% to $85.55 a barrel, even with the Biden administration set to release more crude from the Strategic Petroleum Reserve. Natural gas prices extended sharp recent losses, down 3.9%.
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ETFs
Among the best ETFs, the Innovator IBD 50 ETF (FFTY) rose 0.7%, while the Innovator IBD Breakout Opportunities ETF (BOUT) fell 2.1%. The iShares Expanded Tech-Software Sector ETF (IGV) declined 1.15%. The VanEck Vectors Semiconductor ETF (SMH) climbed 0.8%, with ASML and LRCX stocks helping.
Reflecting more-speculative story stocks, ARK Innovation ETF (ARKK) slumped 4.2% and ARK Genomics ETF (ARKG) tumbled 5.5%, to a four-month closing low. Tesla stock is the top holding across Ark Invest’s ETFs.
SPDR S&P Metals & Mining ETF (XME) retreated 2.4%. U.S. Global Jets ETF (JETS) closed flat, despite UAL, AAL and DAL all advancing. SPDR S&P Homebuilders ETF (XHB) sold off 4.8%. The Energy Select SPDR ETF (XLE) jumped 3%. The Health Care Select Sector SPDR Fund (XLV) dropped 1.4%.
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Tesla Earnings
Tesla earnings surged 69% to $1.05 a share, with revenue up 56% to $21.45 billion. Analysts had expected Tesla earnings of $1 a share on sales of $23.3 billion, both up 62%.
Musk is on the Tesla earnings call.
Automotive gross margins came in at 27.9%, even with Q3, but down from 30.5% a year earlier. Excluding regulatory credits, auto margins were 26.8%, slightly below views.
Tesla stuck to its long-term delivery growth forecast of 50%, but didn’t say anything about 2022 or 2023. Earlier in the year, Elon Musk had signaled that 50%+ growth was likely, though the Shanghai plant’s Covid shutdown this past spring made that less likely.
Q3 deliveries, already reported earlier this month, easily set a record at 343,830 but missed views of roughly 360,000. That also fell short of production by just over 22,000.
Tesla argued that high logistics costs spurred it to tone down the end-of-quarter rush, and signaled that it’ll build more inventory for that reason in Q4. But Tesla doesn’t appear to be smoothing out deliveries at the start of Q4.
In any case, China demand appears to be leveling off, with wait times down sharply.
That comes amid big upgrades that will sharply boost Shanghai plant output in Q4 vs. Q3. Tesla is facing increasing competition in China, with more direct rivals to the Model 3 and Model Y, which are starting to age. China’s EV market looks set to be extremely challenging for all concerned in the coming year, with major players moving up or down toward Tesla’s affordable luxury space.
Tesla will likely ramp up China exports to Europe in Q4, but backlogs are starting to come down there as well, while the Berlin factory is slowly picking up stream.
All that is raising speculation that Tesla could cut prices, at least in China, to try to spur demand. Tesla raised prices several times over the past year.
In the U.S., new EV tax credits should help Tesla in 2023, though it’s not clear which vehicles would be eligible. The upcoming tax credits could spur potential buyers to hold off on purchases until next year.
Tesla Semi deliveries will begin on Dec. 1, as Musk previously tweeted. But it’s unclear how many will be made now or in 2023.
Musk still sees the Cybertruck coming out in mid-2023. The unusual EV has been delayed several times. Investors are still awaiting key specs such as prices and range. Also, the Cybertruck is largely seen as a vehicle for North America. That means Tesla will have no new passenger EV for the rest of the world until at least 2024.
Tesla noted that production of 4680 battery cells tripled in Q3 vs. Q2. But the actual number of 4680 battery packs is still low. The larger form-factor batteries are still not being mass produced, making cost savings elusive.
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Tesla Stock
Tesla stock fell more than 2% in overnight trade. Shares rose 0.8% to 222.04 in Wednesday’s regular session. TSLA stock is up 8.3% so far this week, but that’s after tumbling to a 15-month low last week. Tesla stock needs to get back above its falling 50-day and 200-day lines, as well as crossing above its Aug. 16 short-term high of 314.64, before looking interesting. The EV giant’s stock hit a record 414.46 in November 2021.
One key issue is whether or not Musk needs to sell more TSLA stock to help finance the Twitter (TWTR) deal. At least one analysis had Musk needing to unload $8 billion worth of Tesla shares. TWTR stock edged up 0.1% to 51.83 on Wednesday, close to the $54.20 takeover price.
Market Rally Analysis
The stock market rally attempt tried to make further progress Wednesday. But the surging 10-year Treasury yield weighed on the major indexes, overshadowing generally strong earnings.
Netflix and a few other big-cap names flattered the major indexes. But decliners outpaced winners by nearly 3-to-1 on the NYSE and Nasdaq. The small-cap Russell 2000 and S&P MidCap 400 fell sharply, while the Nasdaq composite fared far worse than the Nasdaq 100.
The Dow Jones remained above its 21-day line, but the S&P 500 index fell back below that key short-term level. So did the Russell and S&P MidCap. The Nasdaq only briefly topped that level on Tuesday and lost further ground Wednesday.
The indexes are still looking for a follow-through day to confirm the new uptrend. The market rally attempt will remain in place unless the major indexes undercut their Oct. 13 lows.
It’s possible that the market has bottomed, or nearly so, but the major indexes could move sideways for an extended period.
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What To Do Now
It’s still a bear market, despite the ongoing rally attempt. The whipsaw action in the major indexes and leading stocks during regular and extended trading makes it hard to play stocks, even for very short periods.
If you do take any positions, make them small and be quick to take profits and losses. There’s nothing wrong with staying all or partly in cash.
Work on those watchlists. A lot of stocks are not far from flashing buy signals.
If they do trigger entries, that doesn’t mean you have to do anything. That may mean you let some stocks pass by that turn out to big winners. But that also keeps you from buying a stock that reverses quickly and possibly sells off hard.
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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