Dow Jones futures open on Sunday evening, along with S&P 500 futures and Nasdaq futures. The stock market rally diverged last week, with Apple (AAPL) and other megacap techs thriving, which masked some underlying weakness. That comes as President Joe Biden is about to announce whether he will nominate Federal Reserve chief Jerome Powell for a second term with inflation at a 30-year high. Finally, Rivian Automotive (RIVN) is consolidating after the initial-post RIVN IPO surge. Is it time to buy this EV startup?
Apple stock, Amazon.com (AMZN), Tesla (TSLA), Nvidia (NVDA) and Microsoft (MSFT) drove the Nasdaq composite to record highs. The Nasdaq and especially the Nasdaq 100 are looking extended. But the Nasdaq advance-decline has been weakening. Meanwhile, the Dow Jones and Russell 2000 fell last week as tumbling oil prices and Treasury yields hit energy stocks and financials. Blame renewed Covid fears and restrictions, which are also hitting travel names.
Will Biden Nominate Fed Chief Powell For Second Term?
President Biden on Tuesday suggested he would announce his Federal Reserve chair nomination in “about four days,” though a White House official later said a decision would come before Thanksgiving.
Will Biden stick with Fed chief Powell, or go with someone else, such as Fed Gov. Lael Brainard?
Stock and bond markets clearly favor Powell, whose current term as Fed chairman ends early next year.
Fed chief Powell is a known quantity, and gets high marks on Wall Street for his swift action during the coronavirus crash. Now, the Fed is just starting to scale back asset purchases with inflation a major issue. There’s speculation that policymakers could step up the pace of the Fed taper, perhaps as soon as the December meeting. But resurgent Covid cases could derail economic growth once again. This is a delicate time.
Many observers believe that, at least on monetary policy, Fed Gov. Brainard would be quite similar to Powell. But there’s always the unknown. And it’s not just policy.
Communicating to financial markets is a key role for the Federal Reserve chair, explaining not only what the central bank is doing now, but what it may do as economic trends develop. Powell had some rocky moments on policy and communication early on, but has grown more deft in his press conferences. Part of that also reflects analysts and investors learning how to interpret Powell’s statements.
A weekend Fed chief pick could be seen as giving stock and bond markets more time to digest it, suggesting someone other than Powell. On the other hand, Biden might have wanted to wait until after the House passed the reconciliation bill on Friday. That would suggest Biden might be apt to renominate Powell.
One key factor in favor of Fed chief Powell is that many GOP senators would likely support a second term. President Trump picked Powell. Another choice, such as Brainard, might struggle to get confirmation. However, a few Democratic senators have urged Biden to not renominate Powell.
Stocks On IBD Lists
Dow Jones Futures Today
Dow Jones futures will open at 6 p.m. ET on Sunday, along with S&P 500 futures and Nasdaq 100 futures.
Coronavirus cases worldwide reached 257.42 million. Covid-19 deaths topped 5.16 million.
Coronavirus cases in the U.S. have hit 48.55 million, with deaths above 793,000.
Austria announced a nationwide lockdown Friday and set a vaccine mandate, amid heavy new infections in the country and in much of Europe. The U.S. is also experiencing higher cases as people head indoors as temperatures drop. Earlier vaccinations also may be losing their potency, though they still provide strong protection vs. hospitalization and deaths. Coronavirus deaths in the U.S. continue to trend lower.
The FDA OK’d Pfizer (PFE) and Moderna (MRNA) coronavirus vaccine boosters for all adults on Friday. Late Friday, the CDC gave final approval to booster shots. Several states, including California and New York, already had opened up booster shots to all adults, but several pharmacies had been following federal guidelines.
Stock Market Rally
The stock market rally increasingly diverged during the week, with big-cap techs masking weakness elsewhere.
The Dow Jones Industrial Average sank 1.4% in last week’s stock market trading. The S&P 500 index edged up 0.3%. The Nasdaq composite rose 1.2%, with the Nasdaq 100 up 2.35%. The small-cap Russell 2000 slumped 2.8%
The 10-year Treasury yield fell 5 basis points last week to 1.54%, reversing lower from a midweek peak of 1.65%. Crude oil futures tumbled 5.8% to a seven-week low.
Apple stock surged 7% last week, breaking out of a cup-with-handle base, according to MarketSmith analysis, and hitting a record high. Amazon stock popped 4.3%, also clearing a cup-with-handle base. Nvidia stock shot up 8.5% on earnings after pausing for several sessions following a metaverse-led spike. Tesla stock rebounded 10%, reclaiming its 21-day line and recouping much of the prior week’s 15% tumble. And Microsoft stock? It rose a solid 1.9% to a fresh high in its seventh straight weekly gain.
Among the best ETFs, the Innovator IBD 50 ETF (FFTY) slid 1%, while the Innovator IBD Breakout Opportunities ETF (BOUT) edged up 0.2%. The iShares Expanded Tech-Software Sector ETF (IGV) sank 0.9%, even with MSFT stock as a huge IGV holding. The VanEck Vectors Semiconductor ETF (SMH) jumped 3.7%, with NVDA stock a major component.
SPDR S&P Metals & Mining ETF (XME) plunged 7.2% and Global X U.S. Infrastructure Development ETF (PAVE) edged down 0.6%. U.S. Global Jets ETF (JETS) descended 5.7%. SPDR S&P Homebuilders ETF (XHB) climbed 1.9%, its seventh straight weekly gain. The Energy Select SPDR ETF (XLE) tumbled 5% and the Financial Select SPDR ETF (XLF) gave up 2.9%.
Reflecting more-speculative story stocks, ARK Innovation ETF (ARKK) skidded 4.4% and ARK Genomics ETF (ARKG) 6.7%, with the latter at a 52-week low. Tesla stock remains the No. 1 holding across ARK’s ETFs.
Rivian stock hit a record 179.47 intraday on Tuesday, more than double the RIVN IPO price of $78 from Nov. 9. Shares then tumbled 15% on Wednesday and 15.5% on Thursday. But with a 4.2% bounce on Friday, Rivian stock finished down just 1% at 128.60 for the week.
Is it time to buy RIVN stock? While it’s tempting to buy a red-hot IPO like Rivian Automotive, investors should wait for some price discovery on a new issue. Look for an IPO base to form. IPO bases can be very short, but the Rivian IPO stock chart isn’t there yet.
When a Rivian IPO base forms, look for early entries. Early entries have several advantages over traditional buy points, especially for IPO stocks in 2021.
Market Rally Analysis
The bifurcated stock market rally, present for much of 2021, may be coming back.
Just a few weeks ago, the stock market rally looked healthy, with a broad-based advance. Now, the market is a bit like someone who has gorged on junk food, simultaneously stuffed and malnourished. On the one hand, Apple, Amazon stock and other tech megacaps are powering higher. On the other, market breadth and several sectors are struggling.
The Nasdaq composite is now 5.8% above its 50-day line, just below the 6% level signaling it’s extended. The Nasdaq 100 is now 7.1% above its 50-day. That raises the risks of a pullback, with higher odds that any such pullback will be more serious.
The Nasdaq can grow even more extended and stay that way for quite some time before pulling back. In August 2020, the Nasdaq became increasingly extended, fueled by Apple and Tesla stock surging, share split news and huge options activity. On Sept. 2, 2020, the Nasdaq closed 11.2% above its 50-day line. But that marked a top, with a market correction and choppy action over the next couple of months.
Meanwhile, even as the megacaps are getting extended, the Nasdaq advance-decline line has deteriorated considerably, signaling growing weakness even among many techs. A number of recent breakouts, such as DASH stock or SoFi Technologies (SOFI), have fizzled or failed over the past week.
Also, the Dow Jones and especially the Russell 2000 have retreated over the past two weeks, and are starting to move back toward their 50-day lines. Energy and financials are driving those declines, with the XLE and XLF ETFs undercutting their 50-day lines on Friday.
The S&P 500, as a broad market index, is faring relatively well. It’s right at record highs while not being extended.
Perhaps the overall stock market rally will smooth out gracefully, with tech giants pausing while other areas shore up. Other scenarios are less inviting. If Tesla stock and other giants’ advances lift the rest of the market, then the rally will become extremely extended very fast. Alternatively, if Apple stock and other megacaps retreat solidly with other sectors extending pullbacks, the market rally could witness some notable losses. That could be constructive in the medium term, but not so much fun in the short term.
What To Do Now
While the S&P 500 looks just fine, a market rally that simultaneously looks too strong and too weak makes it hard to feel comfortable about the near-term outlook.
It’s not a great time to be adding exposure. Outside of the tech titans, a lot of stocks are struggling. And if the overall market rally pulls back, most new buys are going to be underwater quickly.
Investors may want to take some more partial profits to make it easier to weather any near-term turbulence, both financially and mentally. Also sell losing stocks, or modest winners that are giving up the bulk of their gains, especially in weakening sectors. Such steps free up capital, so when market conditions look clearly favorable again, you’ll be able to take advantage.
Beef up your watchlists and make sure to cast a wide net. With sector rotation returning after several weeks of broad-based gains, make sure you aren’t missing out on the next sector upswing.
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