Dow Jones Futures: Microsoft, Google, Meta Earnings are great test for AI, market rally

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Dow Jones futures open Sunday evening, along with S&P 500 and Nasdaq futures, with Microsoft (MSFT), Google Parent Alphabet (GOOGL) and Meta Platforms (META) heading into a huge earnings week, with the Federal Reserve poised to hike rates again.

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The stock market rally saw big weekly gains for the Dow Jones, which is on its longest winning streak in nearly six years. The S&P 500 also had solid progress. But the Nasdaq is reversed lower after a big sell-off Thursday led by Tesla (TSLA). Growth stocks have suffered losses, often large ones, but generally still appear to be in good health.

Bank shares, meanwhile, are roaring again. Industrials, travel and some pharmaceutical stocks showed strong or resilient action.

The market may need a break and there aren’t many setups right now. So it’s not a good time to add visibility.

Gains from Microsoft, Google and Meta loom as market rally. Not only do these three tech titans boast nearly $5 trillion in combined market capitalization, but their findings, insights, spending plans, and commentary will matter to cloud computing, artificial intelligence, digital advertising, and more.

This will have a big impact on the likes of Amazon.com (AMZN), it reports Aug. 3, along with Nvidia (NVDA) and other vendors, as well as cloud software gaming.

Meanwhile, ServiceNow (NOW), General Electric (GE), Visa (V), Chipotle Mexican Grill (CMG), Boeing (BA), General Motors (GM) are just a few other major companies on tap.

Tesla, Nvidia and Meta stocks are on the IBD chart, with CMG stock on the chart watchlist. Microsoft shares are on the IBD long-term leaders list. Tesla and NOW stock are on the 50 IBD. TSLA stock is on the 20 IBD Big Cap.

The video embedded in the article discussed the weekly market action and analyzed the shares of Dow giants Microsoft, Boeing and Visa.

Fed meeting

The Fed will meet for two days next week with a policy announcement scheduled for Wednesday at 2 p.m. ET. After a pause in June, the Fed is expected to hike rates by a quarter point. But the real question is the prospect of rate hikes for the rest of the year. Fed policymakers expect two more rate hikes in June this year, but tame inflation reports have bolstered investor expectations that there’s only a modest chance of another move after Wednesday.

Fed Chief Jerome Powell’s comments at 2:30 pm ET will likely offer clues about the rate outlook.

Dow Jones Futures today

Dow Jones futures open Sunday at 6 p.m. ET, along with S&P 500 and Nasdaq 100 futures.

Remember that overnight action in Dow futures and elsewhere does not necessarily translate into actual trading in the next regular session of the stock market.

Join IBD experts as they analyze actionable stocks in the stock market rally on IBD Live

Stock market rebound

The equity market rally started the week with broad force but has since faded away.

The Dow Jones Industrial Average jumped 2.1% in stock trading last week, finally surpassing 2023 highs. The Dow is riding a 10-day winning streak, its longest since August 2017. The S&P 500 was up 0.8%, but trimmed gains. The Nasdaq composite fell 0.6%, thanks to Thursday’s 2.05% decline. The small-cap Russell 2000 is up 1.5%, even approaching its 2023 highs.

The Invesco S&P 500 Equal Weight (RSP) ETF was up 1.35%, nearly double the gain of the S&P 500 and just short of 2023 highs,

The First Trust Nasdaq 100 Equal Weighted Index ETF (QQEW) rose 0.9%, a mirror image of the Nasdaq 100’s 0.9% drop.

The 10-year Treasury yield was up 2 basis points to 3.84%, but with some big daily moves.

U.S. crude futures rose 2.3% to $77.07 a barrel, the fourth consecutive weekly gain.

AI stocks drive these 5 names near buy points

ETFs

Among growth ETFs, the Innovator IBD 50 ETF (FFTY) was down 0.35% last week, while the Innovator IBD Breakout Opportunities ETF (BOUT) was up 0.7%. The iShares Expanded Tech-Software Sector (IGV) ETF rose 0.1%, trimming its weekly gains. Microsoft stock and ServiceNow are large IGV holdings. The VanEck Vector Semiconductor (SMH) ETF tumbled 2% after peaking 5.4% the previous week.

The SPDR S&P Metals & Mining (XME) ETF was up 0.2% last week. The Global X US Infrastructure Development (PAVE) ETF was up 0.4%, right at an all-time high. The US Global Jets ETF (JETS) was up 1.9%. SPDR S&P Homebuilders ETF (XHB) fell 1.5%. The Energy Select SPDR ETF (XLE) was up 3.5% and the Health Care Select Sector SPDR Fund (XLV) jumped 3.45%, to its best levels since early January. The Industrial Select Sector SPDR Fund (XLI) rose 0.9%, to hit a new high.

The SPDR Financial Select ETF (XLF) jumped nearly 3% and the SPDR S&P Regional Banking (KRE) ETF was up 7.5%.

Reflecting more speculative stocks, ARK Innovation ETF (ARKK) was down 1.3% last week and ARK Genomics ETF (ARKG) was up. Tesla stock is the number 1 among Ark Invest ETFs. TSLA stock fell 7.6% in a big outside week down on higher volume but is still comfortably above the 10-week line.

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Microsoft, Google, Meta Earnings

Microsoft’s earnings and Google’s earnings are due Tuesday night with Meta’s earnings Wednesday night.

Microsoft and Google will provide information on cloud computing. Google and Meta will offer clues about online advertising and social media, with parent Snapchat Snap (SNAP) also on tap next week.

All three will provide color on AI. Microsoft will be especially important because it’s seen as a leader in AI and just announced pricing for various AI features for businesses. How fast will “AI” be a real growth engine for Microsoft? If Mr. Softy doesn’t see significant revenue for some time, that could vastly chill “AI stocks,” especially the more speculative names.

The cloud-related comments from these three titans will be key to Amazon, which relies on Amazon Web Services for the majority of its profits. Along with ServiceNow’s earnings, games from leading software such as Datadog (DDOG), Dynatrace (DT), Cloudflare (NET), and MongoDB (MDB) could swing.

Meanwhile, megacap guidance, especially on spend, will be key for vendors like Nvidia, Broadcom (AVGO), Arista Networks (ANET), and others.

Analysis of market rallies

The equity market rally still looks strong, with major indexes at 52-week highs with robust breadth and diversified leadership. The Nasdaq sell-off was fierce on Thursday, but finished the week finding support at the 10-day line.

The Nasdaq and S&P 500 are on the verge of being extended, so an orderly break or pullback would be healthy.

A market pause would create new buying opportunities. Many main titles are extended. A number of others look fine after Thursday’s big losses, but it may take a few days or weeks to recover.

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what to do now

This is not a great time to add visibility. The Nasdaq has taken a major hit, but it’s not far from being extended again. Not many stocks are in position. And this week’s earnings, coupled with the Fed meeting, could bring down individual stocks, sectors and the market rally.

Investors should examine their portfolio and note which holdings have earnings on hand and which big earnings from related companies are due. Consider holding various stocks during earnings season or taking full or partial profits.

The equity market rally remains strong. Investors should look for how stocks are reacting to earnings and other news this week. It wouldn’t take long for a number of names to sound interesting again.

Special rebalancing of the Nasdaq 100

Before the market opens on Monday, a special rebalancing of the Nasdaq 100 will take place, reducing the dominance of the “Magnificent Seven” of Microsoft, Apple, Nvidia, Google, Amazon, Meta Platforms and Tesla shares. MSFT and Nvidia stocks will see the biggest weight drops in the index.

The rebalancing special probably won’t have much of an impact on these titans. The news has been basically out for two weeks.

Read The Big Picture daily to stay abreast of market direction and major stocks and sectors.

Follow Ed Carson on Twitter at @IBD_ECarson for stock market updates and more.

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