The stock market rally eased sharply over the past week but rebounded to close with solid gains, a jolt that could set the stage for stronger progress. JPMorgan Chase and PNC Financial are in contention to buy Bank of the First Republic (FRC) following a takeover by the FDIC as soon as this weekend.
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Dow Jones futures open Sunday evening, along with S&P 500 futures and Nasdaq futures.
Major indexes tumbled on Tuesday as the First Republic Bank revived banking fears. But the major indices found support and rebounded. Initially, megacap like Metaplatforms (META) and Microsoft (MSFT) led the comeback, but the breadth improved towards the end of the week, especially on Friday.
The market rally looks healthier but remains “under pressure”. Investors have yet to see a little more market strength and a lot more buying opportunities.
Earnings season remains heavy next week, with Advanced Micro Devices (AMD) out on Tuesday and Apple (AAPL) due Thursday. Another Fed rate hike is expected on Wednesday, along with next week’s key economic data. A big question is whether Fed Chief Jerome Powell signals that the central bank will suspend rate hikes.
The FDIC saw the First Republic take over
Including banking giants JPMorgan Chase (JPM) and PNC financial services (PNC) is seeking to buy First Republic following a government seizure, The Wall Street Journal reported Friday night, citing sources. An FDIC takeover and sale of First Republic Bank could come this week.
Shares of the FRC had already plunged 34% during heavy after-hours trading on Friday, following a Reuters report that authorities seized and shut down First Republic Bank, with the FDIC placing the bank headquartered in California in receivership.
Shares of the First Republic tumbled 75% on the week to new all-time lows, fueled by a massive outflow of deposits in the first quarter. Despite efforts to engineer a quasi-bailout by the big banks, expectations of a takeover by the FDIC rose during the week.
An FDIC takeover would almost certainly protect all of First Republic Bank’s deposits. But investors in FRC shares could end up with nothing.
While regional banks collapsed on Tuesday, they trimmed their weekly losses significantly. The exodus of First Republic deposits was in a class of its own.
A swift resolution of the First Republic situation could restore confidence in the banking sector and bolster market sentiment if there are no more shoes to put down.
Monday Earnings, Sales
Meanwhile, chipmaker focused on electric vehicles On Semiconductor (ON) will report before opening on Monday. ON shares fell sharply last week along with other chipmakers exposed to EVs on concerns over demand for EVs.
Electric vehicle startup in China Li Auto (THERE), Nio (NIO) e XPeng (XPEV) will report April deliveries early Monday. Weekly data shows strong sales for Li Auto, while Nio and Xpeng struggle.
China EV and battery giant BYD (BYDDF) will release April sales data earlier in the week. THE Tesla Rival (TSLA) reported strong first-quarter earnings on Thursday.
BYD stock is in range from an early entry. LI stock is trying to recapture key levels. XPeng and Nio shares face significant hurdles.
Also, Arista Networks (ANET) is on hand to report first-quarter earnings on Monday evening. Stock ANET, a large provider of Meta Platforms and Microsoft, found support for its 50-day line last week.
META shares are in the IBD ranking, with DXCM shares and earning options. MSFT shares are on IBD long-term leaders. ANET shares are on the IBD 50. AMD, Arista Networks and DXCM shares are on the IBD Big Cap 20. Arista Networks was Friday’s IBD Stock of the Day
The video embedded in the article covered a big market week and analyzed AMD stock, InMode (INMD) and Dexcom.
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 stock market rally looked ugly on Tuesday, but it rebounded for gains on the major indexes.
The Dow Jones Industrial Average rose 0.9% in stock trading last week. The S&P 500 index also rose 0.9%. The Nasdaq composite rebounded 1.3%. The small-cap Russell 2000 is down 1.3%
The yield on the 10-year Treasury fell 12 basis points on the week to 3.45%.
U.S. crude futures fell 1.1% to $76.78 a barrel last week, despite a 2.7% rebound on Friday. Gasoline futures are down 0.9% on the week, but 9.1% over the past two weeks.
ETFs
Among growth ETFs, the Innovator IBD 50 ETF (FFTY) fell 3.6% last week, with several constituents suffering huge earnings losses. The Innovator IBD Breakout Opportunities (BOUT) ETF was up 0.3%. The iShares Expanded Tech-Software Sector (IGV) ETF fell 1.45%, with Microsoft a large IGV component. The VanEck Vector Semiconductor (SMH) ETF was down 0.4%. AMD stock is one of SMH’s top holdings with ON shares also in the ETF.
Reflecting the stock’s more speculative stories, ARK Innovation ETF (ARKK) tumbled 4.5% last week and ARK Genomics ETF (ARKG) tumbled 5.3%. Tesla stock is the No. 1 holding company among Ark Invest ETFs, with Cathie Wood adding more TSLA stock in recent weeks. Ark also owns a small stake in BYD stock.
The SPDR S&P Metals & Mining (XME) ETF fell 1.6% last week. The Global X US Infrastructure Development ETF (PAVE) closed just above breakeven. The US Global Jets ETF (JETS) fell 1%, but came off the lows well. SPDR S&P Homebuilders ETF (XHB) was up 2.2%. The Energy Select SPDR ETF (XLE) was up slightly. The Health Care Select Sector SPDR Fund (XLV) slipped 0.6%, but rebounded from the lows. DXCM stock is an XLV component.
The SPDR Financial Select ETF (XLF) fell 0.15% but rebounded to close just under its 50-day mark. SPDR S&P Regional Banking (KRE) ETF fell 0.6%, but cut losses sharply after hitting its worst levels since late 2020. FRC stock is a KRE holding.
Five top Chinese stocks to watch now
Analysis of market rallies
The stock market rally had a wild week, with the major indexes testing support but ultimately closing with solid gains.
The Nasdaq fell to its 50-day line on Tuesday as the First Republic spooked investors yet again. The S&P 500 and the Dow Jones are close to that level, undercutting their 21-day lines mid-week.
Worse, the First Trust Nasdaq-100 Equal Weighted Index ETF (QQEW) and Invesco S&P 500 Equal Weight ETF (RSP) tumbled below their 50-day lines on Tuesday. The latter also slipped below its 200 day mark as these ETFs continued lower on Wednesday, even as Microsoft rallied the Nasdaq.
Meta stocks and other tech titans fueled a strong gain Thursday. QQEW and RSP lagged behind QQQ and SPY respectively, but still fared well. The indices rose modestly on Friday, with the RSP outperforming, returning above its 50-day line.
The Nasdaq didn’t quite clear its April 18 intraday high, but it had its best close since September. The S&P 500 and the Dow Jones broke their April highs with all major indexes nearing their 2023 highs.
The SMH chip ETF, which fell to its worst levels since mid-March, sharply trimmed its weekly losses but was still below the 50-day line. Some names, like Search Lamh (LRCX) and AMD shares, are creating close rumors. But many chip plays have had bad sales, including some huge drops in earnings.
Massive earnings losses among major stocks have been all too common in recent days. Market leadership remains narrow. Not many stocks are giving buy signals or are about to. Many of these have earnings on hand, including AMD, Floor and furniture (FND), InMode (INMD) and ANET shares.
Apple stock looks extended on a daily chart, but on a weekly chart, investors might see it just above a buy point from a long handle or double bottom basis. The handle also looks like a tight three-week pattern, according to MarketSmith’s analysis.
After last week’s shock, the market rally may be poised for a stronger advance. If the major indexes break out to 2023 highs with any kind of breadth, the market rally could have room to run with major gains and the Fed meeting in the rearview mirror. But shares may still encounter resistance in the coming days.
Time The Market with IBD’s ETF Market Strategy
what to do now
The stock market rally has been difficult to navigate.
Investors have likely reduced exposure over the past week as many stocks have either erased gains or shown sell-off signals. Despite major indexes closing higher, there was little opportunity to strengthen positions. All right. If the market rally really strengthens, these chances will come. If the indices are weak in breadth, you’ll be content with being mostly cash.
Add exposure gradually as conditions improve. Pay attention to earnings reports.
While the weekend rebound didn’t trigger many breakouts and early entries, many stocks have started to move into position. So prepare your checklists.
Many leading stocks, including some big winners earlier in the year, have shown signs of selling in the last week or so
Read The Big Picture daily to stay abreast of market direction and major stocks and sectors.
Please follow Ed Carson on Twitter at @IBD_ECarsonfor stock market updates and more.
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