Futures fall on MSFT guidelines; Revenue wave continues

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Dow Jones futures fell after hours, along with S&P 500 futures and Nasdaq futures, such as Microsoft (MSFT) guidance outperformed feared earnings. ASML (ASML), Boeing (BA) and Tesla (TSLA) are on tap Wednesday.




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The stock market rally was trading within a relatively narrow range on Tuesday after large gains in the previous two sessions. The major indices closed mixed. The Nasdaq backed out when the Justice Department filed a second antitrust suit against Google’s parent company Alphabet (GOOGL).

Microsoft revenues were lower than previous views of strong cloud computing growth. But the software giant issued weak guidelines. MSFT shares, initially up sharply, fell lower.

Intuitive surgical (ISRG) and Texas Instruments (TXN) also reported. Missed ISRG earnings with in-line earnings. Texas Instruments was slightly up, but led lower. ISRG shares plummeted while TXN shares fell slightly.

Chip equipment giant ASML reported this on Wednesday morning together with fellow manufacturers of semiconductor equipment Lamb research (LRCX), Teradyn (TER) and Wolf speed (WOLF) due after closing.

Boeing and Freeport-McMoRan (FCX) also reports early Wednesday.

Tesla will make headlines Wednesday night. Tesla earnings will be important, but investors are likely to focus on the 2023 outlook, especially after major price cuts worldwide to start the year. Those price cuts have boosted demand for Tesla — at the expense of margins — but will that boost last?

Following the closing, Tesla said it will spend $3.6 billion at its facilities outside of Reno, Nevada, for a Tesla Semi factory and for the mass production of 4,680 battery cells. That confirmed previous reports.

Tesla shares fell slightly overnight. Shares rose 0.1% on Tuesday to 143.89, near the 50-day mark. TSLA stock is up nearly 17% so far in 2023.

Dow Jones Futures Today

Dow Jones futures fell 0.2% from fair value. S&P 500 futures fell 0.35. Nasdaq 100 futures fell 0.6% after initially modest gains. MSFT stocks are a Dow Jones, S&P 500 and Nasdaq component.

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

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Stock market rally

After a NYSE breakdown disrupted some 100 tickers at the open, the stock market rallied slightly lower in the morning and gradually improved to mixed.

The Dow Jones Industrial Average rose 0.3% during Tuesday’s stock trading. The S&P 500 index fell 0.1%. The Nasdaq composite fell 0.3%. The small-cap Russell 2000 was down 0.25%.

US crude oil prices fell 1.8% to $80.13 a barrel. Natural gas fell 5.5% after rising more than 6% on Monday.

10-year government bond yields fell basis points to 3.47% amid mixed to weak manufacturing data.


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DOJ is suing Google again

The DOJ sued Google for its online advertising dominance and attempted to force the company to divest certain assets. In October 2020, the Department of Justice filed an antitrust suit alleging abuse of online search capabilities. State groups have filed three antitrust cases against Google, including one involving advertising.

Google shares fell 2.1% to 97.70 on Tuesday, though that’s after 10% higher volumes in the previous three sessions.

Google will report Q4 earnings on February 2.

ETFs

Among growth ETFs, the Innovator IBD 50 ETF (FFTY) and the Innovator IBD Breakout Opportunities ETF (BOUT) rallied higher. The iShares Expanded Tech-Software Sector ETF (IGV) fell 0.6%. Microsoft stock is a major IGV component.

The VanEck Vectors Semiconductor ETF (SMH) fell 0.7%, ASML shares are a major stake, with TXN, LRCX and TER also in SMH.

Due to stocks with more speculative stories, the ARK Innovation ETF (ARKK) fell 1.6% and ARK Genomics (ARKG) lost 1.4%. Tesla stock is a major stock in Ark Invest’s ETFs. Cathie Wood’s Ark has strengthened its TSLA position in recent weeks and recently added shares as Monday.

The SPDR S&P Metals & Mining ETF (XME) was up 0.2% and the Global X US Infrastructure Development ETF (PAVE) was up 0.4%. US Global Jets (JETS) shot lower. SPDR S&P Homebuilders ETF (XHB) rose 0.4%. The Energy Select SPDR ETF (XLE) was down 0.4% and the Financial Select SPDR ETF (XLF) was up 0.1%. The Health Care Select Sector SPDR Fund (XLV) fell 0.7%.

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Microsoft earnings

Microsoft revenues were down 6% from a year earlier, excluding miscellaneous items, just ahead of fiscal Q2 views. Sales rose 1.9%, the smallest increase in more than six years and the lack of forecasts. Revenue from Azure and other cloud computing services rose 31% – 38% excluding currency movements – slightly above consensus. Analysts were concerned about Azure’s growth.

Investors were relieved by the strong performance of the Dow Jones tech titan. But Microsoft issued weak guidance and warned of slowing activity.

MSFT shares fell 1% after initially rising 5% or more after hours.

Last week, Microsoft announced plans to cut 10,000 jobs, about 4.5% of its workforce.

Shares fell 0.2% to 242.04 on Tuesday, holding the 50-day line after retaking that key level on Monday. Microsoft shares are undoubtedly bottoming out with a buy point of 264.02. It formed below the 200-day line, but a break would mean clearing that level and breaking a long downtrend.

Microsoft earnings and guidance are important to other software makers, PC related stocks and cloud computing games like Google and Amazon.nl (AMZN). Microsoft’s recent high stakes and alliance with ChatGPT maker OpenAI may pose another threat to Google and Amazon.

Amazon and several cloud software companies fell overnight after initially rising based on Microsoft revenue.

Analysis of the market rally

The stock market rally came to a halt on Tuesday, with major indices ending mixed. But that was normal after big gains on Friday and Monday, especially on the way to a huge stream of income.

The S&P 500, which reached last week’s highs and Monday’s 4,000, held those key levels.

The Nasdaq composite fell and is still modestly below the 200-day line and December highs.

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The Dow Jones extended its rise from the 50-day line after retaking that key level on Monday

The small-cap Russell 200 slid lower, but is approaching its late 2022 peak.

The market rally looks strong, but the major indices all deal with resistance levels. Tech was the market leader in 2023, but now we’re getting a barrage of tech revenue. Even if the macroeconomic picture stabilizes and Fed rate hikes ease, companies could lower their guidance in the coming weeks.

Microsoft could just start.

In addition to Tesla, ASML and Boeing on Wednesday Apple (AAPL), Facebook parent Meta platforms (META), Amazon, amd (AMD), Google and many more will report next week

If the market rally has cleared the late 2022 highs by the end of next week, it would be a strong signal that a sustained uptrend is underway.


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What to do now

The stock market rally shows more strength and offers a number of buying opportunities.

Investors should add exposure gradually and not focus too much on a specific stock or sector. Earnings season can stir the market, but especially individual stocks. One option for investors is to purchase market or sector ETFs along with individual names.

Definitely focus on building your watchlists. Be aware of the most important revenue streams for the market and your interests, including rivals, customers and suppliers of the companies in which you hold positions.

Read The Big Picture every day to stay in sync with market direction and leading stocks and sectors.

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

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