Dow Jones futures were little changed overnight, along with S&P 500 futures and Nasdaq futures, as the House passed the debt-ceiling deal. Salesforce.com (CRM) and C3.ai (AI) headlined a big night of earnings reports. China EV makers are due to release sales numbers with Elon Musk reportedly set to unveil an updated Tesla Model 3 in Shanghai.
The stock market rallied retreated Wednesday, with weak breadth once again amid strong economic data and renewed banking concerns. AI stocks generally pulled back after huge recent gains. The indexes pared losses somewhat as two Fed officials signaled they favor a pause on rate hikes at the June meeting.
In addition to Salesforce and AI stock, cybersecurity plays Oct (OCTA) and CrowdStrike (CRWD) reported quarterly results, along with storage plays NetApp (NTAP) and PureStorage (PSG).
PSTG stock and NetApp were after-hours winners. Salesforce stock was a solid loser while C3.ai, Okta and CRWD stock suffered double-digit percentage losses.
Early Thursday, China EV startups Li Auto (LI), Neo (NIO) and Xpeng (XPEV) will report May deliveries, with Tesla (TSLA) archrivals BYD (BYDDF) possibly releasing results as well.
CRM stock is on IBD Leaderboard. Salesforce and Okta stock are on the IBD 50.
House OK’s Debt-Limit Deal
The House overwhelmingly passed the debt-ceiling deal Wednesday night, 314-117. A majority of Republicans and Democrats backed the legislation. The Senate will soon follow, with a June 5 deadline to avoid default.
Dow Jones Futures Today
Dow Jones futures sank 0.1% vs. fair value. CRM stock is a Dow component. S&P 500 futures edged higher and Nasdaq 100 futures lost 0.1%.
The debt-ceiling deal was widely expected to pass, so Wednesday night’s vote had little impact on Dow futures.
At 8:15 am ET, the ADP Employment Report will offer its estimate for private job growth in May. At 8:30 am, the Labor Department will release its weekly jobless claims report. Claims are no longer showing a significant weakening of the labor market following recent revisions for fraud.
At 10 am ET, the ISM manufacturing index is on tap.
Those come ahead of Friday’s jobs report for May. With a Fed rate hike or pause definitely in play, economic data over the next two weeks will get close attention.
Remember that overnight action in Dow futures and elsewhere doesn’t necessarily translate into actual trading in the next regular stock market session.
CRM stock fell 6% in late trading. Salesforce earnings and revenue modestly topped, but the software giant only slightly raised sales views. Salesforce stock rose 2.1% to 223.38 in Wednesday’s regular session, hitting a 52-week high.
AI stock sold off 22% overnight as Q4 revenue came in line with preliminary guidance on May 16 that had sent shares soaring. C3.ai guided low on Q1 2024 revenue. C3.ai stock fell 9% to 40.01 on Wednesday, but that’s after spiking 33% on Tuesday.
OKTA stock plunged 16% in extended action. Okta earnings topped while guidance was strong. The cybersecurity play edged up 0.9% to 90.90 on Wednesday, holding in the range of an 87.98 buy point.
CRWD stock also dived 12% overnight. CrowdStrike beat views while giving just-above-consensus guidance. Shares climbed 1% to 160.13. CRWD stock surged 33% in May, racing through the 200-day line. CrowdStrike stock isn’t offering an obvious entry now.
PSTG stock jumped 6% in an extended trade. Pure Storage earnings fell vs. a year earlier, but comfortably beat views. The data storage firm also guided higher. Shares fell 2.1% to 28.79 on Wednesday. That’s after Pure Storage stock jumped 6.7% on Tuesday and 19.9% over three sessions, cracking the 200-day line and finally recovering losses from the fiscal Q4 earnings report. PSTG stock has a 32.55 buy point, but could have slightly lower entries.
NTAP stock popped 7% in overnight action. NetApp earnings easily topped while revenue edged past views. The storage giant tumbled 4% on Wednesday to 66.35 after reversing lower Tuesday from a possible early entry around 70.
Musk To Unveil Updated Tesla Model 3?
Tesla does not release China sales data, though weekly EV registrations point to solid demand so far in Q2.
CEO Elon Musk is in China this week for the first time in three years. On Thursday, he’s set to tour the Tesla Shanghai plant. Musk will reportedly show off the updated Model 3. Tesla has never confirmed the “Highland” upgrade, which is expected to be a little longer and sportier than the existing model, which hasn’t changed much since 2017. Some reports have said many of the upcoming Model 3’s changes are about lowering costs, which is important as Tesla has had to slash prices to maintain demand.
It’s unclear when Tesla will begin deliveries of the updated Model 3 in China, or when the Fremont, Calif.-based plant will follow suit.
Meanwhile, Tesla quietly doubled its Model 3 RWD discount on US inventory to 6%.
Tesla stock is nearing the 207.89 buy point from what’s either a cup or double-bottom base. On Wednesday, TSLA stock rose 1.4% to 203.93, holding the 200-day line after closing above that key level for the first time since September.
China EV Sales
Li Auto will likely show continued sales momentum in May with its lineup of premium hybrid SUVs. Nio should show a bounce from its revamped ES6 SUV, which started deliveries on May 25, but June sales will be the real test. XPeng will likely show another month-to-month gain, but still below 10,000 a month. Its hopes are pinned on its upcoming G6 crossover.
LI stock is consolidating modestly above a prior base. Shares edged down 0.3% to 29.05 on Wednesday, but rebounded from near the 21-day line. Nio stock rose 1.6% after hitting a 52-week low intraday. XPEV stock edged higher after nearly setting a 2023 low.
China EV and battery giant BYD may report May sales on Thursday, but may report on Friday or Saturday. It should show a continued month-to-month sales rise, but still below the late 2022 peak. BYD stock has pulled back to below a 31.17 buy point. Shares rose 1.5% to 30.20 on Wednesday, between the 50-day and 21-day lines.
Fed Rate Hike Odds ‘Skip’ Lower
Wednesday afternoon Fed. Gov. Nathan Jefferson signaled he favors a pause, noting that “skipping” on a June hike wouldn’t rule out rate increases at future meetings. Boston Fed President Patrick Harker said he wants to “skip” a June rate hike, but is open to further increases later. The dovish comments from two voting FOMC members follow more-hawkish comments from some other officials.
The odds of a Fed rate hike plunged to 26% on Wednesday from a two-thirds chance on Tuesday.
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Stock Market Rally
The stock market rallied saw losses, but the major indexes closed in the upper half of their ranges.
At 10 am ET, the Labor Department reported job openings unexpectedly rose in April, well above views. That pushed up the dollar, along with weak overseas data. Late morning, an FDIC report warned of “downside risks” to the banking industry,” hitting bank stocks.
But the comments by Fed Gov. Jefferson and Philly Fed President Harker eased selling pressure.
The Dow Jones Industrial Average fell 0.4% in Wednesday’s stock market trading. The S&P 500 index and Nasdaq composite declined 0.6% The small-cap Russell 2000 lost 1%
US crude oil prices fell 2% to $68.09 a barrel, just above 2023 lows.
The 10-year Treasury yield fell six basis points to 3.64%, continuing to retreat after hitting 3.86% intraday Friday. The dollar reached a six-month high Wednesday morning, but pared gains on the Fed hike ‘skip’ talk and lower yields.
Among growth ETFs, the iShares Expanded Tech-Software Sector ETF (IGV) advanced 0.7%. CRM stock is a huge IGV holding, with C3.ai and CrowdStrike also in the ETF. The VanEck Vectors Semiconductor ETF (SMH) slumped 2.5%.
Reflecting more speculative story stocks, ARK Innovation ETF (ARKK) climbed 1.7% and ARK Genomics ETF (ARKG) dipped 0.3%. Tesla stock is the No. 1 holding across Ark Invest’s ETFs. Cathie Wood’s Ark also owns some BYD stock and CrowdStrike.
The SPDR S&P Metals & Mining ETF (XME) slumped 0.6% and the Global X US Infrastructure Development ETF (PAVE) skidded 1.8%. US Global Jets ETF (JETS) dipped 0.2%. The SPDR S&P Homebuilders ETF (XHB) lost 2.1%. The Energy Select SPDR ETF (XLE) retreated 1.8% and the Health Care Select Sector SPDR Fund (XLV) rose 0.9%.
The Financial Select SPDR ETF (XLF) gave up 1.1%. The SPDR S&P Regional Banking ETF (KRE) gave up 3.1%. An FDIC report covering the first quarter worried investors. FDIC Chairman Martin Gruenberg said the banks “face significant downside risks.”
Five Best Chinese Stocks To Watch Now
Market Rally Analysis
The stock market rally had a modestly down day, but the major indexes closed near session highs. Given the split nature of this uptrend, various indexes and key metrics paint different pictures.
The Nasdaq looks like it’s pausing after getting a little extended, especially the Nasdaq 100. The S&P 500 is still close to 2023 highs, above all its moving averages.
The Dow Jones, though, tested its 200-day line again before it bounced slightly.
The Russell 2000, weighed down by bank stocks as well as energy plays, is now decisively below its 50-day line.
The First Trust Nasdaq 100 Equal Weighted Index ETF (QQEW) fell 0.4%, but off lows. On Tuesday, QQEW broke out to a 52-week high but reversed lower for a fractional loss.
The Invesco S&P 500 Equal Weight ETF (RSP) slumped intraday to the lowest point since the 2023 low on March 24. While RSP pared losses to 0.9%, it’s starting to lose sight of its key moving averages.
Losers trumped winners. New lows decisively outpaced new highs.
AI stocks took a breather, which is fine. It’ll be important to watch how Nvidia, C3.ai and many stocks trade after their huge moves. Do they go sideways for a few weeks or pull back modestly to forge new bases, or do they tumble back down. Meanwhile, do second-wave AI plays, including Arista Networks (ANET), hold most of their recent gains and trade around their buy points for a time, letting moving averages catch up?
Elsewhere, the software seems to be doing well, clearly with an AI element in many cases. Leaders include giants such as Microsoft (MSFT), Oracles (ORCL) and CRM stock, cloud plays such as cloudflare (NET) and Dynatrace (DT) as well as cybersecurity names like Palo Alto Networks (PANW) and OKTA stock. How will the software sector hold up after Salesforce, C3.ai, Okta and CrowdStrike report?
Many restaurant stocks are still doing well, but not all.
Homebuilder stocks, which had cooled off, skidded Wednesday as mortgage applications fell to a three-month low amid the recent uptrend in rates. Biotechs and medical products are struggling or fighting hard just to hang on.
Artificial Intelligence News and AI Stocks
What To Do Now
There’s not a lot of actionable stocks. AI stocks are generally extended and may start to pull back. Many other potential leaders are still struggling.
The choppy market rally with weak breadth overall is not a great environment.
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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