Dow Jones futures fell slightly Sunday night, along with S&P 500 futures and Nasdaq futures. Berkshire Hathaway (BRKB) earnings, Apple iPhone 14 Pro production woes and reports of Meta Platforms (META) layoffs headlined weekend news.

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Even with a solid close in Friday’s whipsaw session, the stock market rally suffered significant damage last week, with the major indexes tumbling on hawkish comments from Fed chief Jerome Powell.

The Nasdaq had its worst week since January as megacaps plunged and cloud software crashed.

Apple (AAPL), Amazon.com (AMZN) and Google parent Alphabet (GOOGL) all lost more than 10% for the week, with Facebook parent Meta Platforms (META), Tesla stock and Microsoft stock not far behind. Google stock, Meta, Amazon.com (AMZN) and Microsoft (MSFT) all hit bear market lows. Apple stock and Tesla (TSLA) did not, but they’re close.

Meanwhile, Twilio (TWLO) and Atlassian (TEAM) crashed Friday on disappointing results and guidance, losing more than 40% for the week. A slew of other software names tumbled, with or without earnings.

A market rally trying to fight the Fed with major tech sector plummeting? That’s a tall order. So while there are some stocks and sectors showing strength, investors should be extremely cautious in the current environment.

News

Meta Platforms will cut thousands of jobs, The Wall Street Journal reported Sunday. An announcement could come as soon as Wednesday, the WSJ said. Meta had more than 87,000 employees at the end of September. On Oct. 26, Meta reported a 49% EPS decline in Q3 and slashed guidance amid a metaverse spending splurge.  META stock plunged 25% the next day, with shares continuing to slide.

Late last week, new Twitter owner Elon Musk slashed half of that social media’s workforce of 7,500.

Apple said Sunday that “we now expect lower iPhone 14 Pro and iPhone 14 Pro Max shipments than we previously anticipated,” citing Covid restrictions affecting production at a supplier’s assembly plant in Zhengzhou, China. The Apple disclosure isn’t really a shock, with a Foxconn plant in Zhengzhou is under closed-loop production. Foxconn warned Monday local time that the Covid disruptions will hit Q4 earnings.

Apple said 14 Pro and Pro Max remains strong, but shipments will be take longer.

Warren Buffett’s Berkshire Hathaway on Saturday reported a 20% bump in operating profit. The conglomerate suffered a net loss as the ongoing bear market hit investments.

Dow Jones Futures Today

Dow Jones futures fell 0.1% vs. fair value. S&P 500 futures sank 0.2% and Nasdaq 100 futures retreated 0.25%.

Crude oil fell more than 1% while natural gas futures spiked over 8%.

The dollar, which tumbled Friday, rose slightly.

Goldman Sachs now expects S&P 500 earnings to be flat in 2023, down from its prior target of 3%.

Remember that overnight action in Dow futures and elsewhere doesn’t necessarily translate into actual trading in the next regular stock market session.

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Stock Market Rally

The stock market rally started the week off in decent fashion but then sold off Wednesday afternoon on Fed chief Jerome Powell’s hawkish comments. The major indexes gave up more ground Thursday. Stocks whipsawed Friday following a mixed jobs report, but ultimately closed solidly higher that day.

The Dow Jones Industrial Average still fell 1.4% in last week’s stock market trading. The S&P 500 index slumped 3.3%. The Nasdaq composite plunged 5.7%, its worst loss since the week ended Jan. 21. The small-cap Russell 2000 fell 2.4%.

The 10-year Treasury yield jumped 15 basis points to 4.16%. The 10-year yield resumed its advance after snapping a 12-week win streak and briefly trading back around 4%.

The dollar edged up 0.2% for the week, but plunged 1.9% on Friday, the biggest one-day drop in years. That likely contributed to Friday’s stock market advance.

Markets now see a 61.5% likelihood of a 50-basis-point hike at the December Fed meeting. The October consumer price index is due on Thursday. The November jobs and CPI reports will be out before the Dec. 14 Fed rate hike decision.

U.S. crude oil futures jumped 5.4% last week to $92.61 a barrel. Natural gas shot up nearly 13%.

Tech Wreck

Apple stock, which had rallied up to its 200-day line, plunged 11.15% to 138.38 last. AAPL stock came within a penny of its October low, though it still has a little distance to its bear market lows in June. Microsoft skidded 6.1%, Google 10.1%, Amazon 12% and META stock 8.5%, all to multiyear lows. Tesla stock tumbled 9.2%, coming close to its Oct. 24 intraday low on Friday. That’s after TSLA startted the week strong, hitting 237.40 intraday Tuesday.

Meanwhile, it’s dark days for cloud software. Atlassian stock plunged 29% on Friday and 38% for the week. Twilio stock crashed nearly 35% on Friday and 43.5% for the week. Snowflake (SNOW), which won’t report for a few weeks, dived 17% for the week.

Meanwhile, Fortinet (FTNT) crashed 17.5% for the week as weak billings guidance offset strong earnings and a bullish revenue outlook. Paycom (PAYC) plunged 10.3% despite robust results and guidance.

Businesses looking to cut costs may curb spending on software as they set budgets for 2023.

ETFs

Among the best ETFs, the Innovator IBD 50 ETF (FFTY) fell 1.2% last week, while the Innovator IBD Breakout Opportunities ETF (BOUT) lost 2%. The iShares Expanded Tech-Software Sector ETF (IGV) plunged 10.2%, with MSFT stock a key holding. The VanEck Vectors Semiconductor ETF (SMH) fell just 0.7%, after jumping 4.65% on Friday, closing high in the weekly range.

SPDR S&P Metals & Mining ETF (XME) climbed 2%. The Global X U.S. Infrastructure Development ETF (PAVE) edged down 0.1%. U.S. Global Jets ETF (JETS) edged up 0.3%. SPDR S&P Homebuilders ETF (XHB) tumbled 5%. The Energy Select SPDR ETF (XLE) climbed 2.4%, just below an eight-year high. The Financial Select SPDR ETF (XLF) fell 0.9%. The Health Care Select Sector SPDR Fund (XLV) gave up 1.5%.

Reflecting more-speculative story stocks, ARK Innovation ETF (ARKK) slumped 9.4% last week and ARK Genomics ETF (ARKG) retreated 4.65%. Tesla stock is a major holding across Ark Invest’s ETFs.

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Market Rally Analysis

The stock market rally had a bad week, with a hawkish Fed and often-weak earnings weighing on the major indexes. The Dow Jones, which has led the market uptrend, had the mildest decline, but did move back below the 200-day moving average. The Russell 2000 hit resistance near the 200-day line but recovered Friday to close above the 50-day. The S&P 500 knifed through the 50-day.

The Nasdaq, which never got to the 50-day moving average, fell the most, closing below the low of its follow-through day on Wednesday, a bearish signal.

The major indexes extended losses Thursday, then whipsawed higher Friday on a mixed jobs report.

The negative market action and big reversals in many stocks triggered a shift to “market under pressure.”

The big driver was Fed chief Powell, who pulled the rug out from the market rally by signaling a shift to smaller hikes but a higher peak fed funds rate.

Meanwhile, megacap techs, including Apple, Tesla, Amazon and Meta stock suffered huge losses. Cloud software names such as Atlassian and Twilio melted down, with recent earnings and guidance significant factors.

Chips didn’t have a terrible week, relatively, but only a few names are trading near highs.

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There are several resilient market areas. The health care sector looks strong overall. Energy names, including a wide range of oil stocks, LNG plays and coal miners, plus a few solar stocks, are doing well.

Lithium and some steel plays are doing well. Infrastructure firms for the energy, utilities and telecom industries is a bright area. Networking firms in general are a rare tech area that’s leading. Some restaurants and discount retailers are showing strength. Various financials, notably brokers and brokerages, have made strong gains.

Still, it’s hard to see a strong market rally with such huge tech sectors reeling. It would be hard enough for the major indexes to advance with Apple, Google, Tesla and cloud software names lagging. But to try to advance with those areas plunging or crashing?

If inflation reports show a clear and meaningful decline, spurring a downshift in Fed rate hikes, then perhaps megacaps and cloud software can bottom. However, a return to tech leadership could be some ways off. On the flip side, if the October CPI report on Nov. 10 shows inflation still running hot, tech stocks could drag down leading sectors to finish off the market rally.

Tuesday is Election Day. The stock market tends to do better with divided government, and Republicans are set to reclaim control of the House and perhaps the Senate. But political forecasters have been predicting at least a House GOP win all year, so it’s not clear if Tuesday’s actual results will be a big catalyst.

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What To Do Now

The stock market rally is under pressure. The Fed is switching from fast and furious to slow and long, but it’s still hawkish. The tech sector is a train wreck. The major indexes have undercut some key levels. The indexes and leading stocks are subject to big intraday and daily swings.

This is not a good environment for buying stocks. Investors should be looking to cut exposure, either explicitly or simply from cutting losses on various positions.

If the market rally shows renewed strength, with the S&P 500 and possibly the Nasdaq moving above their 50-day moving averages, investors might start adding exposure. But that will probably require tech to stabilize and inflation data to show some cooling.

If conditions improve, you’ll want to be ready. There are a number of stocks setting up, with many more not too far away. So build up your watchlists, be patient and stay engaged.

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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