Dow Jones futures open Sunday evening, along with S&P 500 futures and Nasdaq futures. Warren Buffett’s Berkshire Hathaway (BRKB) reported solid second-quarter profit growth as it cut its massive stake in Apple.
The stock market rally suffered sharp, broad losses as recession fears suddenly flared after weak economic data, including Friday’s July jobs report, and Amazon.nl (AMZN) warns of headwinds for consumers.
Fed chief Jerome Powell signaled on Wednesday that rate cuts were coming. On Friday, markets were expecting a 50 basis point rate cut by the Fed in September and at least 100 basis points by the end of the year.
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Palantir heads toward earnings as tech stocks remain under pressure
Indices, major stocks sell off
The market-leading Russell 2000 and Dow Jones fell to key support, along with many non-tech leaders. The S&P 500 and Nasdaq broke well below key levels.
Amazon.nl (AMZN) fell on gains, while chip stocks suffered huge losses. That includes Nvidia (NVDA), which is reportedly under investigation by the Ministry of Justice.
Tesla (TSLA) fell to a key support level, erasing much of its recent gains, as a hearing on Elon Musk’s pay deal began in Delaware.
The silver lining amid the dark clouds? The Market Fear Meter, a contrarian indicator, shot up to its highest level in more than a year.
Apple (AAPL) rose slightly over the week and remained above a key level. Meta platforms (META) also climbed, but remained well below its highs. Ollie’s bargain outlet (OLLI), Neurocrine Biosciences (NBIX) also showed resilience, while Free market (MELI) announced buy points on Friday.
But investors should be extremely cautious about making new purchases and at the same time reduce their exposure while cutting losses.
Warren Buffett’s Berkshire
Berkshire Hathaway’s after-tax operating profit rose 15.5% to $11.6 billion, driven by insurance underwriting and interest income from the company’s vast cash reserves.
Cash levels rose to $277 billion from a previous record of $189 billion on March 31, largely thanks to Berkshire Hathaway selling nearly half its Apple stake for 400 million shares.
Buffett sold $97 billion worth of stock in Q2, mostly AAPL stock. There had been speculation that Berkshire had significantly reduced its Apple stake, after some reductions in the previous two quarters.
Berkshire bought back just $345 million of its own shares, far less than in previous quarters.
BRKB shares fell 2.1% last week to 428.51, dipping below the 430 buy point level on Friday.
Important gains for the future
Palantir Technologies (PLTR), Supermicrocomputer (SMCI system), Caterpillar (CAT), Embraer (ERJ) are set to report notable earnings this coming week, along with pharmaceutical giants Eli Lilly (LLY) and New Nordisk (NVO).
But all of those stocks look damaged after the past week. Palantir and Super Micro stocks are important because they’re artificial intelligence. Caterpillar and Embraer offer more visibility into the industrial and aerospace markets, respectively. Eli Lilly and Novo are leaders in weight-loss drugs, which is the other society-transforming theme besides AI.
Dow Jones Futures Today
Dow Jones futures open at 6 p.m. ET on Sunday, along with S&P 500 futures and Nasdaq 100 futures.
Please note that trading Dow futures and other markets overnight does not necessarily result in actual trading during the next regular trading session.
Join IBD experts as they analyze leading stocks and the market on IBD Live
Rally on the stock market
The stock market rally had a terrible week, especially considering Wednesday’s bullish gains on AI optimism and the Fed meeting. Thursday’s selloff was a major deterrent to market expectations, with the heavy losses continuing into Friday.
The Dow Jones Industrial Average fell 2.1% in stock trading last week. The small-cap Russell 2000, which hit a 30-month high Wednesday afternoon, closed down 6.7%. Both tested their 50-day lines Friday but closed above that key level.
The S&P 500 index fell 2.1% and the Nasdaq Composite 3.35%, both below their 50-day lines and undercutting the previous week’s lows. The Nasdaq entered traditional intermediate correction territory.
The Russell 2000 and Dow, both with more “real economy” components than the tech-heavy Nasdaq, were big winners in July as the market priced in the Fed’s rate cuts. But now that the focus has shifted to recession fears, those indexes are tumbling back. So are banks, industrials and airline stocks.
Defensive growth trends in discount retail, insurance and medical sectors held up, as did defensive utilities and consumer staples.
Although the indices closed from Friday’s lows, they were still down significantly. Weekly charts show no real bounce.
The 10-year Treasury yield fell 40 basis points for the week to 3.795%, near its late December low. The two-year yield plunged 52 basis points to 3.87%, the biggest weekly decline for both since March 2023. The yield spread inverted the least in two years.
U.S. crude oil futures fell 4.7% last week to $73.52 a barrel, hitting a two-month low on Friday.
Market fears are increasing
The CBOE Volatility Index, or VIX, surged on Friday to its highest levels since March 2023. The market fear indicator hit higher highs in October 2023 and April 2024.
Excessive fear can at least signal a short-term bottom in the market, but that may not happen immediately and may not last long. Moreover, fear of the market can become much greater if recession concerns continue to mount.
ETFs
Among growth ETFs, the Innovator IBD 50 ETF (FFTY) fell 7.8% last week. The iShares Expanded Tech-Software Sector ETF (IGV), with Palantir shares as a member, fell 5.4%.
The VanEck Vectors Semiconductor ETF (SMH) fell 9.1%, with Nvidia shares leading the way. NVDA shares fell 5.1% to 107.27 amid multiple reports late in the week that the DOJ is investigating the chip giant for its AI dominance. Shares were down significantly from Friday’s intraday lows.
SPDR S&P Metals & Mining ETF (XME) fell 7.7% last week. The Global X US Infrastructure Development ETF (PAVE) lost 4.9%. SPDR S&P Homebuilders ETF (XHB) fell 4.7%. The Energy Select SPDR ETF (XLE) lost 4.1% and the Health Care Select Sector SPDR Fund (XLV) rose slightly by 0.6%, with Eli Lilly being a large holding.
The Industrial Select Sector SPDR Fund (XLI) fell 2.8%, with Caterpillar shares as a major member. The Financial Select SPDR ETF (XLF) fell 3% and the SPDR S&P Regional Banking ETF (KRE) fell 9.2%.
Mirroring more speculative story stocks, ARK Innovation ETF (ARKK) fell 9.9% last week to its worst levels since November of last year. ARK Genomics ETF (ARKG) fell 9.7%.
Tesla shares are a major holding in Ark Invest’s ETFs. TSLA shares fell 5.5% for the week to 207.67, tumbling between the 50-day and 200-day lines. Shares have fallen 23% since hitting a 10-month high of 271 on July 11. On Friday, the Delaware Chancery Court began a hearing on Elon Musk’s 2017 pay deal, which it rejected earlier this year. Shareholders supported the pay deal again in June, but it’s unclear whether the court will give it any legal weight.
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Stocks to watch
Apple shares rose 0.9% to 219.86 for the week. Shares closed just below their 21-day moving average after nearly touching the 10-week line. The relative strength line, which tracks a stock’s performance against the S&P 500 index, is at 2024 highs.
It will be interesting to see how AAPL stock reacts to Warren Buffett’s decision to reduce his stake in the iPhone giant.
Meta shares rose 4.8% to 488.14 for the week but closed below their 50-day line after initially rising on Thursday on earnings.
Neurocrine shares rose 4.3% to 153.14 for the week, recovering from the 10-week line and then trading up 8.2% on gains Thursday, in a buy zone, according to MarketSurge analysis. Shares held their positions on Friday.
Ollie’s shares tumbled Friday morning, but recovered their losses after testing their 50-day and 10-week lines. Shares rose slightly, 0.4%, to 96.41 for the week. Ollie’s is below its 21-day line and more before it can possibly take action. A new base would be nice.
MercadoLibre shares rose 7.5% to 1,776.14 for the week, recovering from their 40-week line and reclaiming their 50-day line. Friday’s 10.6% spike on blowout gains pushed MELI shares above a trendline entry and 1,764.50 early entry. The Latin American e-commerce and payments giant has an official buy point of 1,792.05. Keep in mind that it’s common for stocks to soar on gains in a down market, only to fall back later
What to do now?
The stock market rally has taken serious damage over the past week. The major indexes all appear damaged. Breakouts and setups are failing or under severe pressure.
Investors should have reduced their exposure, especially towards the end of the week, especially if they bought shares on Wednesday.
The market fear indicator suggests we may be approaching a bottom, but the VIX and other psychological indicators are secondary at best to the major indexes and leading stocks.
In any case, don’t get excited about a strong market open or even a good day or two. The indexes and leading stocks need repair work, except for a few names in defensive sectors or defensive growth sectors.
Spend some time reviewing your watchlists, which may have been shortened over the past few days.
Read The Big Picture every day to stay up to date on market developments and the most important stocks and sectors.
Follow Ed Carson on Threads at @edcarson1971 and X/Twitter at @IBD_ECarson for stock market updates and more.
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