Even when the 10-year Treasury yield approached the 4% mark on Monday morning, the Dow Jones futures, S&P 500 futures, and Nasdaq futures all mildly increased. As part of a busy week for EV news, Elon Musk's "Master Plan 3" and Tesla Investor Day will be highlighted.
With Treasury yields skyrocketing and Friday's sizzling PCE inflation report serving as the cherry on top, the stock market rally took severe losses this past week, with the major indexes shattering and testing crucial support. Pressure on the uptrend is building. Investors should adopt a more conservative stance; the major indices and top stocks may yet regain their footing.
On Saturday morning, Berkshire Hathaway released its Q4 earnings. As part of a major week for China EV news, Li Auto (LI) released earnings data early on Monday.
The Wall Street Journal reported Sunday night that Pfizer (PFE) and Seagen (SGEN) are in preliminary negotiations to merge. The market value of SGEN stock at Friday's close was $30.1 billion, but it increased 13% before the opening. Pfizer's stock slightly declined. Late-stage discussions were had with the biotech by Merck (MRK).
Late last year, Merck (MRK) attempted to close a transaction with the biotech in late-stage negotiations.
After demands for his replacement from the hedge fund Soroban Capital Partners, Union Pacific (UNP) said Sunday that CEO Lance Fritz will retire this year. Before market opening, UNP stock increased.
As the IBD Stock Of The Day on Friday, MercadoLibre (MELI) was flashing a buy signal on the strength of its earnings. The IBD 50 also includes MELI shares.
Jones Futures Compared to fair value, today's Dow Jones futures were up 0.4%. Nasdaq 100 futures increased 0.6%, while S&P 500 futures increased 0.5%.
According to futures, the Nasdaq is expected to retake the 200-day line at the opening bell, while the S&P 500 will rise slightly beyond its 50-day.
The yield on the 10-year Treasury increased by 2 basis points to 3.97%, drawing dangerously close to the 4% mark.
Natural gas prices increased while crude oil futures moved downward. The price of copper increased.
Keep in mind that overnight trade in Dow futures and other markets may not necessarily reflect real trading during the following normal stock market session.
China EV Sales and Profits
With revenue growth of 66%, China's Li Auto (LI), a manufacturer of EVs, reported Q4 adjusted EPS that was much above expectations. Importantly, the SUV hybrid manufacturer forecasted 52,000 to 55,000 car deliveries in the first quarter. This means that in February and March, Li Auto will supply 36,859–39,859 automobiles.
Nio (Nio) will reveal Q4 financials on Wednesday morning. Nio, Li Auto, and XPeng (XPEV) will also report February deliveries. By Friday, February sales data from the Chinese EV and battery juggernaut BYD (BYDDF) should be available.
Tuesday's weekly Chinese EV registration numbers will provide a reliable forecast of monthly sales for BYD, Li Auto, Nio, and Xpeng as well as Tesla deliveries.
After a robust January, Chinese EV stock prices have been declining once more. In contrast to Nio and XPEV stock, which are currently down for the year, BYD stock and Li Auto have reduced 2023 gains.
Nonetheless, Nio and XPEV shares rose as well as LI stock, which surged 6% on Monday morning. Stock in BYD wasn't yet active.
Which Is The Better Purchase Between EV Giants Tesla and BYD?
Investor Day for Tesla
But on March 1st, Tesla Investor Day will be the main event. Tesla (TSLA) has said that it will provide information on a next-generation EV platform for a more affordable vehicle. So when will that start being manufactured? The EV behemoth may also finally confirm the long-rumored Model 3 refresh plans by divulging information on the "Highland" upgrade.
Tesla will probably present HW4.0, the newest driver assistance hardware, which includes stronger CPUs, more cameras, and the return of radar. Elon Musk said that as of 2016, all Tesla EVs were "hardware ready" for fully autonomous driving.
The EV behemoth will undoubtedly talk about its own battery production initiatives, which include a massive Nevada factory expansion to produce 4680 cells.
Plans for battery storage expansion as well as "capital allocations" are important subjects.
Even if there are still a few significant topics on Elon Musk's 2016 second vision statement, his third "Master Plan" may be released. For about a year, Musk has been making references to Master Plan 3.
Meanwhile, early January saw a worldwide initial flurry of orders following Tesla pricing reductions. But aside from the Model Y in the United States, Tesla demand seems to be declining once more, while stocks are increasing.
China is particularly challenging because numerous EV manufacturers have reduced costs in response to Tesla. BYD pricing are also decreasing for a number of its models, albeit the EV behemoth claimed that these reductions are the result of individual dealer actions rather than corporate policy. Meanwhile, a number of new or updated models, including those from Nio, Li Auto, XPeng, and especially BYD, are expected in the coming months.
Tesla shares lost 5.5% to 196.88, ending a six-week winning streak. However, the 200-day moving average is slipping and shares are stalling just above the 21-day line.
Tesla stock would cross its 200-day line if it made a firm move above recent highs. That would present a potential entrance but be aggressive, especially given the market at hand. Which way will it go? The Tesla Investor Day might be a significant catalyst for up or down.
Early on Monday, the price of TSLA stock increased by 2%.
Berkshire Income
Operating earnings for Warren Buffett's Berkshire Hathaway (BRKB) declined 8% from the prior year to $6.7 billion. Operating profit increased 13% after adjusting for currency effects.
In Q4, Berkshire Hathaway sold more stocks than it bought. Nonetheless, it bought back shares of Berkshire for $2.855 billion, up from about $1 billion in the fourth quarter but down from $6.9 billion a year earlier.
From roughly $109 billion in Q3 to $128.651 billion in Q4, Berkshire's cash hoard increased.
In his annual shareholder letter, Warren Buffett stated that Berkshire Hathaway would continue to stockpile a "boatload" of cash and Treasury bills. A silver-tongued demagogue or an economic idiot, he called those who oppose stock buybacks.
Before the open, BRKB stock barely changed.
Last week, BRKB stock dropped 1.4% to 304.02. That is not far from a purchase mark of 321.42 off a flat base within a significant consolidation. After reaching a bottom in 2023, Berkshire stock increased marginally on Friday, but it is still below its 50-day line.
The major indexes had a difficult week, which was bad for the stock market rally.
The Dow Jones Industrial Average experienced its fourth consecutive weekly loss last week as the stock market traded, dropping 3%. S&P 500 index decreased by 2.7%. 3.3% of the Nasdaq composite fell. The Russell 2000 small-cap index fell 2.9%.
The yield on the 10-year Treasury increased by 12 basis points to 3.95%, reaching its highest level since November 10. Compared to the intraday low of 3.33% on February 2, when the current stock market surge crested, this is an increase of 62 basis points.
The US dollar rose for the fifth week in a row.
Last week, U.S. crude oil futures fell 0.3% to $76.32 a barrel. Prices for copper fell 3.9%, finishing on Friday at their lowest point since January 6.
ETFs The Innovator IBD 50 ETF (FFTY), one of the growth ETFs, decreased 1.6% last week. A 2.2% decline occurred in the iShares Extended Tech-Software Sector ETF (IGV). Nvidia (NVDA) provided both direct and indirect assistance for the VanEck Vectors Semiconductor ETF's (SMH) 1.9% decline.
Last week, the SPDR S&P Metals & Mining ETF (XME) fell 4.25%. The PAVE symbol for the Global X U.S. Infrastructure Development ETF fell 2.3%. U.S. Global Jets ETF (JETS) lost 2.8% of its value. XHB, the SPDR S&P Homebuilders ETF, decreased 3.2%. The Financial Select SPDR ETF (XLF), which has the most shares of BRKB stock, lost 2% while the Energy Select SPDR ETF (XLE) increased 0.2%. In a nine-week losing streak, the Health Care Select Sector SPDR Fund (XLV) plunged 2.6%, its largest loss to date.
Last week, the ARK Innovation ETF (ARKK) and the ARK Genomics ETF (ARKG) also experienced declines reflecting more speculative story companies. All of Ark Invest's ETFs hold a significant amount of Tesla stock.
Also, BYD is partially owned by Cathie Wood's Ark Invest. Although Berkshire still holds a sizable stock in the leading Chinese EV company, since last August its holding in BYD has decreased by more than 40%.
Analyses of market rallies
The recent stock market reversal can no longer be dismissed as merely a regular halt in a rally that is still going strong. The Dow Jones fell below its 50-day line on Tuesday, while the S&P 500, Nasdaq composite, and Russell 2000 all fell below their respective 21-day moving averages. Due to pressure from this, the stock market surge entered an uptrend.
The major indices were once more hit by Friday's strong inflation figure after two days of relatively moderate market movements. The S&P 500 tested its 200-day line and finished below its 50-day moving average. The Nasdaq closed barely below its 200-day line, and it was not far from its 50-day line. The Dow Jones dropped to its lowest points since 2023.
Prominent stocks started to exhibit considerable deterioration after bending over the previous two weeks as the market rally slightly retreated.
Inflation appeared to be decreasing just a few weeks ago, and the economy was still in rather good shape. Investors had wagered that the Fed's tightening cycle would come to an end in March after a quarter-point rate increase. Inflation statistics from January, including December revisions, indicate that inflation is still too high and may even be increasing. Investors anticipate at least three additional rate hikes of a quarter point, with a growing likelihood of more or faster tightening.
Although the next wave of inflation data won't be available until after the February jobs report, the prognosis for a rate hike by the Fed may shift. The updated macroeconomic and Fed policy expectations may also end up being factored into stock prices. Yet it's difficult to imagine the stocks holding up, much less advancing, when rates and the dollar are rising quickly.
The market boom isn't over yet; it just needs to get stronger. A minimum first step would be the S&P 500 regaining its 50-day line and the Nasdaq regaining its 200-day line, with the 21-day lines being another crucial milestone. The "uptrend under pressure" might easily be moved to the "market in correction" with little effort.
In either case, it might take several days or several weeks for many of the top stocks to set up again.
Certainly, some equities, most notably Nvidia, gapped higher following earnings last week. But, a few of those gap-ups vanished immediately. The price of WING stock surged by almost 17% shortly after Wednesday's opening, but it later reduced intraday gains and actually decreased for the week.
Stocks in the housing sector, such as those of builders, some retailers, and material companies, continue to do well. Together with other names in machinery, heavy construction is doing well.
But, there are still a number of companies across numerous industries that would look much more attractive with a few excellent days.
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