Dwo Jones futures will open Sunday evening, along with S&P 500 futures and Nasdaq futures, with Apple (AAPL) and Nvidia (NVDA) in focus.
Warren Buffett’s Berkshire Hathaway (BRKB) reported solid earnings growth in the second quarter, while slashing its huge Apple stake.
Meanwhile, Nvidia’s next-generation Blackwell AI chips reportedly will be delayed for months due to a design flaw, potentially affecting Microsoft (MSFT), Google-parent Alphabet (GOOGL), Meta Platforms (META) and other big buyers.
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Palantir Heads Into Earnings As Tech Stocks Remain Under Pressure
Indexes, Key Stocks Sell Off
The stock market rally suffered sharp, broad losses last week as recession fears erupted on weak economic data, including Friday’s July jobs report, as well as Amazon.com (AMZN) warning of consumer headwinds.
Fed chief Jerome Powell signaled Wednesday that rate cuts were coming. By Friday, markets expected a 50-basis point Fed rate cut in September and at least 100 basis points by year-end.
The market-leading Russell 2000 and Dow Jones tumbled to key support along with many non-tech leaders. The S&P 500 and Nasdaq broke well below key levels.
Amazon.com (AMZN) plunged on earnings, while Nvidia and other chip stocks suffered big or massive losses.
Tesla (TSLA) tumbled to key support, wiping out much of its recent gains, as a Delaware court hearing began on Elon Musk’s pay deal.
The silver lining amid the dark clouds? The market fear gauge, a contrarian indicator, spiked to the highest level in more than a year.
Apple stock edged higher last week and held above a key level. Meta Platforms also climbed, but came well off highs. Ollie’s Bargain Outlet (OLLI), Neurocrine Biosciences (NBIX) also showed resilience, while MercadoLibre (MELI) teased buy points on Friday.
But investors should be extremely wary about new buys while reducing exposure as they cut losers.
Warren Buffett’s Berkshire
Berkshire Hathaway’s after-tax operating profit jumped 15.5% to $11.6 billion, led by insurance underwriting and interest income on the company’s massive cash holdings.
Warren Buffett sold almost half of his massive Apple stock stake amid buzz that he might pare holdings after some AAPL reductions in the prior two quarters.
Cash levels soared to $276.94 billion from $189 billion on March 31. Buffett sold $97 billion worth of equities in Q2. Both primarily reflect the Apple share sales.
Berkshire bought back just $345 million worth of its own stock, far lower than in prior quarters.
BRKB stock fell 2.1% last week to 428.51, dipping below a 430 buy point on Friday.
Key Earnings Ahead
Palantir Technologies (PLTR), Super Micro (SMCI), Caterpillar (CAT), Embraer (ERJ) are notable earnings reports this week, along with drug giants Eli Lilly (LLY) and Novo Nordisk (NVO).
But all of those stocks look damaged. Palantir and Super Micro stock are important because they’re artificial intelligence plays. Caterpillar and Embraer will offer more insight into the industrial and aerospace markets, respectively. Eli Lilly and Novo are the leaders in weight-loss drugs.
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. Market reaction to Buffett’s Apple sales and Nvidia AI chip delays will be key.
Remember that overnight action in Dow futures and elsewhere doesn’t necessarily translate into actual trading in the next regular stock market session.
Join IBD experts as they analyze leading stocks and the market on IBD Live
Stock Market Rally
The stock market rally had a terrible week, especially given Wednesday’s bullish gains on AI optimism and the Fed meeting. Thursday’s sell-off was a big market expectations breaker, with the heavy losses continuing Friday.
The Dow Jones Industrial Average slumped 2.1% in last week’s stock market trading. The small-cap Russell 2000, which hit a 30-month high Wednesday afternoon, finished down 6.7%. Both tested their 50-day lines Friday but closed above that key level.
The S&P 500 index lost 2.1% and the Nasdaq composite 3.35%, both skidding below their 50-day lines and undercutting the prior 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 Fed rate cuts. But with the focus shifting to recession fears, those indexes are tumbling back. So are banks, industrials and aerospace stocks.
Defensive growth plays in the discount retailer, insurance and medical space held up, along with defensive utilities and consumer staples.
While the indexes closed off Friday lows, they were still down sharply. Weekly charts show no real bounce.
The 10-year Treasury yield plunged 40 basis points for the week to 3.795%, nearly undercutting the late December low. The two-year yield crashed 52 basis points to 3.87%. It was the biggest weekly decline for both since March 2023. The yield spread is the least inverted it’s been in two years.
U.S. crude oil futures tumbled 4.7% to $73.52 a barrel last week, hitting a two-month low on Friday.
Market Fear Spikes
The CBOE Volatility Index, or VIX, shot up Friday to its highest levels since March 2023. The market fear gauge topped the peaks in October 2023 and April 2024.
Excessive fear can signal at least a short-term market bottom, but it doesn’t have to happen right away and it doesn’t have to last. Also, market fear could go a lot higher if recession worries continue to swell.
ETFs
Among growth ETFs, the Innovator IBD 50 ETF (FFTY) dived 7.8% last week. The iShares Expanded Tech-Software Sector ETF (IGV) skidded 5.4%, with Palantir stock a member.
The VanEck Vectors Semiconductor ETF (SMH) plunged 9.1%, with Nvidia stock the No. 1 holding.
SPDR S&P Metals & Mining ETF (XME) skidded 7.7% last week. The Global X U.S. Infrastructure Development ETF (PAVE) lost 4.9%. SPDR S&P Homebuilders ETF (XHB) stepped down 4.7%. The Energy Select SPDR ETF (XLE) gave up 4.1% and the Health Care Select Sector SPDR Fund (XLV) edged up 0.6%, with Eli Lilly stock a big holding.
The Industrial Select Sector SPDR Fund (XLI) sank 2.8%, with Caterpillar stock a major member. The Financial Select SPDR ETF (XLF) declined 3% and the SPDR S&P Regional Banking ETF (KRE) sold off 9.2%.
Reflecting more-speculative story stocks, ARK Innovation ETF (ARKK) plummeted 9.9% last week to its worst levels since last November. ARK Genomics ETF (ARKG) plunged 9.7%. Tesla stock is a major holding across Ark Invest’s ETFs.
Time The Market With IBD’s ETF Market Strategy
Nvidia AI Chips Delayed
Nvidia told Microsoft and another key cloud customer that its Blackwell artificial intelligence chips will be delayed by at least three months due to design flaws, The Information reported Saturday, citing a Microsoft employee and other source. That could affect the AI efforts for Microsoft, Google, Meta and more.
An Nvidia next-gen chip delay could have a significant impact on revenue in the coming months. It could also provide a boost for Advanced Micro Devices (AMD), which was set to fall behind Nvidia chip performance again.
NVDA stock tumbled 5.1% last week to 107.27, with multiple reports late in the week that the Justice Department is probing the chip giant for its AI dominance. Shares did come well off Friday’s intraday lows.
Tesla Stock
TSLA stock fell 5.5% last week to 207.67, between the 50-day and 200-day lines. Shares are down 23% since hitting a 10-month high of 271 on July 11.
On Friday, the Delaware Chancery Court held a hearing on Elon Musk’s 2017 pay deal, which it struck down earlier this year. Shareholders endorsed the pay deal again in June, but it’s unclear if the court will give that any legal weight.
Stocks To Watch
Apple stock rose 0.9% to 219.86 for the week. Shares closed just below the 21-day moving average after nearly touching the 10-week line. The relative strength line, which tracks a stock’s performance vs. the S&P 500 index, is at 2024 highs.
It’ll be interesting to see how AAPL stock reacts to Warren Buffett slashing his stake in the iPhone giant.
Meta stock popped 4.8% to 488.14 for the week, but closed below its 50-day line after initially spiking Thursday on earnings.
Neurocrine stock popped 4.3% to 153.14 for the week, rebounding off the 10-week line and then gapping up 8.2% Thursday on earnings, into a buy zone, according to MarketSurge analysis. Shares held their ground on Friday.
Ollie’s stock tumbled Friday morning, but pared losses after testing its 50-day and 10-week lines. Shares edged up 0.4% to 96.41 for the week. Ollie’s is below its 21-day line and more before being potentially actionable. A new base would be nice.
MercadoLibre stock rallied 7.5% to 1,776.14 for the week, rebounding off its 40-week line and retaking its 50-day. Friday’s 10.6% spike on blowout earnings pushed MELI stock above a trendline entry as well as 1,764.50 early entry. The Latin American e-commerce and payments giant has an official cup-with-handle buy point of 1,792.05. Keep in mind that it’s common for stocks to pop on earnings in a bad market, but then fall back.
What To Do Now?
The stock market rally suffered serious damage this past week. The key indexes all look damaged. Breakouts and setups are failing or under heavy pressure.
Investors should have been reducing exposure, especially late in the week, especially if they were making buys on Wednesday.
The market fear gauge suggests we could be “due” for 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 by a strong market open or even a good day or two. The indexes and leading stocks need repair work, aside from some names in defensive sectors or defensive growth sectors.
Spend some time reworking watchlists, which may be pared down after the past few days.
Nvidia stock is on Leaderboard. MercadoLibre is on the flagship IBD 50 list.
Read The Big Picture every day to stay in sync with the market direction and leading stocks and sectors.
Please follow Ed Carson on Threads at @edcarson1971 and X/Twitter at @IBD_ECarson for stock market updates and more.
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