Dow Jones futures fell slightly early Friday morning, along with S&P 500 futures and Nasdaq futures, after President-elect Joe Biden unveiled his $1.9 trillion stimulus plan Thursday night. JPMorgan Chase (JPM), Citigroup (C) and Wells Fargo (WFC) report earnings early Friday.
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The stock market rally suffered modest losses on the major indexes Thursday, reversing from solid morning gains as giants such as Apple (AAPL), Microsoft (MSFT) and Visa stock weighed. That overshadowed another strong day for small caps, Taiwan Semiconductor (TSM) leading a big chip rally, and breakouts from the likes of Qualcomm stock and IPOs such as Airbnb (ABNB).
In recent days it’s been a K-shaped stock market rally, much like the K-shaped economic recovery. In the K-shaped market rally, some sectors are doing very well, such as cyclicals, banks, chips and IPOs, but other areas are running cool, notably tech titans such as Apple stock, Microsoft, Amazon.com (AMZN) and Facebook (FB). So while the major indexes point to a steady stock market rally, that masks big differences underneath.
On Thursday, Qualcomm (QCOM) cleared a buy point, closing below that key level but still actionable. Inspire Medical Systems (INSP) broke out, along with new IPOs Yatsen (YSG), ContextLogic (WISH) and Airbnb stock.
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Bank Stocks
JPMorgan stock edged up 0.6% to 141.17 on Thursday, closing just below a 141.20 buy point from a yearlong cup base, fueled by stimulus and vaccination hopes, along with widening Treasury yield spreads. Citigroup and Wells Fargo stock have been racing higher as well to their best levels in months.
Chip Stocks Strong
Taiwan Semiconductor triggered a big chip rally on Thursday. Taiwan Semiconductor earnings beat while sales came in light, but revenue guidance was strong. TSM stock surged 6.1%, hitting a new high.
TSM makes chips for Apple, Advanced Micro Devices (AMD), Nvidia (NVDA), Qualcomm and more. The world’s largest chip foundry also gave a strong capital spending forecast, good news for semiconductor equipment makers. ASML (ASML), Lam Research (LRCX), Applied Materials (AMAT) and KLA Corp. (KLAC) were big winners Thursday.
Tech Titans Slumber
On the downside, tech titans continue to sit out. Apple stock has held up better than most, but still isn’t leading. Microsoft, Amazon, Facebook (FB), Salesforce.com (CRM), Adobe (ADBE) and ServiceNow (NOW) are all below their 50-day lines, with FB stock dropping below its 200-day line Thursday. Many of these are software names, which have been mixed at best in recent weeks.
Card giants Visa (V) and Mastercard (MA), which have been market laggards for months, sold off below their 50-day lines on Thursday.
Biden Stimulus Plan
President-elect Joe Biden officially unveiled his $1.9 trillion stimulus plan in a primetime speech, but the broad outline was released after Thursday’s stock market close.
The Biden stimulus plan proposes $1,400 direct checks to Americans, on top of the $600 checks going out from the just-passed $900 billion stimulus. He also wants to increase extra jobless benefits and extend that through September. He would have hefty funds for state and local governments as well as schools. He also budgets $50 billion for Covid testing and $20 billion to speed coronavirus vaccine rollouts. He also wants to make the Child Tax Credit fully refundable for 2021 and increase the per-child credit to $3,000 per child, or $3,600 for children under age 6. The Biden stimulus plan also would extend an eviction and foreclosure moratorium and set a $15 minimum wage nationwide.
Democrats control the House and Senate, but with razor-thin majorities. Kamala Harris, as vice president, will hold the tiebreaker in the Senate. So the Biden stimulus plan may go through significant changes before legislation reaches his desk.
Biden will seek to achieve bipartisan support for his stimulus plan. But a Senate impeachment trial of Donald Trump could distract senators and inflame already-high partisanships.
After the stimulus plan, Biden intends to unveil a broader big-spending agenda, including infrastructure and green energy, later this year. He also backs significant hikes on corporations and capital gains.
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Key Stocks on IBD Lists
Apple, Microsoft, AMD, Adobe, NOW and TSM stock are on IBD Leaderboard. Apple stock is on SwingTrader. Microsoft, Adobe, Salesforce, Mastercard and ServiceNow stock are IBD Long-Term Leaders. TSM, LRCX, AMAT, AMD and Nvidia stock are on the IBD 50.
JPMorgan stock, Apple, Microsoft and Visa are on the Dow Jones Industrial Average.
Dow Jones Futures Today
Dow Jones futures fell 0.4% vs. fair value. S&P 500 futures retreated 0.4%. Nasdaq 100 futures lost 0.3%.
Dow Jones futures fell after Biden’s Thursday night speech, though the stimulus plan was already broadly understood.
SAP (SAP) guided higher on Q4 revenue and gave an upbeat 2021 outlook. The German software giant crashed in late October on weak guidance. SAP stock rose slightly early Friday.
Wedbush’s Dan Ives raised his Tesla (TSLA) price target from 715 to 950, touting strong EV sales overall and hopes for green energy policies under President Biden. He also hiked his bull case target to $1,250 from $1,000.
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 actionable stocks in the stock market rally on IBD Live.
Coronavirus News
Coronavirus cases worldwide reached 93.62 million. Covid-19 deaths topped two million.
Coronavirus cases in the U.S. have hit 23.84 million, with deaths above 397,000.
Stock Market Rally
The stock market rally had a promising open but faded in the afternoon, closing near session lows.
The Dow Jones Industrial Average lost 0.2% in Thursday’s stock market trading. The S&P 500 index fell 0.3%. The Nasdaq composite dipped 0.1%. The QQQ ETF, which tracks the big-cap Nasdaq 100, retreated 0.5%. The small-cap Russell 2000 jumped 2% to a fresh high.
Apple stock fell 1.5% to 128.91, back to its 21-day exponential moving average again. AAPL stock has a 138.89 cup-with-handle buy point. Meanwhile, CRM stock, Microsoft, Amazon and ServiceNow all lost more than 1%. Adobe sank nearly 2% and Facebook stock shed more than 2%.
At this point, investors should likely wait for these lagging tech stocks to show clear strength before jumping in. Apple stock is the only one that appears to be close.
Growth stocks generally fared well.
Among the best ETFs, the Innovator IBD 50 ETF (FFTY) rose 1.6%, buoyed by chip names. The Innovator IBD Breakout Opportunities ETF (BOUT) gained 1.7%. The iShares Expanded Tech-Software Sector ETF (IGV) sank 0.5%, with Microsoft, Adobe, Salesforce and ServiceNow all major components.
The VanEck Vectors Semiconductor ETF (SMH) jumped 2.5%. TSM stock is the biggest component in SMH, with Intel (INTC), Qualcomm, Lam Research,, Applied Materials, and ASML as key holdings. Those easily offset modestly losses by AMD and Nvidia.
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Breakouts
Qualcomm stock rose 2.2% to 160.85 on Thursday. QCOM stock cleared a 161.17 buy point from a flat base. intraday, but couldn’t quite close above it. Shares are still actionable from the 10-week line, while also moving above last week’s high, so it’s actionable now.
Inspire Medical stock rallied 5.3% to 211.47. INSP stock ran past a 204.82 flat-base entry.
Airbnb stock jumped 6.2% to 180.50, rising to a record 187.42 intraday. ABNB stock is in range from a 175.07 buy point from an IPO base. But it seems extended after surging so much in recent days.
ContextLogic stock leapt 18% to 28.13. WISH stock raced past a 24.85 IPO-base entry and the 5% buy zone, according to a MarketSmith analysis.
Yatsen stock spiked 13% to 21.35. YSG stock rallied to just above a 21.10 buy point from an IPO base. Yatsen, a Chinese maker of beauty products, also has had a huge run in a few days.
K-Shaped Stock Market Rally
Can this K-shaped stock market rally continue for much longer, with leading stocks sprinting and tech giants sitting out? At some point the leaders, especially some of the highflying IPOs, will slow down, but that doesn’t have to happen quickly. Alternatively, if the stock market rally generally remains bullish, can Apple and its Big Tech brethren sit out indefinitely? If Apple, Microsoft and Amazon gain momentum, the major indexes could look extended in a hurry.
The Nasdaq composite is now just 5.8% above its 50-day line, continuing to retreat from the 8% level on Jan. 8 that raised concerns. The Nasdaq 100, as seen by the QQQ, is 4.2% above its 50-day line.
In this hot or cold market rally, watch out for specific sectors turning cold as hot money shifts to the latest shiny objects.
Many software names — not all — are struggling right now despite the generally strong growth rally. In addition to Facebook, Twitter (TWTR) has sold off in the wake of political headwinds, with even Snap (SNAP) and Pinterest (PINS) coming under pressure in the past couple sessions.
Earnings season, which picks up with JPMorgan and banks on Friday, intensifies over the next several weeks. That could be the catalyst for individual stocks, sectors and the overall market direction.
So far in 2021, the stock market rally has trended higher, with many stocks offering big gains. But pay close attention to the broader market and the leading stocks, especially your holdings. Be ready to take profits surgically or generally.
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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