Dow Jones Futures: Market Rally Sets Sights on 2023 Highs with First Republic, Fed, and Earnings in the Spotlight

Market Rally Aims for 2023 Highs; First Republic, Fed, and Earnings Are In Focus

Along with the S&P 500 futures and Nasdaq futures, Dow Jones futures were skewed lower on Sunday night. First Republic Bank's future is still unknown as regulators continue to negotiate with potential buyers, including JPMorgan Chase.
Last week's stock market rally experienced a sharp decline, but it quickly recovered to close with significant gains, a shakeout that might pave the way for a more robust advance.  It has been widely reported that JPMorgan Chase (JPM) and PNC Financial Services (PNC) are the two bidders for First Republic Bank (FRC), and a deal might be reached tonight.

On Tuesday, the major indices fell as First Republic Bank rekindled concerns about the banking sector. The major indices, however, regained support and recovered. At first, large-cap companies like Meta Platforms (META) and Microsoft

Dow Jones Futures: Market Rally Eyes 2023 Highs; First Republic, Fed, Earnings In Focus

Dow Jones futures tilted lower Sunday night, along with S&P 500 futures and Nasdaq futures. The fate of First Republic Bank remains unclear as regulators continue talks with bidders including JPMorgan Chase.
The stock market rally fell sharply last week, but rebounded to close with solid gains, a shakeout that could set the stage for a stronger advance.  JPMorgan Chase (JPM) and PNC Financial Services (PNC) are widely reported as bidders for First Republic Bank (FRC), with a possible deal tonight.
The major indexes tumbled on Tuesday as First Republic Bank revived banking fears. But the major indexes found support and rebounded. Initially, megacaps such as Meta Platforms (META) and Microsoft (MSFT) led the comeback, but breadth improved late in the week, especially Friday.
The market rally is looking healthier, but remains "under pressure."  Investors still need to see a little more market strength and a lot more buying opportunities.
Earnings season remains heavy this coming week, with Advanced Micro Devices (AMD) out late Tuesday and Apple (AAPL) due on Thursday. Another Fed rate hike is on tap Wednesday, along with major economic data in the coming week. A big question is whether Fed chief Jerome Powell signals that the central bank will pause rate hikes.
Dow Jones futures lost a fraction vs. fair value. S&P 500 futures and Nasdaq 100 futures edged lower.

Crude oil futures declined slightly.

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

Hong Kong and many markets around the world will be closed for May 1 Labor Day holidays, including much of Europe.

META stock is on IBD Leaderboard, with DXCM stock an earnings options play. MSFT stock is on IBD Long-Term Leaders. ANET stock is on the IBD 50. AMD, Arista Networks and DXCM stock are on the IBD Big Cap 20. Arista Networks was Friday's IBD Stock Of The Day

The video embedded in the article discussed a big market week and analyzed AMD stock, InMode (INMD) and Dexcom.

First Republic Fate Unclear
JPMorgan Chase, PNC Financial and Citizens Financial Group (CFG) have submitted bids for all or part of First Republic following a government seizure, according to multiple reports. The FDIC had asked for final bids by Sunday.

Any purchase would likely following the FDIC taking First Republic under receivership, at least momentarily, and possibly shouldering at least some losses.

JPMorgan would need a regulatory waiver to buy First Republic. JPMorgan already controls at least 10% of U.S. deposits.

But, so far, nothing has been announced, with talks ongoing Sunday night.

How will First Republic shares react if there is no deal by Monday's open. FRC stock had plunged 34% in heavy after-hours trading Friday, on reports that the FDIC would take the California-based bank under receivership.

First Republic stock crashed 75% last week to fresh record lows, fueled by a massive Q1 deposit outflow. Despite efforts to engineer a quasi-rescue by big banks, expectations of an FDIC takeover grew during the week.

An FDIC takeover almost certainly would protect all First Republic Bank deposits. But FRC stock investors might end up with nothing.

While regional banks tumbled Tuesday, they pared weekly losses significantly. First Republic's deposit exodus was in a class of its own.

Federal Reserve data Friday evening showed bank deposits and loans both rose in the latest week, signaling no credit crunch so far.

A swift resolution of First Republic situation could restore confidence in the banking sector and buoy market sentiment — if there are no more shoes to drop.

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Monday Earnings, Sales
Meanwhile, EV-focused chipmaker On Semiconductor (ON) will report before Monday's open. ON stock fell solidly this past week along with other EV-exposed chipmakers amid concerns about EV demand.

China EV startups Li Auto (LI), Nio (NIO) and XPeng (XPEV) will report April deliveries early Monday. Weekly data show strong sales for Li Auto, while Nio and Xpeng struggle.

China EV and battery giant BYD (BYDDF) will release April sales data early in the week. The Tesla (TSLA) rival reported strong Q1 earnings on Thursday.

Tesla doesn't break out China sales, but weekly data so far show a solid start to local sales there. But there are reports that Tesla Shanghai has closed for five days around the Labor Day holidays there. Tesla also reportedly has begun offering some modest discounts on some Model 3 and Y inventory vehicles in Europe.

BYD stock is in range from an early entry. LI stock is trying to regain key levels. XPeng and Nio stock face significant hurdles. Tesla stock is below all its moving averages.

Also, Arista Networks (ANET) is on tap to report first-quarter earnings Monday night. ANET stock, a big supplier for Meta Platforms and Microsoft, found support at its 50-day line this past week.

Join IBD experts as they analyze actionable stocks in the stock market rally on IBD Live

Stock Market Rally
The stock market rally looked ugly on Tuesday but bounced back for gains on the major indexes.

The Dow Jones Industrial Average rose 0.9% in last week's stock market trading. The S&P 500 index also climbed 0.9%. The Nasdaq composite bounced 1.3%. The small-cap Russell 2000 fell 1.3%

The 10-year Treasury yield fell 12 basis points during the week to 3.45%.

U.S. crude oil futures fell 1.1% to $76.78 a barrel in the past week, even with Friday's 2.7% bounce. Gasoline futures dipped 0.9% for the week, but 9.1% in the past two weeks.

ETFs
Among growth ETFs, the Innovator IBD 50 ETF (FFTY) sank 3.6% last week, with several components suffering huge earnings losses. The Innovator IBD Breakout Opportunities ETF (BOUT) edged up 0.3%. The iShares Expanded Tech-Software Sector ETF (IGV) sank 1.45%, with Microsoft a big IGV component. The VanEck Vectors Semiconductor ETF (SMH) dipped 0.4%. AMD stock is a major SMH holding with ON stock also in the ETF.

Reflecting more-speculative story stocks, ARK Innovation ETF (ARKK) slumped 4.5% last week and ARK Genomics ETF (ARKG) 5.3%. Tesla stock is the No. 1 holding across Ark Invest's ETFs, with Cathie Wood adding more TSLA shares in the past few weeks. Ark also owns a small BYD stock stake.

SPDR S&P Metals & Mining ETF (XME) retreated 1.6% last week. The Global X U.S. Infrastructure Development ETF (PAVE) finished just above break-even. U.S. Global Jets ETF (JETS) descended 1%, but came well off lows. SPDR S&P Homebuilders ETF (XHB) popped 2.2%. The Energy Select SPDR ETF (XLE) edged up fractionally. The Health Care Select Sector SPDR Fund (XLV) slipped 0.6%, but rebounded from lows. DXCM stock is an XLV component.

The Financial Select SPDR ETF (XLF) dipped 0.15%, but rebounded to close just below its 50-day. The SPDR S&P Regional Banking ETF (KRE) fell 0.6%, but slashed losses after hitting its worst levels since late 2020. FRC stock is a KRE holding.

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Market Rally Analysis
The stock market rally had a wild week, with the major indexes testing support but ultimately closing with solid gains.

The Nasdaq came down to its 50-day line on Tuesday, as First Republic spooked investors once again. The S&P 500 and Dow Jones are near that level, undercutting their 21-day lines by midweek.

Worse, the First Trust Nasdaq-100 Equal Weighted Index ETF (QQEW) and Invesco S&P 500 Equal Weight ETF (RSP) tumbled below their 50-day lines on Tuesday. The latter also skidded below its 200-day as these ETFs kept falling Wednesday, even as Microsoft boosted the Nasdaq.

Meta stock and other tech titans fueled a strong gain Thursday. QQEW and RSP lagged QQQ and SPY, respectively, but still did well. On Friday, the indexes rose modestly, with RSP outperforming, roaring back above its 50-day line.

The Nasdaq didn't quite get above the April 18 intraday high, but did have its best close since September. The S&P 500 and Dow Jones topped their April peaks with all the major indexes near 2023 highs.

The SMH chip ETF, which tumbled to its worst levels since mid-March, slashed weekly losses but was still below the 50-day line. A few names, such as Lam Research (LRCX) and AMD stock, are setting up near entries. But many chip plays had nasty sell-offs, including some huge earnings drops.

Massive earnings losses among leading stocks have been all-too common in recent days. Market leadership remains narrow. Not many stocks are flashing buy signals or are on the cusp of doing so. Several of those have earnings on tap, including AMD, Floor & Decor (FND), InMode (INMD) and ANET stock.

Apple stock looks extended on a daily chart, but on a weekly chart, investors could view it as just above a buy point from a long cup-with-handle or double-bottom base. The handle also shows up as a three-weeks-tight pattern, according to MarketSmith analysis.

After the past week's shakeout the market rally could be poised for a stronger advance. If the major indexes break to 2023 highs with any sort of breadth, the market rally may have some room to run with major earnings and the Fed meeting in the rear view mirror. But stocks could hit resistance yet again in the coming days.

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What To Do Now
The stock market rally has been difficult to navigate.

Investors likely cut exposure in the past week as many stocks erased gains or flashed sell signals. Despite the major indexes closing higher, there weren't many opportunities to beef up positions. That's OK. If the market rally really strengthens, those chances will come. If the indexes whipsaw with weak breadth, you'll be glad you're mostly in cash.

Add exposure gradually as conditions improve. Be mindful of earnings reports.

While the end-of-week rebound didn't trigger a lot of breakouts and early entries, many stocks did start to move into position. So have your watchlists ready.

Many leading stocks, including some big winners from earlier in the year, flashed sell signals in the past week or so

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.