Dow Jones futures were slightly higher Monday morning, along with S&P 500 futures and Nasdaq futures. The stock market correction deepened last week on China trade war concerns, with the Nasdaq composite undercutting recent lows. But the software sector is holding up well. This week five top software stocks report earnings: Workday stock, Veeva Systems (VEEV), Palo Alto Networks (PANW), Zscaler (ZS) and Okta (OKTA).
XWorkday (WDAY), Veeva stock and Zscaler stock all boast best-possible IBD Composite Ratings of 99. Palo Alto stock has a 98 Composite Rating. Okta stock is a 92. Workday stock, Veeva stock and Palo Alto Networks are also on the IBD 50.
Software is the No. 1 stock market sector, up 30.4% so far this year.
In other news, Fiat Chrysler (FCAU) proposed a merger with France's Renault Monday, creating the world's No. 3 automaker. A Fiat Chrysler-Renault deal could bolster the existing Renault-Nissan-Mitsubishi alliance. Shares of Fiat Chrysler and Renault soared in Europe.
Meanwhile, populists did well in European parliamentary elections, but below some forecasts. Pro-EU parties also had a strong showing.
Dow Jones Futures Today
Dow Jones futures rose 0.25% vs. fair value. S&P 500 futures climbed 0.2%. Nasdaq 100 futures were up 0.1%.
Keep in mind that overnight action in Dow futures and elsewhere doesn't necessarily translate into actual trading in the next regular stock market trading session. Heading into Friday, Dow Jones futures signaled a solid gain. While the major averages opened with solid-to-strong gains, the market rally fizzled, closing with slim gains.
The U.S. stock market is closed Monday for Memorial Day, but exchanges around the world were open. Asian markets were mixed Monday, but the Shanghai composite rallied 1.4%. European markets were modestly higher intraday.
Current Stock Market Correction
The current stock market correction deepened last week. While higher China tariffs, a Huawei ban and Trump tweets triggered the stock market correction, trade headlines were relatively quiet last week. Instead, investors began to expect a long China trade war.
The Dow Jones fell 0.7%, holding above its recent lows but testing its 200-day moving average once again. The S&P 500 index retreated 1.2%, also staying above recent lows. The Nasdaq composite skidded 2.3%, dropping below its prior May 13 low.
As a result, a Nasdaq rally attempt ended on Thursday, with Friday's slim gain marking the first day of a new stock market rally attempt for the tech-heavy index. The Dow Jones and S&P 500 index are nine days into their stock market rally attempts.
Among the best ETFs, the Innovator IBD 50 ETF (FFTY) slid 1.9% last week. The iShares Expanded Tech-Software Sector ETF (IGV) fell 2.1%. The VanEck Vectors Semiconductor ETF (SMH) tumbled 5.6% last week and 14.4% so far in May.
While the stock market correction deepened, the indexes' drop so far is mild compared to the late 2018 stock market correction. Growth stocks, especially software names, are holding up reasonably well. Typically growth stocks will fall harder than the general market in a stock market correction or other pullback.
Workday Earnings
Workday earnings are due late Tuesday. Analysts expect Workday earnings to rise 24% to 41 cents a share, with revenue up 32% to $814 million. The human capital management software maker has been expanding into financial management software.
Workday stock closed Friday at 210.72, just extended from a 200.10 flat base as part of a base-on-base pattern. The relative strength line, which tracks a stock's performance vs. the S&P 500 index, is at a record high. The RS line is the blue line in the charts below.
Veeva Earnings
Veeva earnings are due late Wednesday. Analysts forecast Veeva earnings to climb 36% to 45 cents a share with revenue rising 22% to $239 million.
Veeva stock fell 1.7% last week to 139.39, not far from its 143.90 peak on May 16. Shares of the life sciences software maker have not traded below their 50-day line since Jan 4. Veeva stock's RS line is just below record highs.
Palo Alto Earnings
Palo Alto earnings for the fiscal Q3 are also late Wednesday. Wall street sees Palo Alto earnings per share up 26% to $1.25 with revenue increasing 24% to $704 million.
Unlike the other software names reporting earnings this week, Palo Alto stock has not held up especially well during the stock market correction. Shares of the cybersecurity firm fell 4.2% last week to 216.20, their lowest level since Feb. 1. Palo Alto stock hit a record 260.63 on Feb. 27. Shares are trading just above the 200-day line.
The RS line for Palo Alto stock is at a 4-month low.
Zscaler
Zscaler earnings for fiscal Q3 are out late Thursday. Analysts are looking for Zscaler earnings of 1 cent a share vs. a 2-cent loss a year earlier. Revenue should soar 52% to $75 million.
Zscaler stock fell 6.4% last week to 73.76, though that's after rising 7.1% in the prior week to a record high. Zscaler stock is back in buy range from a short consolidation's entry of 73.04 cleared earlier this month.
The RS line pulled back this week but has risen sharply in 2019.
Zscaler stock is on IBD Leaderboard.
Okta Earnings
The Okta earnings report also comes in late Thursday. Analysts expect the ID management specialist to widen its per-share loss to 21 cents from 9 cents. Revenue should climb 40% to $117 million.
Okta stock fell 1.2% to 109.63 last week after the prior week's record 111.65. Shares are well extended from an early April breakout. The RS line is at record highs.
It's risky to buy or hold any stock into earnings, unless you already have a large cushion or use an earnings options strategy. That's true even in a strong stock market rally. The current stock market correction, especially with sentiment swinging on China trade war news, only raises those risks.
Those topics and more are discussed in IBD's latest free webinar, Navigating Earnings Season, with Marketsmith Director Irusha Pereis and myself.
Please follow Ed Carson on Twitter at @IBD_ECarson for stock market updates and more.
YOU ALSO MIGHT LIKE:
Trump 'Not Ready' For China Trade Deal: Futures
5 Top Stocks With Rising Profit Estimates, Bullish Charts
Want To Get Quick Profits And Avoid Big Losses? Try SwingTrader
Best Growth Stocks To Buy And Watch: See Updates To IBD Stock Lists
