Dow Jones futures fell modestly Tuesday morning, along with S&P 500 futures and Nasdaq futures, after Asian markets sold off on the spread of China's coronavirus and a Hong Kong downgrade.
XMeanwhile, the next big scheduled test for the fast-running stock market rally is earnings season, with Netflix stock due Tuesday night and Texas Instruments stock late Wednesday.
The stock market rally has run on optimism for stronger growth in 2020 from Apple (AAPL), FANG stocks Facebook (FB), Amazon.com (AMZN), Netflix (NFLX) and Google-parent Alphabet (GOOGL) and a broad chip industry recovery.
Netflix (NFLX) reports fourth-quarter results Tuesday, showing the impact of the new from Disney (DIS) streaming service Disney+ and, to a lesser extent, Apple service Apple+. Texas Instruments (TXN) also are Tuesday night, with chip names Intel (INTC), ASML (ASML), Teradyne (TER), STMicroelectronics (STM) and Skyworks Solutions (SWKS) later in the week.
Netflix stock is on the IBD 50 list. Apple and Disney stock are on IBD Leaderboard.
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Earnings and guidance will be a catalyst for growth stocks and the broader stock market rally. With investors expecting good news, will the stock market rally on positive results? On the flip side, anything less than stellar results could stall or sink the major indexes.
Dow Jones Futures Today
Dow Jones futures fell 0.3% vs. fair value. S&P 500 futures slid 0.45\% and Nasdaq 100 futures retreated 0.5%. Remember that overnight action in Dow futures and elsewhere doesn't necessarily translate into actual trading in the next regular stock market session.
Asian markets fell Tuesday after a mixed Monday. Hong Kong's Hang Seng tumbled 2.8%, after Moody's downgraded its credit rating as months of protests take their toll. The Shanghai composite sank 1.4%. Coronavirus cases are picking up, with growing evidence of human-to-human infection. That's just ahead of the Lunar New Year holiday, when tens of millions of people travel from the cities to their families in China's interior.
China and China-tied stocks retreated Tuesday, notably Macau-centric casino giants.
Early Tuesday, TAL Education (TAL) reported mixed in-line earnings and weak revenue guidance. Fellow Chinese for-profit school operator New Oriental Education & Technology (EDU) reported accelerating earnings and revenue growth early Monday, easily beating fiscal Q2 views. But both stocks sold off early Tuesday, perhaps in part due to concerns about the coronavirus outbreak.
Dow Jones futures trimmed losses slightly after President Donald Trump spoke before the World Economic Forum in Davos, Switzerland. Trump said America is booming thanks to his policies and didn't signal plans for new trade fights.
Earlier, President Trump and France's Emmanuel Macron agreed on a trade truce through year-end, with France delaying a 3% tax of digital services revenue. Trump had threatened 100% tariffs on $2.4 billion worth of French goods over the digital tax, which would have hit U.S. tech giants Apple, Facebook, Google and Amazon in particular.
Current Stock Market Rally
The current stock market rally rumbled higher last week. The Dow Jones Industrial Average rose 1.8%, the S&P 500 index 2% and the Nasdaq composite 2.3%. All hit record highs. Apple stock rose 2.7% last week, fueling all the major indexes. It's up 8.5% so far this month. Google stock leapt 3.5% last week and 10.5% in 2020, pushing Alphabet above a $1 trillion market cap, joining Dow Jones giants Apple stock and Microsoft (MSFT).
Among the best ETFs, the Innovator IBD 50 ETF (FFTY) rallied 1.8% last week. The iShares Expanded Tech-Software Sector ETF (IGV) popped 2.5%. The VanEck Vectors Semiconductor ETF (SMH) advanced 2.1%.
Instead of pulling back in 2020, the stock market rally has been rising at a slightly steeper ascent, moving above trading channels. The Dow Jones today is now 3.9% above its 50-day moving average, while the S&P 500 index is 4.2% above that key level and the Nasdaq composite 6.8%. The big-cap Nasdaq 100 is 7.1% above its 50-day line, the most since March. At that distance, the odds are high for a pullback or pause for the stock market rally. The risks are rising that the pullback will be larger, given the distance to the 50-day (and even shorter moving averages).
But the stock market rally so far has kept pushing higher. Investors should take part, but be ready to move quickly.
Netflix Earnings
Netflix earnings are expected to jump 70% to 51 cents a share with revenue up 30% to $5.44 billion. Analysts expect Netflix subscriber growth of 7.6 million, including 600,000 in the U.S. and seven million overseas.
Netflix stock plunged after posting a surprise drop in U.S. subscribers in Q3. But Q4 is the first quarter of Netflix competition vs. Disney's Disney+, which launched Nov. 12 to strong demand. Apple+ debuted with far less buzz on Nov. 1, but is one more new offering that Netflix must compete with for viewers' wallets and eyeballs.
Netflix stock closed Friday at 339.67, continuing to hover around a 338.10 buy point from a cup-with-handle base. The relative strength line for Netflix stock is still well off consolidation or all-time highs.
Disney stock is working in a flat base, according to Marketsmith analysis, but is hitting resistance just below its 50-day line. Apple stock is at record highs.
NBCUniversal Comcast (CMCSA), which is launching its Peacock streaming service this spring, reports later Thursday. Comcast stock moved into a buy zone Friday.
Texas Instruments Earnings
Texas Instruments earnings also late Wednesday. Analysts expect Texas Instruments earnings to fall 21% to $1.05 a share with sales down 14% to $3.21 billion. That would be the third straight quarter of declining Texas Instruments earnings with sales falling for a fifth quarter.
Texas Instruments stock closed at 131.70, just above a cup-with-handle base buy point of 129.27.
Other Chip Earnings
Intel stock is in a buy zone, but like Texas Instruments hasn't been leading the chips or broader market. Chip-equipment plays ASML stock and Teradyne stock have been winners for several months, along with chipmaker STM stock as well as Apple and 5G chipmaker Skyworks stock. ASML and Teradyne earnings are due Wednesday, with Intel, STMicroelectronics and Skyworks earnings Thursday.
With these reports, investors will have a good idea of how healthy the market-leading chip sector is at the start of 2020.
Earnings — even if generally upbeat —could be the catalyst for a stock market pause or pullback or some sort of sector rotation. But strong results and 2020 forecasts could keep the stock market rally melting higher. Last week, Target (TGT) tumbled on weak holiday sales. But the stock market rally had a big week on on strong bank earnings, upbeat chip and 5G guidance from Taiwan Semiconductor (TSM) and analysts pounding the table for Apple stock and the FANG stocks.
Please follow Ed Carson on Twitter via @IBD_ECarson for stock market updates and more.
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