Dow Jones Futures: Market Rally Gaining Momentum, But Still Missing; Tesla tops earnings drivers

Dow Jones futures fell slightly overnight, as did S&P 500 and Nasdaq futures, with Tesla earnings leading the way. The stock market rally accelerated on Wednesday, led by technology and small caps.


But while the indices are showing strength, bottom fishing continues to lead the overall advance. There remains a relative lack of buying opportunities at this time.

You’re here (TSLA) headlined major earnings overnight, with leading EPS but thin margins. Tesla stock rose slightly in active trading overnight.

steel dynamics (STLD) and Alcoa (AA) kicked off metals and mining profits, with the steelmaker Nucor (NUE) and copper giant Freeport-McMoRan (FCX) expected early Thursday. United Airlines (UAL) hit the ground with results after the close with American airlines (AAL) due before Thursday’s opening. CSX (CSX) led Railroads earnings, with Union Pacific (UNP) early Thursday.

Alcoa’s earnings and revenue topped sights, with the aluminum giant announcing a $500 million takeover. AA stock surged overnight.

Steel Dynamics’ profits and sales have peaked. STLD stock rose slightly after initially jumping overnight.

United Airlines revenue is well below views, although revenue is in line. UAL stock fell sharply in extended action, while AAL stock fell slightly.

CSX stock rose solidly, signaling a move above its 50-day downline, on strong second-quarter results.

From CSX stocks to Tesla stocks, none of these stocks are close to buying points. But they do provide some indication of the sector’s strength in a difficult economic environment.

Meanwhile, health insurers struggled on Wednesday after Elevance Health (ELV), formerly Anthem, warned of high medical costs. UnitedHealth (UNH), another such health insurer, is listed on the IBD Leaderboard and the IBD 50.

Dow Jones Futures Today

Dow Jones futures fell 0.1% from fair value. S&P 500 futures also fell 0.1%. Nasdaq 100 futures lost 0.2%. Tesla stock is a major component of the Nasdaq while UAL stock is also in the Nasdaq 100.

Remember that overnight action on futures contracts on Dow Jones and elsewhere does not necessarily translate into actual trading in the next regular trading session.

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Stock market rally

The stock market rally extended the gains, although they were heavily tilted towards technology and small caps.

The Dow Jones Industrial Average edged up 0.15% in trading on Wednesday. The S&P 500 index climbed 0.6%. The Nasdaq composite and the small-cap Russell 2000 jumped 1.6%.

U.S. crude oil prices in August fell 1.9% to $102.26 a barrel. September crude, now the new month-one contract, fell 0.9% to $99.88 a barrel.

U.S. natural gas prices jumped 10.2% amid renewed concerns that Russian gas supplies may not return to normal, boosting demand for U.S. liquefied natural gas. Energy Cheniere (LNG) and Flexible LNG (FLNG) both made bullish moves.

The 10-year Treasury yield rose 2 basis points to 3.04%.

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Among the top ETFs, the Innovator IBD 50 (FFTY) ETF edged up 0.2% as a number of medical stocks weighed on the FFTY. The Innovator IBD Breakout Opportunities ETF (BOUT) fell 0.3%. The iShares Expanded Tech-Software Sector ETF (IGV) jumped 3.35%. ETF VanEck Vectors Semiconductor (SMH) jumped 2.35%.

Reflecting more speculative stocks, ARK Innovation ETF (ARKK) jumped 5.1% and ARK Genomics ETF (ARKG) 3.1%. TSLA stock is a major holding in Ark Invest ETFs.

SPDR S&P Metals & Mining ETF (XME) edged up 0.25%, with NUE stocks, Steel Dynamics, Alcoa and Freeport-McMoRan all notable components. The Global X US Infrastructure Development ETF (PAVE) rose 1%. The US Global Jets (JETS) ETF rose 0.5%, with UAL and American Airlines shares significant. The SPDR S&P Homebuilders ETF (XHB) advanced 0.55%. ETF Energy Select SPDR (XLE) rose 1% and ETF Financial Select SPDR (XLF) rose 0.4%. The SPDR health care sector fund (XLV) fell 1%.

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Tesla Earnings

Tesla’s earnings beat adjusted views in a second quarter marred by the long Shanghai factory shutdown and slow ramp-up due to Covid lockdowns. Earnings rose 57% from a year earlier to $2.27 per share. Revenue soared 42% to $16.93 billion.

Both were significantly below first-quarter levels. However, analysts expected Tesla to earn $1.81 per share on sales of $16.539 billion.

The automotive gross margin fell to 27.9% from 32.9% in the first quarter and 28.4% a year earlier.

Regulatory credits, which are essentially pure earnings, fell to $344 million from $679 million in the first quarter and $354 million in the second quarter of 2021.

Tesla’s spending on research and development fell to $667 million from $865 million in the first quarter, but up from $576 million a year earlier. As a share of revenue, R&D continued to fall to just 3.9% in Q2.

Tesla sold 75% of its Bitcoin, a move that helped the electric vehicle maker be cash flow positive in the quarter. CEO Elon Musk, on the earnings call, said Tesla still owns Dogecoin. Musk has long touted his own Dogecoin holdings, but never said Tesla owned any of the cryptocurrency.

Tesla production is expected to rise after the sequential decline in the second quarter, especially as capacity-enhancing production pauses end in Shanghai and Berlin. Industry-wide production of automobiles and electric vehicles is also expected to resume as chip shortages and other supply chain issues ease.

Tesla said it still expects 50% annual vehicle growth over a multi-year period, but the earnings release did not say what deliveries might be in 2022.

Musk has said the Cybertruck will be released in mid-2023, but timelines for that vehicle and several others have slipped multiple times.

The 4680 battery, still in pilot production, doesn’t seem likely to go into mass production this year. Musk noted ongoing technical challenges, including the dry cathode issue.

Tesla Stock

Tesla stock rose more than 1% overnight after initially rising 4% after the close and briefly turning negative.

TSLA stock edged up 0.8% to 742.50 in Wednesday’s regular session, slightly above its 50- and 21-day moving averages. Shares have hit higher lows since late May. But Tesla stock is a far cry from November’s high of 1,243.49.

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Elevance does not elevate health insurers

Health insurers struggled. Elevance Health beat second-quarter views but warned that medical costs would remain high in the second half of 2022, especially for commercial customers. ELV stock, which lagged some of its peers, plunged 7.6%, dipping below its 50-day line and closing just above its 200-day line.

UNH stock fell 2.6% but closed just above a buy point made last Friday on UnitedHealth earnings. Cigna (CI) fell 2.9%, undercutting its entry, although it rebounded near its 50-day line.

Hundreds (CNC) and humane (HUM) has fallen slightly, but is comfortably within the buy range.

Medical stocks in general struggled on Wednesday.

Market rally analysis

The stock market rally continued to gather momentum. After resuming their 50-day moving averages on Tuesday, the Nasdaq, Russell 2000 and S&P 500 decisively breached their late-June highs on Wednesday morning, while the Dow Jones also breached its June highs.

But the indices pulled back from the session highs, whether on European concerns, other news or no news at all. The Nasdaq and small caps retained much of their significant morning moves. The S&P 500 pared modest gains around its June highs. The Dow Jones retreated, but still held above its 50-day line.

Meanwhile, the market’s rally faces several other hurdles, with the Nasdaq not far off its peak in early June.

Beat names have led the charge in recent days, so there aren’t many good setups and stocks that have given out buy signals in the past couple of days. Medical stocks that retreated on Wednesday did not help.

Market ETFs or sector ETFs, such as software and biotechnology, in many cases look better than individual names. They also offer ways to gain exposure to hard-hit growth names without making a specific bet.

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What to do now

The stock market rally clearly shows its strength. Investors should seek to take advantage of this by increasing their exposure.

One concern is that the market is hitting a wave of earnings and the Federal Reserve meeting next week. Investors must choose between increasing exposure now ahead of big market news or letting buying opportunities slip away.

The lack of buying opportunities at the moment, perhaps a blessing in disguise, is another reason to cautiously increase exposure.

Be prepared to cut aggressively if the market reverses again.

Keep working on the watchlists. Focus on actionable games or stock set up near buy points.

Read The Big Picture every day to stay in tune with market direction and top stocks and sectors.

Please follow Ed Carson on Twitter at @IBD_ECarson for stock market updates and more.


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