Dow Jones futures fell slightly after hours, along with S&P 500 futures and Nasdaq futures. Tesla (TSLA) declined solidly late Wednesday as earnings fell solidly on big price cuts, with gross margins and free cash flow tumbling far more than expected.
XLam Research (LRCX) and Las Vegas Sands (LVS) also reported Wednesday night, with LRCX rising slightly and LVS stock signaling a breakout. Taiwan Semiconductor (TSM), D.R. Horton (DHI) and several financials are due early Thursday.
The stock market rally remained quiet on the surface Wednesday with the major indexes narrowly mixed. That's despite hardware tech stocks slumping on IT spending concerns while Netflix (NFLX) retreated on disappointing subscriber growth.
Megacap techs held up well. Apple (AAPL) rose 0.7% to 167.63, hitting an eight-month high. Apple stock cleared a three-weeks-tight entry of 166.94. Microsoft (MSFT) added a few cents, still in a buy zone and Google parent Alphabet (GOOGL) edged lower, just below a buy point. Amazon.com (AMZN) rose nearly 2% to a two-month high, but still below the 200-day line. Meta Platforms (META) fell 1%, but still near 11-month highs.
META stock is on IBD Leaderboard and SwingTrader. MSFT stock is on IBD Long-Term Leaders. LRCX stock is on the IBD Big Cap 20.
Dow Jones Futures Today
Dow Jones futures fell 0.1% vs. fair value. S&P 500 futures dipped 0.2% and Nasdaq 100 futures slipped 0.3%. Tesla stock is a major S&P 500 and Nasdaq 100 component.
Remember that overnight action in Dow futures and elsewhere doesn't necessarily translate into actual trading in the next regular stock market session.
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Tesla Earnings
Tesla earnings fell 21% vs. a year earlier, in line with views. Revenue climbed 24% to $23.31, just below FactSet views for $23.73 billion. That was down sequentially from Q4's $24.3 billion.
Major price cuts boosted demand, but at the expense of earnings and profit margins.
Gross margins tumbled to 19.3% vs. 23.8% in Q4 and 29.1% a year earlier. Auto gross margins excluding regulatory credits and leases skidded to 18.3% from 23.8% in Q4.
Tesla had said 20% would be a "floor" for auto gross margins excluding credits and leasing.
Free cash flow tumbled 80% vs. a year earlier to $441 million vs. expectations for about $2.3 billion. Tesla had negative cash flow excluding $467 million in auto regulatory credits.
Continued price cuts will likely keep pressuring gross margins going forward.
Tesla cut prices in the U.S. for the second time this month late Tuesday. Model Y prices were cut by $3,000, starting at $46,990. The base Model 3 price was cut by $2,000, to $39,990. Most Model 3 and Y variants are eligible for $7,500 in tax credits, but starting April 18 the base-model Model 3 only gets $3,750.
Tesla also has cut prices in Europe and some other key markets in April.
On the Tesla earnings call, investors will be looking for guidance on price cuts, deliveries and price going forward.
Tesla CEO Elon Musk on the earnings call that it's better to ship a lot of cars at a lower margin, then reap higher margins when Tesla achieves full sell-driving. Musk said he expects Tesla to achieve full autonomy in 2023. He's forecast full autonomy for several years.
Musk also said there will be a Cybertruck event in the third quarter. It's unclear when Cybertruck mass production will start.
Tesla bulls also have high hopes for the company's energy storage business. Energy generation and storage revenue leapt 148% to $1.53 billion in Q1.
Tesla Stock
TSLA stock tumbled 6% in extended trade. Shares fell 2% to 180.59 on Wednesday, trading below the 50-day moving average. Tesla stock has a 207.89 buy point from a cup-with-handle base that formed just below the 200-day moving average. Investors might prefer to use a decisive break of the 200-day line, currently around 213, as a TSLA stock entry. A third possible buy point for Tesla stock would be a strong move above the 50-day line.
Other Earnings
LRCX stock reversed slightly higher in late trade. Lam Research earnings beat fiscal Q2 views but the chip-gear giant guided low on Q3. Shares edged down 0.9% to 491.02 on Wednesday. LRCX stock has a 548.95 flat-base buy point.
LVS stock rose solidly overnight to about 62 after Las Vegas Sands earnings topped views, kicking off results for Macau-focused casinos. Shares edged up 2 cents to 59.36 on Wednesday. Las Vegas Sands stock has a 60.40 buy point from a cup-with-handle base, MarketSmith analysis shows.
TSM stock fell 1% to 87.23 on Wednesday ahead of Thursday results. A big question is whether Taiwan Semi slashes capital spending plans. TSM stock has a 99.09 buy point in a consolidation with possible early entries, but needs to get above its 50-day line.
DHI stock dipped 0.3% to 101.86 on Wednesday but is still up nearly 4% for the week, holding in a buy zone above a 99.09 cup-with-handle entry. D.R. Horton earnings are expected to tumble 52%.
Stock Market Rally Wednesday
The stock market rally opened lower and steadily improved to narrowly mixed on the major indexes
The Dow Jones Industrial Average fell 0.2% in Wednesday's stock market trading. The S&P 500 index dipped less than 1 point. The Nasdaq composite rose a fraction. The small-cap Russell 2000 edged up 0.1%.
U.S. crude oil prices fell 2.1% to $79.16 a barrel.
The 10-year Treasury yield rose 3 basis points to 3.6%. U.K. inflation cooled slightly in March, but only to 10.1% vs views. for a sub-10% reading. Markets are close to locking in a quarter-point Fed rate hike on May 3, with a decent chance of another move in late June. That partly reflects bank fears easing.
ETFs
Among growth ETFs, the Innovator IBD 50 ETF (FFTY) fell 1.2%, while the Innovator IBD Breakout Opportunities ETF (BOUT) slid 0.7%. The iShares Expanded Tech-Software Sector ETF (IGV) declined 0.25%, with MSFT stock a major holding. The VanEck Vectors Semiconductor ETF (SMH) gave up nearly 1%. TSM stock and Lam Research are big SMH components.
Reflecting more-speculative story stocks, ARK Innovation ETF (ARKK) dipped 0.1% and ARK Genomics ETF (ARKG) rose 1.2%. Tesla stock is the top holding across Ark Invest's ETFs.
SPDR S&P Metals & Mining ETF (XME) retreated 1.4% and the Global X U.S. Infrastructure Development ETF (PAVE) dipped 0.4%. U.S. Global Jets ETF (JETS) ascended 1.6%. SPDR S&P Homebuilders ETF (XHB) added 0.3%. The Energy Select SPDR ETF (XLE) declined 0.35% and the Health Care Select Sector SPDR Fund (XLV) gained 0.3%.
The Financial Select SPDR ETF (XLF) edged up 0.2%. The SPDR S&P Regional Banking ETF (KRE) jumped 3.9% on some solid earnings reports.
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Market Rally Analysis
The stock market rally continue to hold in a recent range but not far from 2023 highs. The major indexes continue to trade tightly, but with a glacial upside trend.
Losers slightly outpaced winners on the NYSE and Nasdaq. Market breadth has improved over the past couple of weeks, but it's not great. New highs edged past new lows on Wednesday, but have lagged generally, especially on the Nasdaq.
Many growth stocks struggled, with hardware tech plays hit on demand concerns. Tech provider CDW (CDW) warned of weak IT spending. Chip-gear giant ASML (ASML) beat Q1 views, but cited customer concerns. Extreme Networks (EXTR) plunged, hitting other networking plays, on an analyst downgrade related to IT spending. Storage firms also struggled.
Chipmakers are struggling, with SMH testing its 50-day line again as ASML weighed on the sector. That's even with Nvidia (NVDA) holding up.
Medical products continued to lead Wednesday. Intuitive Surgical (ISRG) blasted out of a base on earnings. Edwards Lifesciences (EW) broke out of a bottoming base while Dexcom (DXCM) also flashed early entries. But both have earnings next week.
Homebuilders and related stocks remain strong, with mostly inside moves. D.R. Horton earnings will be a heat check for the sector.
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What To Do Now
The market rally is moving sideways. Not many stocks are flashing buy signals, and some of those quickly slash gains or even reverse lower. So investors should be cautious about adding new buys right now, and ready to cut losses.
Earnings season adds uncertainty to the market, various sectors and individual stocks. Amazon, Google, Microsoft and Meta Platforms all report next week, with Apple the following week. Hundreds of other companies will be reporting as well.
So stay engaged and flexible.
If the market rally ramps up, both on the major indexes and leading stocks, buying opportunities should be numerous, and more likely to stick. That's the time to be picking up exposure. Right now is the time to be preparing, building your watchlists, looking for setups across sectors.
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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