Dow Jones futures and S&P 500 futures fell slightly Thursday night, while Nasdaq futures edged lower. Walt Disney and Cisco Systems headlined after-hours earnings.
After rotating out of stay-at-home plays and techs to start the week and then back out of “real economy” names, the stock market rally shifted out of equities generally.
In the current environment, one broad sector seems like a relative safe haven: U.S.-listed China stocks.
The coronavirus is no longer a significant factor for the Chinese e-commerce and other internets such as Pinduoduo (PDD), JD.com (JD) and Tencent (TCEHY) — but not Alibaba (BABA). Chinese EV stocks such as Nio (NIO), Xpeng (XPEV) and Li Auto (LI) are going vertical even as Tesla stock hits resistance at its 50-day line. Futu Holdings (FUTU) and GDS Holdings (GDS), which have earnings next week along with Nio stock and JD.com, also are doing well.
Early Friday, Li Auto stock and smaller China e-commerce play Vipshop (VIPS) report earnings.
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Cisco, Disney Earnings
Late Thursday, Dow Jones stocks Disney (DIS) and Cisco Systems (CSCO) reported earnings, along with chip-gear giant Applied Materials (AMAT) and fashion e-commerce platform Farfetch (FTCH). New IPOs Palantir (PLTR) and Unity Software (U) also reported earnings.
Disney stock jumped on a smaller-than-expected loss and Disney+ reaching 73.7 million subscribers. Cisco stock jumped on better-than-expected results and guidance, a positive sign for enterprise IT spending. Applied Materials earnings and sales topped, sending AMAT stock modestly higher, back into a buy zone. Red-hot Farfetch stock surged on booming growth. Unity Software fell modestly despite strong growth and guidance. Palantir stock erased initial after-hours losses and turned higher
But one of the biggest after-hours movers was Li Auto stock, extending its already-huge Thursday gains ahead of its own earnings report.
The current coronavirus news headlines — Covid vaccines on the way while new cases surge to record highs — make it hard to decide which stocks and sectors will lead. The near-term future looks bleak for “real economy” companies as coronavirus cases and lockdowns chill the global economy. But stay-at-home plays face an uncertain future after coronavirus vaccinations end the pandemic.
Tesla, JD.com, Pinduoduo and Palantir stock are all on IBD Leaderboard. Alibaba stock is an IBD Long-Term Leader. Alibaba, Futu and Applied Materials stock are on the IBD 50.
Dow Jones Futures Today
Dow Jones futures fell 0.3% vs. fair value, even with Disney and Cisco stock giving a lift. S&P 500 futures sank 0.2%. Nasdaq 100 futures lost a fraction.
Remember that overnight action in Dow futures and elsewhere doesn’t necessarily translate into actual trading in the next regular stock market session.
Join IBD experts as they analyze actionable stocks in the stock market rally on IBD Live.
Coronavirus cases worldwide reached 53.07 million. Covid-19 deaths topped 1.29 million.
Coronavirus cases in the U.S. have hit 10.87 million, with deaths above 248,000.
U.S. Covid cases topped 100,000 for a ninth straight day on Thursday, already a new daily record above 160,000. California coronavirus cases now total over one million, joining Texas.
Coronavirus cases are likely to keep rising in the coming weeks, with temperatures falling and Thanksgiving and other holidays approaching. That will overload hospitals in many areas.
So far, cities and states aren’t reimposing sweeping partial lockdowns like many European countries. But there are steps in that direction. New York is shutting restaurants, bars and gyms at 10 p.m.
Meanwhile, in the next couple of weeks Moderna (MRNA) will likely provide interim efficacy for its coronavirus vaccine candidate, while Pfizer (PFE) and its partner BioNTech (BNTX) could file for FDA emergency approval for their coronavirus vaccine. A few others could reach the FDA in the next few months, with mass vaccinations taking off in early 2021.
Stock Market Rally
U.S. Stock Market Today Overview
Last Update: 4:08 PM ET 11/12/2020
The stock market rally suffered a broad sell-off Thursday. The Dow Jones Industrial Average retreated 1.1% in Thursday’s stock market trading. The S&P 500 index lost 1%. The Nasdaq composite reversed morning gains to close down 0.65%.
In addition to coronavirus headlines, a stimulus deal seems far off, with House Speaker Nancy Pelosi still wanting a big relief package of $2 trillion or more while Senate Majority Leader Mitch McConnell favors a much-smaller spending bill.
While travel, bank and energy sectors led Thursday’s losses, growth stocks also retreated.
Among the best ETFs, the Innovator IBD 50 ETF (FFTY) sank 0.6%. The iShares Expanded Tech-Software Sector ETF (IGV) dipped 0.2%. The VanEck Vectors Semiconductor ETF (SMH) fell 1.1%. The SMH ETF rose overnight on Applied Materials and other chip-equipment stocks rising.
One notable exception: KraneShares CSI China Internet ETF (KWEB) rallied 1.7%. Alibaba is the ETF’s main component, but JD.com and big winner PDD stock also are key holdings.
With multiple coronavirus vaccines likely to win approval in the next couple months, there’s a case to be made that stay-at-home plays such as Zoom Video (ZM), Peloton (PTON), Shopify (SHOP) and even Amazon.com (AMZN) may see weaker growth down the road.
But with coronavirus cases and hospitalizations skyrocketing and European countries on partial lockdowns, it’s hard to feel confident about buying “real economy” names as well.
China Safe Haven?
The idea that China stocks are a safe haven is perhaps itself a warning. Investors have several reasons to be wary of Chinese stocks at all times, though they offer tremendous gains as well.
Accounting woes are still a concern. Regulators can decide to crack down on a company or sector. Draft rules to clip monopolistic behavior by big internets hit Alibaba, JD and Tencent to start the week, with BABA stock continuing to struggle. That came a week after regulators suspended the Ant Group IPO, with Alibaba holding a one-third stake.
JD stock and Tencent — which owns a big JD stake — are arguably in buy zones, though there are some possible issues with both charts. Vipshop stock moved toward a buy point heading into earnings. PDD stock is far extended after its 20% spike on earnings. Alibaba stock looks damaged.
China EV Stocks
Chinese electric-car makers face a more welcoming regulatory environment and are all growing fast from low levels. But Nio, Xpeng and Li Auto stock are going vertical, far beyond any conceivable buy point, with valuations that make Tesla stock look cheap. Xpeng stock spiked 33% on its first-ever earnings report. Li Auto soared 27% and Nio 12%. All three hit record highs, heading for yet another big weekly gain. All three stocks were active overnight, with Li stock up more than 10% before Friday morning earnings. Nio stock is on tap next week.
In contrast, Tesla stock fell 1.3%, continuing to find resistance at the 50-day moving average, which is flattening out. Shares are down 4.2% for the week, not terrible for growth stocks. But TSLA stock is slowly retreating while China EV rivals like Li Auto skyrocket.
The EV startups face tougher competition ahead from one another and Tesla, with Volkswagen (VWAGY) and several other traditional automakers about to flood the China market in 2021.
If and when China electric-car stocks stall or reverse for an extended period, will investors rush back into Tesla stock. Or will the electric-car giant sell off with its China rivals?
Meanwhile, Hong Kong brokerage Futu Holdings is near a buy point while data-center operator GDS is just in buy range. Both report earnings next week.
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What To Do Now
Since the coronavirus stock market rally peaked in early September, the major indexes and leading stocks have faced several downtrends and a couple of uptrends, but nothing lasting for long.
The big, easy money is made during strong stock market rallies that last several months. Choppy markets are among the worst for growth investors. On good days, you’ll be tempted to make new buys, but they’re at risks of going south quickly.
If you’ve got a big winner, such as Farfetch or Nio, there’s no need to take any action. But you may be selling other stocks as they slash gains or extend losses. With fewer good-looking setups after the recent whipsaw market action, that should reduce your exposure by attrition.
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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