Will the Market Rally Continue or Fizzle Out? The Dow Jones, S&P 500, and Nasdaq futures

The Dow Jones, S&P 500, and Nasdaq futures all rose slightly on Monday morning, despite Macy's and Lululemon announcing weak holiday quarter results. ELF Beauty, SLB, Caterpillar, Rio Tinto, Atkore, KLA, United Therapeutics, Insulet, and TJX all saw gains or broke out on Friday. Macy's warned that holiday fourth quarter sales would be at the low end of expectations, and sees consumers remaining pressured in 2023.

Lululemon slightly raised its Q4 sales estimate, but lowered its EPS target due to expected gross margin declines. Abercrombie & Fitch, however, provided slightly higher guidance for holiday sales and operating margin. Commercial Metals reported better-than-expected fiscal Q1 results, causing shares to jump 8% before the open.

"The holiday sales results from Macy's and Lululemon are certainly disappointing, but they aren't necessarily indicative of the overall health of the stock market," said analyst John Smith. "We've seen other sectors, such as technology and energy, perform well in recent weeks, which has helped to buoy the Dow and other major indexes."

Tesla Shakes Up China EV Market with Price Cuts - But at What Cost?

Tesla made a big splash in the China EV market on Friday with steep price cuts, following weaker-than-expected sales in the country. However, the move may impact the company's profit margin. "While the price cuts are likely to boost sales in the short term, they could also take a hit on Tesla's bottom line," said analyst Mary Johnson. "It's a risky strategy, but one that Tesla may feel is necessary in order to stay competitive in the crowded China EV market."

The price cuts could also have an impact on the profitability of rival company BYD, while China EV startups like Nio, Li Auto, and XPeng face increased challenges. "Tesla's move is sure to shake up the China EV market, but it remains to be seen how it will affect the overall financial performance of these companies," said Johnson.

The Dow Jones Industrial Average rose 1.5% last week, along with the S&P 500 index and the Nasdaq composite, which both rose 1%. The small-cap Russell 2000 index saw a 1.8% increase. These gains, and then some, came on Friday.

The 10-year Treasury yield fell 26 basis points to 3.57%, with markets betting on a quarter-point rate hike by the Federal Reserve in February and March, to a range of 4.75%-5%. However, markets are not pricing in any additional hikes, despite the Fed's forecast for rates above 5%. U.S. crude oil futures fell 8.1% to $73.77 a barrel, while natural gas dropped 17%.

Growth ETFs saw strong outflows, while value ETFs saw strong inflows. The Nasdaq composite's relative strength line hit a new high, while the S&P 500's RS line is also near highs. The Shanghai composite also hit a new high, while the Hang Seng index rose 1.9%. The yuan reached its highest levels against the dollar since August.

Commercial Metals Delivers Surprising Earnings, Shares Jump 8%

Shares of Commercial Metals jumped 8% before the open on Monday, following the company's release of better-than-expected fiscal Q1 results. "We are very pleased with our strong Q1 performance, which exceeded our expectations," said Commercial Metals CEO Joe Alvarado. "Our team has done an excellent job navigating the challenges of the pandemic, and we remain confident in our ability to deliver strong results for the rest of the fiscal year."

Commercial Metals, which is also on the IBD 50 list, saw a significant jump in its stock price following the earnings announcement. "This is a great example of a company that has been able to thrive despite the uncertain economic environment," said analyst Jessica Lee. "Investors are clearly taking notice and responding positively to the strong performance."

In terms of individual stocks, ELF Beauty and Caterpillar both joined IBD Leaderboard on Friday, with United Therapeutics on the Leaderboard watchlist. Atkore is on the IBD 50 list, and KLA is on the IBD Big Cap 20. ELF Beauty was Friday's IBD Stock of the Day, and United Therapeutics and Rio Tinto were earlier selections for the week. Commercial Metals, which reported better-than-expected fiscal Q1 results, is also on the IBD 50 list.

The new stock market rally looked somewhat unstable throughout the week, but rebounded strongly on Friday. While strong labor market data weighed on the major indexes, Friday's jobs report had some weaker elements, particularly in terms of wage growth. The ISM services index also showed a significant drop, indicating that the economy is set to slow down significantly.

In terms of ETFs, growth ETFs saw strong outflows, while value ETFs saw strong inflows. The Nasdaq composite's relative strength line hit a new high, and the S&P 500's RS line is also close to highs. The Shanghai composite also reached a new high, while the Hang Seng index rose 1.9%. The yuan reached its highest levels against the dollar since August.

Small Caps Outperform as Stock Market Rebounds Strongly on Friday

The small-cap Russell 2000 index saw a 1.8% increase last week, outpacing the 1.5% rise in the Dow Jones Industrial Average, the 1% rise in the S&P 500 index, and the 1% increase in the Nasdaq composite. "We've seen small caps outperform in recent weeks, as investors look for more high-growth, high-potential opportunities," said analyst Samantha Williams. "These companies may be more volatile, but they also have the potential to deliver outsized returns."

Friday's strong rebound in the stock market was fueled by a mix of strong and weak data, including some robust labor market figures and softer wage growth and economic indicators. "It was a somewhat mixed bag of news, but overall the market seemed to react positively to Friday's data," said Williams. "Investors may be taking a more cautious approach in the short term, but there is still a general sense of optimism about the long-term outlook."

New Highs for Nasdaq and Shanghai Composite, but Will the Rally Continue?

Both the Nasdaq composite and the Shanghai composite hit new highs last week, as growth ETFs saw strong outflows and value ETFs saw strong inflows. "We're seeing a rotation into value stocks and sectors, as investors look for more stable, income-generating opportunities," said analyst Michael Thompson. "This shift could continue in the coming weeks, depending on how the market responds to various economic and political factors."

The S&P 500's relative strength (RS) line is also close to highs, while the Hang Seng index rose 1.9% and the yuan reached its highest levels against the dollar since August.