Overnight, Dow Jones futures experienced a slight increase, along with S&P 500 and Nasdaq futures, as investors prepared for the Federal Reserve’s favored inflation report. The futures market‘s modest gains come amid a mixed performance in stock markets, highlighted by recent earnings reports from AppFolio (APPF) and Dexcom (DXCM).
Market Rally Shows Mixed Performance Post-Sell-Off
Following Wednesday’s sharp sell-off, the stock market displayed varied movements. The Dow Jones Industrial Average gained solidly, and the small-cap Russell 2000 surged. However, the Nasdaq and S&P 500 saw reversals from earlier highs, ending the session lower.
ServiceNow and Nvidia: Key Earnings Highlights
ServiceNow (NOW) showcased a significant breakout on strong earnings, providing a positive signal for the software sector. Nvidia (NVDA), while recovering from major losses, faced ongoing concerns about AI spending fatigue, as voiced by the CEOs of Meta Platforms (META) and Alphabet (GOOGL).
OpenAI, supported by Microsoft (MSFT), launched a new AI-powered search engine, SearchGPT, which impacted Google’s stock performance.
IBM (IBM), TechnipFMC (FTI), RTX (RTX), Nasdaq (NDAQ), and Morningstar (MORN) were among the stocks hitting buy points on earnings.
Futures and Earnings Update
Dow Jones futures were up by 0.4% compared to fair value, with S&P 500 futures gaining 0.4% and Nasdaq 100 futures climbing 0.5%. It is important to note that overnight futures movements do not always predict actual trading outcomes in the following regular session.
AppFolio and Dexcom Earnings
AppFolio reported earnings that modestly exceeded expectations. Despite this, APPF stock remained relatively stable in after-hours trading. On Thursday, APPF saw an almost 1% increase to 259.07, staging an upside reversal and surpassing a key buy point of 256.73.
Dexcom, despite beating Q2 EPS estimates, fell short on revenue and significantly cut its full-year guidance. As a result, DXCM stock plunged 37% overnight, reaching its lowest point in over two years.
Texas Roadhouse (TXRH) surpassed earnings forecasts with robust same-restaurant sales, leading to a solid after-hours rise and bringing TXRH stock closer to the 50-day moving average.
Upcoming PCE Inflation Report
The PCE price index for June is expected to be released at 8:30 a.m. ET. Economists anticipate a 0.1% rise for both the overall index and the core PCE price index, the Fed’s preferred inflation measure. Year-over-year, the PCE inflation rate and core PCE inflation rate are predicted to decrease from 2.6% in May to 2.5%.
However, the Q2 GDP report indicated that the core PCE price index rose at a 2.9% annualized pace, surpassing expectations of 2.7%.
Stock Market Rally and Sector Performance
The stock market saw a rebound on Thursday, particularly from the morning lows. The Dow Jones Industrial Average climbed 0.2%, moving above the 21-day moving average and the 40,000 level. Conversely, the S&P 500 dropped 0.5%, encountering resistance near its 50-day moving average, while the Nasdaq composite fell 0.9% with significant intraday volatility.
The Russell 2000, representing small caps, advanced 1.3%, though it closed below its peak. Software stocks, notably driven by ServiceNow, and other sectors such as homebuilders and financials showed strong performances. In contrast, gold, silver, and cryptocurrency investments struggled.
U.S. crude oil prices increased by 0.9% to $78.28 per barrel. The 10-year Treasury yield decreased by three basis points to 4.255%, despite stronger-than-expected GDP growth and inflation data.
ETFs and Sector Performance
Among growth ETFs, the Innovator IBD 50 ETF (FFTY) fell 1.3%, while the iShares Expanded Tech-Software Sector ETF (IGV) rose 0.95%, driven by major holdings in Microsoft and ServiceNow. The VanEck Vectors Semiconductor ETF (SMH) declined 1.8%, influenced by Nvidia’s stock performance.
More speculative ETFs, such as the ARK Innovation ETF (ARKK) and ARK Genomics ETF (ARKG), saw rebounds of 1.1% and 2.95%, respectively. Other ETFs, including the SPDR S&P Metals & Mining ETF (XME), Global X U.S. Infrastructure Development ETF (PAVE), U.S. Global Jets ETF (JETS), and SPDR S&P Homebuilders ETF (XHB), showed gains.
Nvidia Stock and AI Spending Concerns
Nvidia’s stock experienced significant fluctuations, diving 7% intraday before recovering slightly to close down 1.7%. The stock is down 4.8% for the week, partly due to concerns about AI spending fatigue. Both Meta CEO Mark Zuckerberg and Alphabet CEO Sundar Pichai indicated that excessive investment in AI could be a risk, though they emphasized that underinvestment poses a greater threat.
Google’s Q2 report highlighted its continued strong AI spending, while Meta Platforms, Microsoft, Amazon.com, and Apple are expected to report next week, with their AI investments and monetization strategies being closely watched.
ServiceNow Stock Performance
ServiceNow’s stock surged 13.4% to 828.79, breaking out from a five-month base with significant volume. The stock cleared a buy point of 806.52 and demonstrated a robust performance following a previous dip. ServiceNow’s earnings exceeded expectations, with the company raising its full-year subscription revenue guidance, indicating strong prospects for business software makers.
Market Outlook
The market’s rebound on Thursday was a welcome relief after previous losses. While several stocks showed bullish signals, the rally could be short-lived given upcoming economic news and a wave of earnings reports. Investors are advised to proceed cautiously with new purchases and stay engaged with market trends.
Nvidia and ServiceNow remain on IBD Leaderboard, with ServiceNow also featured on SwingTrader. Microsoft is listed on IBD Long-Term Leaders, while AppFolio is included in the IBD 50.
Related topics:
How To Trade Single Stock Futures?